Assessing the Need for Change

1. overreliance on previous success formulae
2. inability to invent the future

Essentially, these two amount to a lack of understanding that all organizations must change if they are to ensure their longevity.

Why Do Organizations Need to Change?

Organizations do not exist in isolation, but are affected by the changing make-up of the people within them as well as the external environment within which they operate. Inevitably, these internal and external factors begin to evolve. The long-term success of effective organizations is heavily reliant on the ability of its leaders to respond to these changes.

Internal Factors

Change is often triggered from within an organization, when strategic decisions are made, technology is purchased, mergers take place, morale is low or a new boss comes in. Alternatively, it might just be that senior management believes there is a problem to be addressed or an opportunity to be exploited. [8]In 1995, the University of Ulster’s Roger Stuart grouped these internal factors into seven ‘primary triggers’ for change. These are: [9][10]

1. strategic change - a decision to change the main focus of the business, perhaps by exploring a new product line or shifting emphasis back to the organization's main revenue stream
2. structural change – a relocation, change in management structure etc.
3. systems change – the introduction of a new IT system or process like Six Sigma, ISO: 9000 etc.
4. skills change – the arrival of a new contractor or partner
5. staff change – the decision to downsize, expand, or a change in management
6. style change – a shift toward team working, distributed leadership etc.
7. shared values change - a shift toward, for example, customer service or high performance

Any one of these triggers might prompt organizational change, but it would be rare for that change to remain isolated to the one area. As Peters and Waterman explained with the McKinsey 7-S Framework, all seven elements are interrelated and a change to one will almost certainly impact upon the others. [11]

The McKinsey 7-S FrameworkThis was the case at US multinational 3M when former General Electric (GE) executive James McNerney took over as CEO. [12] Almost immediately, he cut the workforce by around 11%, placed greater emphasis on performance reviews and adopted the Six Sigma quality system he had used at GE. In this example, the trigger was the hiring of a new CEO (staffing), but this quickly led to other staffing changes (redundancies), a strategic change (efficiency) and a systems change (introducing Six Sigma).

External Factors

Of course, many of these internal drivers of change are responses to external conditions. As demonstrated above, most organizations are tremendously complex and it is rare for a single driver to be identified as the isolated trigger for change. In reality, most organizations will respond to a number of internal and external drivers at the same time.Some of these external drivers are:

Demand

Organizations must respond to any change in demand, either because their products or services are no longer popular with consumers, or because they are so popular that the organization can’t cope.This was a problem that hit US retailer American Giant two weeks before Christmas 2012. The online magazine Slate ran a feature which claimed that the company was selling 'the greatest hoodie ever made'. The result was half a million dollars worth of orders in two days, and the start-up didn’t have the manpower or materials needed to meet demand. [13]

Competition

Another big driver of change is competition. Many of the excellent companies cited by Peters and Waterman are thought to have achieved their success, in part, by taking advantage of the empty market space after World War II. As the rest of the world focused on rebuilding, the US was able to storm ahead commercially. But with the rise of Germany and Japan in the 1970s, then China and India towards the end of the century, global competition escalated and some of the most successful companies suddenly found themselves threatened by overseas competitors. [14]

Similarly, Apple’s launch of the iPad in 2010 has led to fierce competition within the tablet market, as Samsung, Microsoft and Amazon have scrambled to provide cheaper alternatives. [15]

Technology

The thriving market in tablets was the result of product innovation, but this is not the only way that technology can drive change. In the services sector, First Direct’s use of telephone and internet banking became the industry standard. [16] In agriculture, the blockchain technology behind virtual currency Bitcoin tracks food from farm to table for improved safety and better farmer and environmental welfare. [17] And on the high street, legal and illegal downloading of music and film has forced retailers to move online or face collapse. [18]

Technology then creates new markets, sets standards, sparks ‘fads’ and changes shopping habits, but each of these drivers for change is ultimately a product of the ‘Information Age’. Proponents of this term believe that the ‘Industrial Age’ is over, and that the most important commodity for modern businesses is the ability to find innovative solutions, rather than produce products. [19]

Laws and Regulation

Further organizational change can be sparked by changes in laws and regulation. For example, the EU Working Time Directive, introduced in 2003, restricts how many hours can be worked in any given week. But this caused serious problems for the UK’s National Health Service, where staff had problems filling rotas and providing adequate care. [20]

Similarly, the introduction of fishing quotas was designed to limit overfishing of European waters, but resulted in some crews throwing dead fish back into the sea to avoid breaking the rules. Fishing fleets now face the challenge of managing stock levels, while securing the livelihood of their crews. [21]

