Chapter – 15
Understanding organizational Change
What is organizational change?
Organizational Change looks both at the process in which a company or any organization changes its operational methods, technologies, organizational structure, whole structure, or strategies, as well as what effects these changes have on it. Organizational change usually happens in response to – or as a result of – external or internal pressures. It is all about reviewing and modifying structures – specifically management structures – and business processes.
Small commercial enterprises need to adapt to survive against larger competitors. They also need to learn to thrive in that environment. Large rivals need to adapt rapidly when a smaller, innovative competitor comes onto the scene.
To avoid falling behind, or to remain a step ahead of its rivals, a business must seek out ways to operate more efficiently. It must also strive to operate more cost effectively.
Ever since the advent of the Internet, the business environment today has been changing at a considerably faster pace compared to forty years ago. Organizational change is a requirement for any business that wants to survive and thrive.
According to Cambridge dictionary organizational change is "A process in which a large company or organization changes its working methods or aims, for example in order to develop and deal with new situations or markets.”
What is organizational environment?
Organizational environments are composed of forces or institutions surrounding an organization that affect performance, operations, and resources. It includes all of the elements that exist outside of the organization's boundaries and have the potential to affect a portion or all of the organization. Examples include government regulatory agencies, competitors, customers, suppliers, and pressure from the public.
There are various ways of categorizing factors which make up the organization's environment. There are four factors that help to make up the organization's environment.
There are many external environment factors that can affect your business. It is common for managers to assess each of these factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic, social and technological (known as PEST analysis). These factors push our organization into some form of change. Companies also study environmental, legal, ethical and demographical factors.
PESTEL analysis includes Political, Economic, Social, Technological, Environmental and Legal analysis. It is an external environment analysis for conducting a strategic analysis or carrying out market research. It offers a certain overview of the varied macro-environmental factors that the company has to consider.
➤ Political factors analysis is related with how and to what extent a government interferes in the economy. Specifically, political factors include tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also be related with goods and services which the government allows (merit goods) and those that the government does not want to allow (demerit goods). The government can have a great influence on the overall health, education, and infrastructure of a country.
➤ Economic factors contain factors such as economic growth, interest rates, exchange rates and the inflation rate. These factors may have an influential effect on how the businesses operate and make decisions. For example, interest rates can affect the firm's cost of capital and thereby influence business growth and expansion. Exchange rates can affect the costs of export and the supply and price of imports.
➤ Social factors contain issues such as health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in the social factors may affect the demand for a company's goods and how the company operates. For example, ageing population leads to smaller and less-willing workforce (and increases the cost of labor). Moreover, companies may change various management strategies in sync with the social trends (such as recruiting more females).
➤ Technological factors include ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.
➤ Environmental factors are the conditions such as weather, climate, and climate change, which may especially influence tourism, farming, and insurance sectors. Growing awareness to climate change are increasing the interest in how companies operate and what products they offer; it is both creating new markets and damaging the existing ones.
➤ Legal factors include laws pertaining to discrimination, consumer affairs, antitrust, employment, and health and safety. These factors can affect the operations, costs, and the demand for the products. Legal factors can also influence the brand value and reputation of a company. They are increasingly paid more attention to in the current decade.
According to Barbara Senior organization operates in at least three types of environment.
Temporal
Temporal structure, a key notion in this book, is defined as a patterned organization of time, used by humans to help them manage, comprehend or coordinate their use of time. ... A good example of explicit temporal structures is a deadline, which most individuals write on their personal calendar tools.
External
An external environment is composed of all the outside factors or influences that impact the operation of business. The business must act or react to keep up its flow of operations.
The external environment consists of the factors outside the company that influence the company's ability to function. Some sections of the external elements are manipulated and managed by company marketing, but the others need the organization to make adjustments.
It is important to monitor the core components of a company's external environment, and keep a close watch at all times. If the company cannot judge its external environment, it may fail to meet the market demands.
Organization's External Environment - Five Components
Following are the five components of external environment −
Customers
The customers can be attempted to influence, through marketing and strategic release of corporate information. However, finally a company’s relationship with the clients is based on finding ways to let them purchase the services or products. Market research is the tool for determining the effectiveness of the company’s marketing communication, and to make a decision about what changes should be made to forthcoming marketing programs to improve sales.
