Models of Strategic Change - Term Paper Example

 Models of Strategic Change Introduction Demographic changes, developments in technology and market strategies that occurred throughout the 1990s – early 2000s, coupled with the recent crisis resulted in grave changes of business environment that affected virtually all aspects of a business organisation’s functioning. As a result, the problem of organisational changes required for organisations to effectively adapt to the turbulent environment has turned into arguably the main focus of organisational studies. Classic works in the field of organisational change describe this process from several basic theoretical stances, but the common view is that organisational change plays the key role in maintaining efficiency and competitiveness of organisation (Van de Ven & Poole 1995). However, implementation of the change is associated with numerous difficulties: the change is hard to initiate and sustain, it take much time and it has to overcome the innate resistance of people to change. Perhaps these major problems led to a common misconception that change is not necessary for an organisation: the example of Enron, Daewoo Motors, Pan American and several other industrial and technological giant clearly demonstrates what is likely to happen to an organisation which fails to recognize the necessity of major change despite the difficulties associated with this process. Traditionally, organisational change is analyzed through perspective of social (organisational) psychology, sociology and management (Balogun & Jenkins 2003). Researchers admit that social and psychological factors interrelated with the principles of management combine core elements of organisational structure that allow judging of productivity of organisation, its marketability, stableness, motivation of personnel etc. Social criteria of organisational change generally include: size of organisation, the so-called “time depth” (time of it existing), social and demographic structure, professional structure, functional structure etc. Psychological criteria consist of the alleged “social climate”, group identity, formal and informal structure of organisation. Finally, managerial principles include necessity of changes, all-round assessment of market situation etc. All of these types are interrelated and may combine variety of factors necessary to include while classifying organisational structure (Weick & Quinn 1999). According to Burnes (2004) change is an unalienable characteristic of an organisation’s functioning that manifests on the operational and strategic level. Such characteristic of change implies that it is a critically important process closely linked to the ability of an organisation to correctly identify the need for change, nature of necessary changes, and method and strategy to implement them. Therefore, organisational change shall be perceived as an essential element of organisational strategy. Despite the erroneous perception of strategic organisational change as a relatively simple process, it is a very complex and multilateral procedure. There are a number of organisational change cases that clearly demonstrate how seemingly flawless ideas of highly professional managerial teams may turn into all-round failure and require development of immediate remedial strategies. Therefore, modern studies of organisational change mainly describe this phenomenon through the prism of several basic theories explaining both structure and processes of change in organisations. In times of a severe economic crisis similar to the current one the only way for companies to survive is to quickly implement substantial organisational changes. According to the current economic models, weak demand created by a crisis requires companies to change their management practices and transform methods of operation and/or production (Nickel, Nicolitsas & Patterson 2001). Therefore, it is reasonable to assume that economic crises can be viewed as one of the major drivers of organizational changes. However, the nature and design of changes is often determined by the urgent need: the changes undertaken to meet the tactical goals are typically incomplete and do not contribute to long-term success and sustainability of the company. By contrast, seriously planned and thoroughly implemented strategic changes may be less effective in the short-term perspective but eventually such changes are likely to strengthen the organisation in the aftermath of the crisis. The difference between these two approaches can be illustrated using the current models of organisational change. Main Discussion Currently there is no single approach to studies of organisational change. Perhaps the only common feature stressed in every theory of this phenomenon is the importance of time because change is a process. The early approaches and perspectives exploring the issue of organisational transformations and their management largely assumed that effectiveness of organisational performance directly depended on the organisation’s ability to constantly change. This assumption, for example, is expressed and justified in one of the classic works in the field of organisational studies. Author