Understanding Change

Linda Holbeche

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781136351945
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Change is now so commonplace that people no longer talk in terms of the "whitewater epoch". Every sector of the economies of the developed world has experienced huge swathes of change in the last decade of the twentieth century alone. Increased global competition, aided and abetted by technological advances, has led many organizations to seek to re-invent themselves in the hope of being able to survive and thrive. In mature sectors in particular, where the pace of consolidation is accelerating, organizations have had little option but to grow through acquisition or be absorbed. Whether the change is labelled "continuous process improvement", "restructuring", "downsizing" or re-engineering", to employees, change usually brings with it added pressures, job insecurity and a consequent loss of commitment to the organization. Understanding Change: theory, implementation and success argues that strategic change in the new millennium will be geared increasingly to achieving sustainable high performance, rather than just short-term gains. Most theorists now agree that the real challenge of change lies in gaining employees" willingness to commit to the change effort. Change leaders at every level need to be able to understand the elements at work in any change process, and to use judgement about the style of leadership required to give the change effort the best chance of success. Understanding Change: theory, implementation and success provides an overview of change and organizational theory, leading in particular to the author"s definition of the "input" elements of the high performance organisation, based on extensive research into UK and international organisations. It also contains a section looking at the management of change, with case studies illustrating approaches to managing change which are conducive to achieving sustainable high performance. In her companion book, The High Performance Organization- creating dynamic stability, the author explores some of the "how to"s" of building an organizational culture which is supportive of high performance in today"s challenging environment.

Part One: The Changing Context and the Impact of Change

DOI: 10.4324/9780080481500-1

1 Introduction: beyond ‘white water’

DOI: 10.4324/9780080481500-2

No longer able to forecast the future, many leading organizations are constructing arks comprised of their inherent capacity to adapt to unforeseen situations, to learn from their experiences, to shift their shared mindsets, and to change more quickly, broadly and deeply than ever before.

(Rowden, 2001)

Whatever their sector, today's organizations are operating in a fast-changing marketplace. Change is everywhere. Global competition, rapid technological advances and more demanding consumers are putting pressure on organizations in every sector to provide high quality products and services. Given the extent of price competition and ever-increasing standards, companies can no longer compete just on quality. Status quo is rarely an option. Innovative, tailored solutions delivered in a timely, inexpensive way are the minimum demands of today's consumer. Added value – the magic ingredient – is what differentiates the best supplier from the rest.

In this opening section of the book we will look at some of the major contextual drivers for change. In this chapter I argue that change is inevitable. Furthermore, since change is an inexorable part of organizational life, the notion that we will emerge from the ‘white water epoch’ into a period of relative calm and stability may be wishful thinking. What remains a matter of choice is how organizations bring about change.

The need for ongoing transformation and learning

The rules of the game for organizations in every sector are changing and changing rapidly. If not ‘revolution’, the pace of change suggests that rapid evolution is under way. And change is likely to continue apace as organizations attempt to move into the new economy while maintaining their conventional products and markets. The capability unleashed by technology for new forms of working, such as sun-time working and teleworking, is fuelled by, and fuelling, increasing consumer demands for cheaper, better, faster and round-the-clock availability of products and services. The reality of customer choice is causing organizations to have to keep on reinventing themselves, making the notion of ‘change as exception’ outdated. Since change is now the norm, we should perhaps instead be thinking of how to manage ‘dynamic stability’, according to Abrahamson (2000).

We have yet to see the full impact of some of the shifts in the global marketplace on the nature and form of organizations, though we are already seeing the growth of a networked economy. We do not yet fully know how broadband and other technological developments will transform the way business will be conducted, what ‘work’ will look like and what customers will expect in the future. However, there are enough tell-tale signs of some fundamental shifts taking place to suggest that the route maps to success from the past may no longer fully apply. That does not mean that everything we have learned becomes invalid, but that, as Senge (1996) and others have suggested, the rate of learning needs to keep pace with, or outpace the speed of change, if we are to stand a chance of shaping our destinies, individually and collectively.