Government
Government regulations, especially related to product development, packaging and shipping play an important role in the cost of doing business. It also influences the ability to expand into new and emerging markets. The government may enact new regulations on how a company must package the products for shipment, which can increase the unit costs affecting the profit margins. International legal rules create processes that the company must follow to get the product marketed in foreign markets.
Economy
The company must be efficient at monitoring the economy and reacting to it, rather than trying to shape or manipulate it according to its needs. Economic factors affect how the products are marketed, the amount of money spent on business growth, and the nature of target markets the company will pursue.
Competition
Competition affects how a company does business and how it addresses the target market. It is a strategy to find markets with less competition, or the company may decide to compete directly in the same target market. The success and failure of competitors affect the marketing planning, as well. For example, if a long-time competitor decides to stop marketing due to financial losses, then it would be important to adjust the planning to take advantage of the condition.
Public Opinion
Scandals can be harmful to the organization's image. The public perception about an organization can affect sales. It may go down if it's negative, or it can boost sales with positive company news.
An organization can influence the public opinion by releasing strategic information through press release. However, it is also very important to monitor and judge public opinion to attempt and defuse potential issues before they go out of control.
Internal
Definition: An internal environment is a set of elements that define the atmosphere within the company’s structure. It describes the way activities and relationships are carried out inside the business, normally within co-workers. Internal environment is a component of the business environment, which is composed of various elements present inside the organization, that can affect or can be affected with, the choices, activities and decisions of the organization.
It encompasses the climate, culture, machines/equipment, work and work processes, members, management and management practices.
In other words, the internal environment refers to the culture, members, events and factors within an organization that has the ability to influence the decisions of the organization, especially the behaviour of its human resource. Here, members refer to all those people which are directly or indirectly related to the organization such as owner, shareholders, managing director, board of directors, employees, and so forth.
Factors Influencing Internal Environment
The factors which are under the control of the organization, but can influence business strategy and other decisions are termed as internal factors. It includes:
Value System: Value system consists of all those components that are a part of regulatory frameworks, such as culture, climate, work processes, management practices and norms of the organization. The employees should perform the activities within the purview of this framework
1.Vision, Mission and Objectives: The company’s vision describes its future position, mission defines the company’s business and the reason for its existence and objectives implies the ultimate aim of the company and the ways to reach those ends.
2.Organizational Structure: The structure of the organization determines the way in which activities are directed in the organization so as to reach the ultimate goal. These activities include the delegation of the task, coordination, the composition of the board of directors, level of professionalization, and supervision. It can be matrix structure, functional structure, divisional structure, bureaucratic structure, etc.
3.Corporate Culture: Corporate culture or otherwise called an organizational culture refers to the values, beliefs and behaviour of the organization that ascertains the way in which employees and management communicate and manage the external affairs.
4.Human Resources: Human resource is the most valuable asset of the organization, as the success or failure of an organization highly depends on the human resources of the organization.
5.Physical Resources and Technological Capabilities: Physical resources refers to the tangible assets of the organization that play an important role in ascertaining the competitive capability of the company. Further, technological capabilities imply the technical know-how of the organization.
Internal environmental factors have a direct impact on a firm. Further, these factors can be altered as per the needs and situation, so as to adapt accordingly in the dynamic business environment.
Triggers and sense-making
Trigger means the factors that cause something to start. We can bring change in a number of ways. But the occurrence of change depends on the organization noticing or anticipating relevant change and responding appropriately. Organizations have to appreciate the key changes in their environment. If organizations fail to appreciate key changes then they may decline.
Many organizations have placed increasing emphasis on sense-making. It means that they try to ensure their managers and staff are continually scanning the environment and their competitors, behavior to look for the sing of impending change. Organization may use particular strategies for sense-making.
➤ by setting up special groups or task forces with members drawn from across the organization.
➤ by setting up 'drama' to emphasize the result of ignoring signal.
Such strategies will succeed only if the results of such monitoring are quickly and accurately communicated to the decision makers within the organization. If these decision-makers do not accept the need for change, then the organization may be in trouble. And this highlights the need for senior management to create an organizational culture which allows information of this sort to surface at high level.
Type and rate of change
Fine-tuning
It implies that the organization adjusts how it operates at department or division level to improve customer service or to increase employee morale. The adjustments could involve changes in training or staff development.
Incremental adjustment
It involves employing necessary change to the organization that only impacts certain part of the organization. Incremental can be initiated to boost the sales, improve marketing strategies or increase work attitudes among staff.