of this work, Richard Leifer (1989) describes organisational change as a typical and natural reaction of an organisation to internal and environmental challenges. However, modern organisational theorists put this assumption in question arguing that such approach may eventually lead to a situation when change may become a routing and be undertaken for the sake of change without any external or internal drivers (Luecke 2003). Besides, some authors also express doubts regarding the ability of employees to effectively perform when their organisation undergoes continuous transformations and changes (Burnes, 2004; Rieley & Clarkson, 2001). The existing literature on various aspects of organisational transformation identifies several types or models of change, including discontinuous, incremental, smooth and bumpy incremental, continuous, continuous incremental and punctuated equilibrium. Although the distinction between these models is made based on the rate of their occurrence, various theorists often use different terminology to describe the same model or combine models identified by other authors into one single model. For example, Burnes (2004) and draws the line between continuous and incremental organisational change while many other theorists either do not differentiate between these two types or go even further identifying several types of continuous or incremental change (Senior 2002). Continuous and Incremental Change Burnes (2004) defines continuous organisational change as “the ability [of an organisation] to change continuously in a fundamental manner to keep up with the fast-moving pace of [internal and environmental] change” (p. 117). As the name of the continuous model suggests it is different from an episodic change model. The essence of continuous organisational change is “…recurrent interactions as the feedstock of organising, authority tied to tasks rather than positions, shifts in authority as tasks shift, continuing development of response repertoires, systems that are self-organising rather than fixed, ongoing redefinition of job descriptions, mindful construction of responses in the moment rather than mindless application of past responses embedded in routines” (Wheatley 1992, p.90). Within this model change is a constant state of organisational adjustment that does not revolutionarily transforms the structure and activity patterns of the organisation but instead helps ensure stability of its basic features. It is an extremely rare case that when facing a certain set of environmental and internal challenges an organisation succeeds in implementing revolutionary changes in its structure and strategy. The reason for it is strong inertia accumulated by organisation and embodied in a set of established routines. On the one hand, these routines contribute greatly to stability and reliability of an organisation, but on the other hand, they are extremely resistant to any serous changes and tend to reproduce themselves (Hannan, & Freeman 1984). The so-called institutional resistance is also reported to hamper the process of rapid revolutionary change. Any organisation is embedded in a certain context regulated by implicit and explicit norms, values and beliefs. Consequently, these norms, values and beliefs become a part of organisational culture, seek to reproduce themselves within the organisation, and reinforce the existing external norms and values. Therefore, organisational change usually occurs within the existing structure and has more chances to succeed than a revolutionary change that seeks to dramatically transform or even replace the existing structure (Greenwook and Hinings 1996). According to Burnes (2004) the distinct characteristic of incremental organisation change is presence of a separate division or department of an organisation that increasingly deals with an external or internal challenge and pursued one clear cut objective in the process. This is an ideal scenario that ensures organisational change is implemented gradually in several successive shifts to achieve a specific individual goal. Such approach enables organisation to reduce the resistance to change Consequently, the difference between continuous and incremental organisational is that the continuous model deals with ongoing departmental and operational transformations and the incremental model relies on the ability of organisations to effectively respond to the emerging internal and external challenges and describes strategies that have effect on the whole organisation. At the same time, these strategies have their origins in lesser changes that occur on departmental level. Applicability of both continuous and incremental model to ensure sustainability of a firm in the current situation of economic crisis, loss of market and decreased productivity is questionable. The key problem is that neither model justifies revolutionary changes as a viable mean of ensuring organisational efficiency though such justification was provided in the influential studies of the past. For example, Caballero and Hammour (1994) brought forth and convincingly justified the hypothesis that introduction of revolutionary changes of organisational practices, routines and