Economic Conditions

Change has been particularly important in recent years due to the economic downturn, as organizations large and small have struggled to ensure their ongoing survival. Not only have these conditions resulted in falling profits for many organizations, but 59% of respondents to an Economist Intelligence Survey reported that the crisis had revealed shortcomings within their organization that needed to be addresses to ensure success. [22]

The Environment

Environmental changes can also lead to a need for change, both in terms of the ecological, cultural and political environments. The attack on the World Trade Center in 2001 pushed up security costs in the US, while the economic impact of Hurricane Sandy is estimated to be up to $50 billion. [23][24]

In the UK, 2012 was the second wettest year on record and many British businesses were affected by flooding. Responding to this kind of disaster, and preventing its impact where possible, is a serious concern for many organizations. [25]

Understanding External Drivers

With so many different external drivers acting upon an organization at all times, deciding how to respond to them can seem like an impossible task. But it is possible to develop at least a general awareness of an organization’s operating environment by attending industry events and by developing a strong professional network.In addition, leaders should consider the following information sources:

• trade magazines for news that directly relates to their industry
• the Financial Times, The Times and BBC News for economic news and analysis
• CNET, TechRadar and Mashable for the latest technology news
• email newsletters from law firms (consider Morton Fraser or Pinsent Masons

How Do We Know What to Change?

These external drivers are not the only factors that organizations must to be aware of when assessing the need to change, and doubtless the future will reveal more. But with so much uncertainty, it can be difficult for leaders to know what to change and when to start.

It would be unusual, however, for the leader to make these kinds of decisions in isolation. In general, change experts now advocate shared ownership of change across the organization, and a shift away from more traditional command and control approaches to management. [26]

Furthermore, a number of models and techniques have been developed that can help leaders and managers identify opportunities for change and build more effective organizations.

Action Research

Action research is a technique for managing change that goes back to the 1940s, but remains popular today thanks, in part, to the number of variations on the original method that have been developed.

In essence, the change leader invites representatives from across the organization to share their views on the problems that they face. Participants then work together to identify solutions, implement them, and measure their success. In so doing, they learn more about how their organization works and identify further opportunities for change.

The benefits of action reaction are that it:

• can be used at any time
• is collaborative
• highlights known and unknown problems (any of the above drivers)
• allows mistakes to be made on a small scale before changes are made to the wider organization

Appreciative Inquiry

Appreciative Inquiry is a variation on the traditional Action Research model that takes a positive approachto change. The process is much the same as Action Research but, instead of focusing on the problems that face an organization, participants work together to identify what the organization does well.

This method is based on the theory that organizations will develop in the direction that they are studied. By discussing what an organization does well, participants can challenge their existing ideas and are more likely to feel optimistic and energized by the future.

The benefits of Appreciative Inquiry are that it:

• can be used at any time
• is collaborative
• can increase motivation and energy among employees
• builds upon the organization’s previous successes

Beckhard’s Confrontation Meeting

A confrontation meeting is a workshop devised by organizational development expert Richard Beckhard that can be used to address an organization’s problems.

Over the course of a single day, teams from throughout the organization get together, split up into work groups, and identify the root causes of problems that they face. These problems are then allocated to the functional team (sales, marketing, product development, etc.) that are best equipped to deal with them. Plans can then be created and a schedule for their completion agreed upon.

The benefits of a Confrontation Meeting are that it:

• can be used when an organization is facing a crisis (falling profits, poor retention, stifled innovation, etc.)
• is collaborative
• quickly identifies problems (internal and external drivers of change)
• creates a concrete plan for resolving problems

The Five Whys of Identifying Change

The Five Whys of Identifying Change is a group exercise that can be used to identify the root causes of problems within an organization. It cannot be used to deal with abstract problems, like decreasing market share, but is useful for identifying the root cause of recurring events (e.g. repeated failure to deliver on time, faulty products, etc.).

Over the course of an hour, participants are asked to identify why the problem occurred. Once they have identified a ‘cause’, they are asked why this cause occurred, and repeat the process five times. In doing so, they create a chain of cause and effect that should identify the root cause of the problem.

The benefits of the Five Whys exercise are that it:

• can be used to address recurring problems (usually internal drivers of change)
• is collaborative
• quickly identifies the root causes of problems
• provides participants with the information they need to find a solution

Conclusion

The drivers of change are numerous and varied, but are better understood when the change leader takes a collaborative approach using one of the techniques above. By speaking to representatives from throughout their organization, the change leader can assess the need for change and, where necessary, take steps to instigate it.