Modular transformation
It is a radical change that focuses upon only part of the organization. Examples might include outsourcing one aspect of the company's activities, or radically restructuring one division.
Corporate change
Corporate, also called organization change, involves shift from the old methods of business to new proposed strategies. Changes from old policies, structure, culture and organizational system gets transformed. It is the overall process of change for the organization to something modern. Changes occur right across the organization with major changes to the organization's structures and procedures.
The organizational life cycle
The organizational life cycle refers as something to the life cycle of humans, organizations are born, grow older, and eventually die. Senior suggests four main stages of organizational life cycle.
Entrepreneurial stage
The first stage is known as the entrepreneurial stage, and the name fits quite well. At this point, the organization is small, there is little hierarchy, and employees work in many different parts of organization. Supervision is limited, and employees are trusted with the completion of their tasks. This often does not cause any problem, as the employees at this point are part of the organization because they want behind their product and service.
Focus and effort is placed primarily placed on the product and service that the organization provides. This stage of the life cycle is easy to see when looking at new start-up companies. Their employee base is low, and employee's freedom is high. The biggest issue with the entrepreneurial stage is the lack of leadership. Although this usually does not cause any issue early on, it can become much more prominent as the organization starts to expand. When the number of employees hits a certain point, some kind of leadership is required to keep the different part of an organization intact.
Collective Stage
Once leadership is established and the employee base has increased, the organization goes into what is known as collective stage. At this point the organization has started to develop clear goals and direction. Creativity and flexibility still exists, but now there are boundaries. Divisions start to emerge and employees begin to focus on more related, and specific tasks. Communication is still open and informal.
The collective stage starts to run into problems once the organizational size becomes too big for upper management to handle. It becomes extremely difficult for a single person to manage multiple groups closely and effectively. However, at the same time lower level managers begin to emerge from the groups, and eventually are placed in charge of individual teams. The upper management can now communicate with all the different parts of the organization without talking to each employee individually.
Formalization Stage
This is the stage where an organization transitions from an informal environment to a formal, regulated environment. Multiple layers of management are created, causing communication to naturally become more formal. Employees are generally constrained to their section of the organization, and lower/middle management handles communication between groups.
Eventually, the restrictions become detrimental to the organization. Middle management becomes buried within the organization and has little control over decision in upper management and lower management. There are enough layers of management that innovation becomes extremely difficult to implement. Requests must now travel through layers of representatives and often don't make it their intended destination.
Elaboration Stage
The elaboration stage is often the 'do or die' stage for most organizations. The organization is forced to change or the lack of innovation and communication will eventually destroy the business. Management is forced to flatten, while also giving development groups more decision making freedom. In many cases management either has to change their management style or leave the organization.
Strategies for change
The various strategies for change are:-
➤ Education and communication
➤ Participation
➤ Intervention/manipulation
➤ Management direction
➤ Coercion
Stage model of the change process
This is the most common model of change process. This model was developed by Kurt Lewin to help understand the change process and how it occurs. According to this model change management process has 3 phases, namely unfreezing, changing and refreezing stage. Each stage is critical to an organizations change strategy. Therefore, managers need to understand what to do at each stage, clearly outline objectives and effectively communicate across the organization with employees and stakeholders.
Unfreezing
Every organization has a culture process and system which needs unfreezing. This is the known way of doing things, culture, mission and vision. Through this process shift cognitive thinking of people from the normal ways to see need for change. Interpersonal relationships that exist within the organization are broken and diluted. Employees forced to see other ways of running the organization and need for new change strategy, process, polices and system. Process for change management, can be incremental or transformation change.
Changing
Initiating of change at this stage new model gets introduced. It is now not about how things have been done in an organization, but how to do them through newly introduced culture, system, process and rules. Managers, ensure people learn new methods, process, and organization culture. Slowly, shifting and thinking of employees from the original ways to new formulated strategic methods of change that have an important role to play. Changing the performance of the organization to deliver expected goals and archive objectives of the organization.
Refreezing
Refreezing stage of change is a critical process of reinforcing the new culture and ideas. People learn and accept change introduced, encouraged to adapt practices from old methods and process. Culture is enforced, process and systems change to modernized version within the organization.
Dynamics of culture change
According to Williams suggest six main ways that organizations set about changing their culture.