structures would be very efficient during the period of economic crisis. Punctuated Equilibrium By contrast, the punctuated equilibrium model of strategic organisational change is based on the assumption that organisations can effectively implement radical changes of their structure and operations if the environmental challenges require them to do so. Within the framework of this model organisations shall be perceived as structures that follow relatively stable patterns of evolution over a certain period of time (these long periods of stable development are termed equilibrium periods). However, these stable periods of evolution are sometimes ‘punctuated’ by revolutionary changes that affect virtually every aspect of organisation: structure, activity patterns, distribution of powers, systems of management, etc. (Fagerberg, Mowery, & Nelson 2005). Similarly to advocates of the continuous and incremental change perspectives, adherents of the punctuated equilibrium model acknowledge the existence of organisational inertia as well as the fact that stability is the natural state of effective organisations. However, they also argue that only radical changes that happen from time to time provide organisations with the priceless opportunity to break through the bonds of inertia and achieve new levels of effectiveness. This statement reflects the most essential difference between the incremental/continuous model and the punctuated equilibrium approach. According to the latter, the most suitable time to introduce the revolutionary changes to an organisation is the period of extremely troublesome environmental challenges that deteriorate organisational performance (Anderson, & Tushman 1990). A number of case studies published over the last three decades use history of modern organisations to demonstrate that revolutionary organisational changes in modern companies occurred in full compliance with the prediction of the punctuated equilibrium model (Burnes 2004). Furthermore, sufficient number of studies carried out over the 1980-1990’s showed that radical changes implemented by well-known organisations were more effective than incremental transformations which occurred in similar companies (Virany, Tushman, and Romanelli 1992). And finally, the most important aspect of the punctuated equilibrium model is the recognition of the fact that technological advances have strong impact on the models and patterns of strategic organisational change. This assumption maintained by a number of contemporary theorists (Burnes 2004; Senior 2002) was first brought forth by Anderson and Tushman (1990) in their technology cycle model. The authors argued that technological advances occurred only after long periods of incremental innovation. The most essential feature of such innovation periods was elaboration and enhancement of the initial design until a new design appeared to replace the old obsolete one. A critically important advantage of this ‘technology cycle’ perspective is the assumption that the nature of competitive environment dramatically transforms over time offering new opportunities for businesses involved in this sector. Consequently, the basic challenge of organisations affected by such transformations of the environment is to design and implement appropriate tools and capacities to be in line with the new environment. Organisations operating in the constantly changing technological environment should be capable of simultaneously implementing both incremental and discontinuous organisational changes (By 2005). The assumptions underlying the punctuated equilibrium model were tested by Nickel, Nicolitsas & Patterson (2001) who explored the relationship between organisational change and economic downturn. The authors designed an econometric model to justify the statement that economic crisis provides the incentives for organisations to radically change their practices, structures and routines. The model relies on two basic assumptions: (1) low demand and partial loss of market gives the managers and organisations additional time to thoroughly analyse existing practices and routines and identify appropriate changes; (2) an economic crisis produces increased risk of a company being forced out of its business completely and thus poses a threat to employment stability. With the help of this model Nickel, Nicolitsas & Patterson (2001) demonstrate that efficiency of a company’s response to economic crisis (organisational change) is vital for its future sustainability and success in the post-crisis market. Results of the most recent global survey of businesses demonstrate that the majority of large companies seek to radically almost every aspect of their activities. Thus, almost 80 percent of surveyed firms seek to cut costs, approximately 40 percent undertake radical restructuring and nearly 50 percent try to find appropriate means to improve productivity (McKinsey 2009). Evidently, these major goals often overlap with each other and the most essential concern in terms of these changes’ efficiency is to plan and implement them in the most well-balanced manner to ensure both short-term return and long-term improvements. The model of punctuated equilibrium can explain