Speed

Organizations have to run fast just to stand still. Speed is paramount in product development to cut down lead times to market, and keep a step ahead of the competition, as was predicted by Eisenhardt more than two decades ago: ‘In high velocity industries with short product cycles and rapidly shifting competitive landscapes, the ability to engage in rapid and relentless continuous change is a crucial capability for survival’ (Eisenhardt, 1989). The ability to change fast in order to keep abreast or ahead of the competition is therefore a critical organizational capability. Indeed, an inability to change fast enough can do more than destroy a firm's competitive advantage. It can put it out of business. Various studies have estimated the average life span of a company today as between 12 and 20 years. Even industries with traditionally long product development cycles, such as pharmaceuticals, are cutting lead times to get products to market faster, given the international challenges to lengthy patents.

Moreover, rapid product development must be matched by ever more cost-effective means of production. Today's consumer does not expect to have to pay more for improved products and services – just the opposite. Look at what has happened to the airline giants as the ‘no-frills’ airlines have proved that business success can be achieved by driving down costs to consumers, going for volume and at the same time trimming costs internally. In response to these competitive pressures, organizations have reached for the glossary of change management, aided in many cases by management consultants and gurus. While the terms used may have varied – ‘continuous process improvement’, ‘outsourcing’, ‘offshoring’, ‘restructuring’, ‘downsizing’ or ‘re-engineering’ to name but a few – to many employees, they have all come to mean ‘major change’.

The prevalence of change

The widespread nature of change is reflected in Roffey Park's annual cross-sector workplace survey, The Management Agenda. In the surveys between 2001 and 2005, over 90 per cent of respondents indicated that their organization had undergone some form of change programme, largely involving restructuring, in the previous two years. This level of change is hardly surprising, given the speed of globalization, the massive shifts taking place within the business environment, the impact of new technologies and the development of the e-economy, which will be explored in the following chapter.

Types of change: transactional, incremental, radical, transformational

Organizational change is a term used to describe widely divergent processes that have different levels of impact on employees. Marketplace demands for low cost, high quality goods and services mean that ongoing change – introduced to improve the existing organization, its operations and its outputs – is required just to keep pace with the changing context. This is the process described by Bartunek and Moch (1987) as ‘first order’ or transactional change. When first order change occurs, interventions usually focus on formal structures, systems, work processes or work group relations. These are the ongoing modifications to a company's operations through, for instance, the introduction of total quality management processes, new equipment or the development of new products and services. This relatively low-level change represents ‘noise’ within the system and is the stuff of day-to-day management.

In the Roffey Park surveys, organizations were typically focusing their efforts on their core business, working within ever-tighter cost controls and a third were making people redundant. The use of technology in particular has brought with it the demand for new skills, methods and working hours. Typical changes of this sort reported in The Management Agenda include the introduction of new IT systems, outsourcing, the introduction of flexible working and the use of contractors, call centres and virtual teams. The impact of change may be limited to the group of employees involved in the process, or it may extend to the whole organization if the company brand requires that employees reflect certain attitudes and cultural attributes of the brand.

Variance or incremental change may be major, highly significant change, but it is gradual. Things do not go back to how they were before. While repetitive and incremental change may provoke employee resistance, it tends to be discontinuous change which provokes fear. Sudden change, often significant – almost a quantum leap – may require rapid and fundamental shifts in behaviour. If unpredicted, change can lead to shock and paralysis. Often what an organization experiences as shock, was in fact predictable. Sometimes an organization generates the shock itself by its failure to recognize or deal with variance.

Radical change occurs at pivotal moments for organizations, such as when organizations reach a crisis point, leading to major downsizings or restructurings, or when an organization goes on a growth curve, transforming itself through strategic acquisitions and mergers for example. Most organizations experience radical change at some point in their life cycle. The start-up phase of an organization for example can be very turbulent and unsettling, but tends to be accompanied by excitement and a high degree of involvement from people affected by the change. As the organization grows and establishes routines, radical change can occur as a major new form of leadership is introduced and there is a conscious attempt to develop a new culture. Similarly, when an organization is in maturity, radical initiatives can form part of renewal attempts. In decline, an organization may find itself the object of takeover attempts which, if successful, may seem very radical to employees of the acquired company. Perhaps the most radical change occurs when an organization goes out of business and is wound up.

If an organization loses touch with its shifting marketplace, more fundamental, ‘transformational’ change may be needed for survival. Market giants such as British Airways have learned to their cost in recent years the price of being big and slow to respond to changing marketplace demands. Indeed, today's organizations are more likely than not to find change imposed upon them by situational pressures. Change efforts geared to transformation are usually aimed at helping an organization regain strategic alignment with its environment (which may entail creating a new business altogether). When alterations to the basic framework are required, ‘second order’ change is required which can challenge the basic assumptions underpinning the organization.