1.Changing the people in the organization :- Change can be painful. Those people who cannot adapt the change they have to leave the organization. People may fail to adapt the change because they cannot operate in the new way or may be because of flaws in the change management or may be because they have not received sufficient training to support the new method. The less painful way of changing the people is to focus on the selection and recruitment process. Improving this process can ensure that new recruits are fully aware of and accept the company ethos before they join.
2.Changing people's positions in the organization :- It is about the movement of people around the organization. It can have important consequences.
3.Changing beliefs, attitudes and values:- Change the attitudes, beliefs and values of people towards the company.
4.Changing behavior:- Change our and staff behavior.
5.changing systems or structures
6.Changing the company image
What is business process re-engineering (BPR)?
Business process re-engineering is the radical redesign of core business process to achieve dramatic improvements in critical aspects like quality, output, cost, service, and speed. Business process reengineering (BPR) aims at cutting down enterprise costs and process redundancies on a very huge scale. It starts with a blank sheet of paper and rrethink existing processes to deliver more value to the customer. Business process reengineering is the analysis and redesign of company processes.
We should observe some points when implementing business process reengineering, such as:
➤ A change of focus from management to the customer
➤ Managers must give power to their team’s
➤ Focus on results
➤ It’s not positive to score points, but to lead and teach
➤ Simple and optimized processes are better than complicated and intricate processes
➤ If a process continually doesn’t work, it’s time to come up with a new one, looking to the future.
➤ Always identify goals and purposes
➤ Keep the company mission in mind
Business process re-engineering examples: Fast food company
An example of business process re-engineering that we can cite is that of a fast food company.
Completely redesigning the delivery of products can give you unexpected results. In this type of restaurant, the process goes like all others, the customer orders, the order goes to the kitchen, which prepares the meal and then delivers to the consumer.
Business process analysts realized that it would be more advantageous if the meal portions were previously prepared in a separate center, and delivered to the restaurants daily.
When the customer orders, staff place everything together and deliver it. This is a complete change in the process, resulting in greater control, fewer accidents, greater employee satisfaction, and increased ability to focus on customer needs, all without losing quality.
Learning organization
A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights. Learning organization actively embraces change as an ongoing and inescapable process. This approach challenges traditional models of organization structure.
A learning organization is an organization of modern times. In the present times, technology and method of business and operations are changing so fast that it is possible that the method opted by a company becomes obsolete fast before it realizes and it makes difficult for the company to survive in such environment.
Therefore, nowadays, more and more organizations are becoming learning organization’s to stay ahead in the competition.
A learning organization emphasis on the learning, which is tuned with the goals of the organization. Learning expands the skills of its employees to obtain the results they want to obtain.
The simplest concept behind a learning organization is that new ideas and new skills are necessary for learning. New ideas born by risk-taking and creative thinking or sometimes can be obtained from the outside of the organization such as from knowledge experts.
However, a true learning organization is that which improves the way it’s working style by adopting new ideas and knowledge.
Even though it seems so simple to convert an organization into a learning organization, but it is not that simple as there have been many unsuccessful examples of organizations which tried to become a learning organization.
Because despite acquiring new knowledge, they were failed in implementing that knowledge to their day-to-day activities. However, there are examples of a few organizations such as Honda and Corning, which have successfully implemented new knowledge acquired into their methods of operations.
A learning organization has many benefits. Let us learn about them one by one.
#1. Competitive Edge:
A learning organization has a competitive edge over other similar companies. In a learning organization, there is a continuous flow of new knowledge and talent. A learning organization makes the use of this new obtained knowledge and skills to beat their competitors.
#2. Improved decision-making:
Decision-making is part and parcel of every organization. People are required to make decisions on a daily basis. In a learning organization, there is a better flow of information and rather than blindly following the decision made by the higher authorities all employees of the organization participate in the decision-making process and don’t hesitate to present their own point of view.
As a result of this, the decision-making of the organization become effective because the decision is not taken on the basis of the expertise of one person but using the experience and knowledge of many people.
#3. Improved Efficiency:
In a learning organization, employees are encouraged to learn and use their knowledge for innovation, and there is no restriction on the flow of the information.
The knowledge and skills of employees are improved on a daily basis. As a result of this, the work efficiency of the organization improves, and it makes more profits.
#4. Knowledge sharing in the organization:
As I have mentioned, in a learning organization, employees are encouraged to use their new knowledge and skills in the work in their hand and sharing knowledge with other employees to get better results.