and clarify the success/failure of many organisational changes implemented by modern organisations in the situation of continuing recession. At the same time, several shortcomings of the punctuated equilibrium approach are also identified in the literature. The first and foremost point of criticism is descriptiveness of the punctuated model. Particularly it fails to explain the process of creation of the new organisational forms, structures and patterns that emerge during the period of revolutionary transformation of an organisation. Also it fails to fully explain and justify how long-term sustainability of the newly emerged organisational structures and patterns can be achieved (Fagerberg, Mowery, & Nelson 2005). Conclusion The problem of organisational evolution and adaptation to the environment is a common focus of many organisational studies and theories. A key debate in this regard revolves around the issue of the nature and sources of organisational changes. At least three most popular perspectives can be identified in the existing literature in the field of organisational transformation. The first group of theories also termed evolutionary theories stress the importance of organisational inertia claiming that the process of organisational change which is the organisation’s response to changes of business environment, occurs slowly and incrementally. The continuous and incremental organisational change models both rely largely on these theories. Representatives of the second perspective attack the opinion shared by the first two sets of theories that organisations are passive objects of various environmental influences. Instead they believe that organisations have the potential and tools to actively participate in shaping of the environment. This viewpoint also termed the strategic adaptation perspective highlights the importance of continuous organisational change (or adaptation) and effective intra-organisational actions to effectively cope with the constantly changing environment. And finally, the third view relies on the assumption that the process of an organisation’s evolution is a long period sometimes punctuated by discontinuous or radical change. The punctuated equilibrium model designed by advocates of this perspective views the process of organisational change as a discontinuous event that occurs within a short period of time and results in dramatic transformation of virtually all aspects of organisation’s functioning. Despite certain descriptiveness, this model seems to have more potential than other models to justify the need for revolutionary organisational changes during the periods of economic recession. References Anderson, P., & Tushman, M., 1990, “Technological discontinuities and dominant designs: A cyclical model of technological change”, Administrative Science Quarterly, Vol.35, No.4, pp. 604-633 Balogun, J., & Jenkins, M., 2003, “Re-conceiving Change management: A Knowledge-based Perspective”, European Management Journal, Vol. 21, No. 2, pp. 247-257 Burnes, B., 2004, Managing Change: A Strategic Approach to Organisational Dynamics, 4th edn, Harlow: Prentice Hall By, R. T., 2005, “Organisational Change Management: A Critical Review”, Journal of Change Management, Vol. 5, No. 4, pp. 369–380 Caballero R. J., & Hammour, M. L., 1994, “The Cleansing Effect of Recessions”, American Economic Review, Vol. 84, No. 5, pp.1350-1368 Fagerberg, J., Mowery, D. C., & Nelson, R. R. (eds) 2005, The Oxford handbook of innovation, Oxford University Press. Greenwood, R., & Hinings, C. R., 1996, “Understanding radical organisational change: Bringing together the old and new institutionalism”, Academy of Management Review, Vol. 21 pp.1022 - 1054. Hannan, M., & Freeman, J., 1984, “Structural inertia and organisational change”, American Sociological Review, Vol. 49, pp.149-164 Leifer, R., 1989, “Understanding organisational transformation using a dissipative structural model”, Human Relations, Vol. 42, No.10, pp. 899–916 Luecke, R., 2003, Managing Change and Transition, Boston, MA: Harvard Business School Press McKinsey Global Survey Results, 2009, “Economic Conditions Snapshot”, The McKinsey Quarterly, February 2009 [retrieved November 2009 from http://workexposed.files.wordpress.com/2009/03/pdfdownload.pdf] Nickel, S., Nicolitsas, D., & Patterson, M., 2001, “Does Doing Badly Encourage Management Innovation?” Oxford Bulletin of Economics and Statistics, Vol.63, No.1, pp.5 –28 Rieley, J. B., & Clarkson, I., 2001, “The impact of change on performance”, Journal of Change Management, Vol. 2, No.2, pp. 160–172 Senior, B., 2002, Organisational Change, 2nd edn, London: Prentice Hall Van de Ven, A. & Poole, M. S. 1995, ‘Explaining development and change in organisations’, Academy of Management Review, vol. 20, no. 3, 510-540. Virany, B., Tushman, V., & Romanelli, E., 1992, “Executive succession and organisation outcomes in turbulent environments: An organisational learning approach”, Organisation Science, Vol. 3, pp.72 - 92 Wheatley, M. J., 1992, Leadership and the New Science, San Francisco: Berrett-Koehler Weick, K. E., & Quinn, R. E., 1999, “Organisational Change and Development”, Annual Review of Psychology, Vol. 50, pp. 361-386. Read More