Low success rates of change efforts

Change management is ‘the process of renewing the organization's direction, structure and capabilities to serve the ever-changing needs of the marketplace, customers and employees’ (Moran and Brightman, 2001). Few would argue that managing change is easy and successful change outcomes remain as elusive as ever. Indeed, despite, or perhaps because of, the sheer volume of change activity undertaken by organizations in recent years, the sad fact of the matter is that most change efforts, whether downsizing, installing new technology, transforming processes or restructuring, have low success rates. Mergers, for example, still largely fail to realize their potential.

Indeed, management literature is thick with examples of failed change efforts. Less successful or unsuccessful change efforts produce at best standard financial performance. Even very successful companies struggle to recoup the cost of initiating change and, according to Beer and Nohria (2000), seven out of ten change efforts that are critical to organizational success fail to achieve their intended results. Only 38 per cent of respondents to Roffey Park's Management Agenda (Holbeche and McCartney, 2004) reported that change had led to their organization achieving high performance.

One of the most famous studies, carried out in the 1980s by Peters and Waterman, was an extension of a McKinsey project that had identified the characteristics of 43 so-called ‘excellent’ companies from the Fortune top 500 companies. The top 43 had consistently beaten their competitors over 20 years using a range of financial yardsticks. Five years after the book In Search Of Excellence (1982) was published, while companies like Mars, Johnson & Johnson and McDonald's had maintained their excellent position, two-thirds of the 43 companies had slipped in the rankings and were struggling to varying degrees. Peters and Waterman concluded that nothing stays the same long enough in today's changing environment to have the basis of sustainability.

Worse still, management literature is peppered with examples of rock-solid organizations whose fortunes have floundered. The Dun and Bradstreet organization maintains a record of corporate failure. They note that an overwhelming majority of businesses fail within five years and estimates suggest that 70–80 per cent of major reorganizations fail within ten years. In some cases, organizations transform and renew themselves. In other cases, firms collapse. Once powerful corporations, including high street giants such as Marks & Spencer, have been forced to transform themselves out of all recognition in order to survive and thrive again. Others, such as C&A, have disappeared from the UK scene altogether. In the United States, major corporations such as Sears, IBM and Digital amongst others experienced major business downturns.

While the consequences of failed change efforts need not be so dramatic, they are none the less costly. In May 2002 Vodafone announced a loss of £13.5 billion due to having paid too much for acquisitions at the height of the technologies boom in the previous two years. Acquisitions frequently fail to achieve expected synergies, re-engineering takes too long and costs too much, downsizing does not get costs under control and quality programmes do not yield expected improvements. Outsourcing a non-core function may not only fail to save money and improve quality but also result in loss of intellectual capital, the source of future revenue growth.

Why do change efforts so often fail?

A number of factors are known to contribute to failure, including a general lack of strategic planning. Tough competition, unanticipated environmental challenges, grossly lagging behind competitors, lack of business re-evaluation, poor management and lack of skills can result in worsening financial performance, floundering strategies and crisis, according to Ascari et al. (1995). According to Dun and Bradstreet, key reasons for such failure include the failure to change when needed, and the inability to manage change well to achieve intended results.

Ironically, according to Klein (2000), the reason why some companies fail to notice market changes is because they focus too closely on their product or service and lose sight of the bigger picture. Failure is also due to the inability of organizations to adapt and evolve quickly enough to survive and thrive in changing environmental conditions. According to Ashkenas et al. (1998),

the stark reality is that each of these organizations slipped from invincible to vincible when it was faced with a rate of change that exceeded its capability to respond. When their worlds became highly unstable and turbulent, all these organizations lacked the flexibility and agility to act quickly. Their structures and boundaries had become too rigid and calcified.

In a similar vein, Peters and Waterman's analysis of the failure of many of the so-called ‘excellent’ companies pointed to various cultural weaknesses which undermined business success. Their very success blinded these corporations to the need for continuous change. It seemed there were two broad danger areas for organizational survival: when organizations became unable to escape their past, relying too heavily on previous success formulae, and when they became unable to invent the future. Ironically, the inability to escape the past was fuelled by unparalleled track records of success, no gap between expectations and performance, contentment with current levels of performance. In addition, the confidence borne of an accumulation of...