#5. Improved use of resources:
A learning organization makes the best use of resources available to fulfill the needs of customers. Having knowledge of new technologies, they can constantly improve their customer service, which helps them to retain customers for a longer period of time and also satisfy their needs better than other organizations.
#6. Better corporate image:
When an organization consistently improve their service and provide products of the best quality, the corporate image of the company automatically improves. With the improved corporate image, the organization not only get more business, but it also attracts investors and business partners.
In addition to this, your organization also attract new talent which will help your organization grow.
#7. Encourages teamwork:
In a learning organization, all employees have an equal right to provide their views and share their ideas without hesitation. Managers in an organization make employees work as a team rather than giving orders to them.
Such behavior raises the sense of community in the organization and employees of the organization work towards a mutual goal by helping one another rather than playing politics in the organization and the productivity of employees improves because of the positive environment in the organization.
#8. Fast change adaption:
In the present competitive world, change is inevitable, and change happens way to fast. If an organization is not a learning organization and is not working to gain new knowledge and skills than it is always going to stay behind in the competition.
Turning a traditional organization into a learning organization is not an easy task and followings are the challenges that an organization might face when trying to become a learning organization.
#1. Not all employees are honest:
Some employees will take advantage of the freedom given to them and feed on the talent of other employees.
#2. Difficult to give credit:
In a learning organization, a decision is made with mutual communication and when this happens, it becomes difficult to give credit to one employee.
#3. Lack of respect for senior:
when employees at all levels work together and take a decision after discussing with each other. People at lower rank happens to cross their line and sometimes become disrespectful to their seniors.
#4. More arguments and lower productivity:
More people come with more ideas and it becomes difficult to convince everyone to get agreed with one idea. As a result of which people start arguing with one another and rather than quick decision making it takes a longer time to take even simple decision.
All of this affects the real productivity of the organization.
#5. Employees waste time when the boss is not around:
Employees who are accustomed to working in a traditional organization take advantage of liberty given to them and they don’t work when there is nobody around to supervise them.
#6. People run out of new ideas:
Creativity is not a regular process. Sometimes an employee will come up with 2-3 innovative ideas in a day and sometimes he can’t even think of one good idea for months. This can impact the work of the organization.
In such scenarios, some employees prefer a traditional environment where they are only supposed to follow the order given to them and not having the constant pressure of coming up with innovative idea regularly.
In this section, you will learn about the steps that you should follow in order to create a learning environment in the organization.
#1. Make training and development programs formal:
In many organizations, the training is considered by employees as a mini vacation. They don’t give much importance to the things taught to them during the training because of the lack of the formal status of the training program.
If you want to make your organization a learning organization then, first of all, make all the training programs mandatory for all the employees of the organization and there should be an evaluation system to evaluate the knowledge of the employees who have taken the training.
In addition to the internal training program, deserved and willing employees should be encouraged to take courses to learn about the new and latest technology which can be used for the development of the organization.
#2. Give recognition when an employee learns a new skill:
Being a leader, it is your responsibility to keep your team up to date on their skills. Because the success of your organization depends on the skills of your employees. Therefore, an organization whose employees have good learning capacity stays one step ahead from their competitors.
Leaders not only should encourage the employees to learn new skills but also give recognition to them when they do the same. This will not only boost the confidence of the employees but will also give encouragement to other employees of the organization.
It will be beneficial for your organization if More employees will learn new skills. Therefore, never forget to give proper recognition to employees who learn a new skill.
#3. Get feedback from employees:
Your employees are the true judges whether training sessions were helpful for them or not and how much the training provided to employees helped them to improve their skills and what courses they want to to be included in the training program of the organization.
#4. Motivate them to learn:
Competition is the best motivation to encourage employees to enhance their skills. When there is a new position opening in your organization announce it in the organization and tell them what skills and knowledge are required for employees to be at that position.
This will encourage your employees to learn fast. By doing this you will not only save your expenses on recruitment of new person outside of the organization but you will also ingrain the idea of “learning will bring promotion” in your employees.
It will be a win-win situation for you and also your employees.
#5. Finance external training:
Technology changes rapidly and it will be both difficult and expensive for your organization to include develop training program every time a new technology comes in the market. Moreover, not all employees have equal learning capacity and will to learn new skills.
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