MBH1683 | Leading Organisational Change · PDF filehistorical perspective, ... environment and from within the organization itself –the ... • Metaphors to describe forces that

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MBH1683 | Leading Organisational ChangePrepared by Dr Khairul Anuar

L1 – Organizations and their Changing Environments

www.mba638.wordpress.com

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By the end of this lecture you will be able to:

• describe the general characteristics of organizations and their

essential components;

• say how different methods of wealth creation, viewed from a

historical perspective, have influenced present-day

organizational strategies and focus;

• discuss the concept of organizations as systems operating in

multidimensional environments and its implications for

understanding the causes of organizational change;

• recognize that change can be triggered from any number of

directions: through historical influences, from the external

environment and from within the organization itself – the

internal environment.

Learning Objectives

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Sign of confidence on a Hull street. Photograph: Alamy

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1. Historical context of change

2. An uncertain future

3. Organizations today – environmental triggers of

change

4. Organizational responses to change

5. Comment and conclusions

Content

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• Metaphors to describe forces that bring of change in

organization: winds which are many and varied

from small summer breezes that merely disturb a few

papers

mighty howling gales which cause devastation to

structures and operations causing consequent

reorientation of purpose and rebuilding.

• Sometimes, the winds die down to give periods of relative

calm, periods of relative organizational stability.


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Metaphor for change

Summer breeze vs thunderstorm

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Metaphor for change

Life cycle of a butterfly

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Metaphor for change

River boating vs white water rafting

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Industrial Age

Agricultural AgeNeo-Industrial Age

Until 1700s wealth influenced by local markets and factors outside people’s control such as the weather. Change is predictable

Until ~1945. inventions and innovations mass production demand and supply were predictable,

In developed countries shift in focus from manufacturing to service,. Emphasis is moving towards adding value to goods and services

Now?

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• Agricultural age - prevailed until the early 1700s - wealth was

created in the context of an agriculturally based society

influenced mainly by local markets (both customer and labour)

and factors outside people’s control such as the weather.

• During this time people could fairly well predict the cycle of

activities required to maintain life, even if that life might be at

little more than subsistence level.

1. Historical context of change-Agricultural age

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• Stronger winds of change brought the Industrial Revolution

and the industrial age - lasted until around 1945.

• Characterized by

inventions and innovations that reduced the number of

people needed to work the land, which in turn

provided the means of mass production of hitherto rarely

obtainable artefacts; for organizations, supplying these in

ever increasing numbers became the aim.

• To a large extent demand and supply were predictable,

enabling companies to structure their organizations along

mechanistic lines, that is as systems of strict hierarchical

structures and firm means of control.

1. Historical context of change-Industrial Revolution

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• This situation prevailed for some time after the 2nd World War,

with demand still coming mainly from the domestic market and

organizations striving to fill the ‘supply gap’.

• The most disturbing environmental influence on organizations of

this time was the demand for products, which outstripped supply.

The (supposed) saying by Henry Ford that ‘You can have any

colour of car so long as it is black’, gives a flavour of the

supply-led state of the market.

Apart from any technical difficulties of producing different

colours of car, Ford did not have to worry about customers’

colour preferences: he could sell all that he made.


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• Figure 1.2 characterizes organizations of this period as ‘task

oriented’, with effort being put into increasing production

through more effective and efficient production processes.

• The push, during this period, for ever-increasing efficiency of

production supported the continuing application of the earlier

ideas of Taylor (1911) and scientific management allied to

Fordism that was derived from Henry Ford’s ideas on

assembly-line production (Wood, 1989).

This was a period mainly of command and control, of

bureaucratic structures and the belief that there was ‘one

best way’ of structuring organizations for efficient

production.


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• However, as time passed, this favourable period for

organizations began to wane as people became more

discriminating in the goods and services they wished to buy

and as technological advancements brought about increased

productivity so that supply overtook demand.

• In addition, companies began, increasingly, to look abroad for

additional markets.


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Figure 1.2 Market factors impacting on operations of western

organizationsSource: Goodman, M. (1995), Creative Management (Hemel Hempstead, Prentice Hall, p. 38).

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• At the same time, organizations faced more intensive competition

from abroad for their own products and services.

• In the West, this development has been accompanied by a shift in

focus from manufacturing to service, whether this merely adds value

to manufactured products or whether it is service in its own right;

• Eg. financial services, real estate agents, the services of doctors

and solicitors or taking part in education and training.

• In the neo-industrial age of the advanced countries, the emphasis is

moving towards adding value to goods and services

• what Goodman calls the value-oriented time (see Illustration 1.2)

as contrasted with the task-oriented, products/services-oriented

and systems-oriented times of the past and current periods.

• Table 1.1 lists the organizational responses, in terms of marketing,

production and people, to the different time periods.

1. Historical context of change- Neo-industrial age

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• Table 1.2 - the numbers of people working in the agricultural,

industrial and service sectors of the economies in Europe, the

United States and Japan compared to China (Almon & Grassini,

2002).


Table 1.2 The changing structure of employment: Europe, the United States, Japan and China 1980–2010 (%)

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BRICS: Growth Rate and Economic and Fiscal Fundamentals

• The first decade of the 21st century saw the golden period of the

BRICS countries - enjoyed tremendous economic growth and

accordingly their equity markets soared. With all the hyper regarding

these countries it seemed that the future simply belonged to BRICs.

• The term “BRICS was coined by Jim O’Neil of Goldman Sachs in

2001 and quickly marketed as the catch-all term to ride the growth of

emerging powers.

• However these days the BRICS have hit a brick wall. Other

groupings such as CIVETS, N-11 have been proposed. But none of

them caught on like the BRICs.

• According Vanguard, between 2011 and 2015 economic growth of

BRICS and other major emerging countries slowed as shown in the

graphic (next slide).


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3. Organizations today – environmental triggers of change

• Figure 1.1 depicts an organization as a system receiving inputs from its

environment and releasing outputs back into it.

Figure 1.1 The organization as a system

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• The view of organizations existing as systems of interrelated

elements operating in multi-dimensional environments has a number

of supporters.

• Checkland (1972) - well known for the development of the soft

systems model – an approach designed specifically for analyzing

and designing change in what Checkland terms ‘human activity

systems’, most frequently, organizational systems.

• Nadler (1988) has proposed a systems model applied to

organizational behaviour

• Stacey (2003) use systems concepts in their discussion of

organizations and change.

• Most writers on organizations stress the importance of the nature of

the environment for organizational management and decision

making.


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• An organization’s environment will also include broader influences such as

internationalization of trade,

political environment,

prevailing political ideology,

attitudes to trade unions,

changes from public to private ownership or vice versa,

demographic changes and

changes in family structure and

differences between the rich and the poor.

• Nadler and Tushman (1988) summarize the environment as:

‘All factors, including institutions, groups, individuals, events and so on,

that are outside the organization being analyzed, but that have a

potential impact on that organization.’


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http://www.economist.com/blogs/graphicdetail/2017/02/daily-chart-16?cid1=cust/ddnew/n/n/n/20170223n/owned/n/n/nwl/n/n/n/email

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The impact of PEST

• Different environmental factors can be categorised under the

mnemonics PEST (Johnson & Scholes, 1999) and STEP (Goodman,

1995),

both refer to the political, economic, technological and socio-cultural

factors that influence organizations, their strategies, structures and

means of operating, including their human resource practices.

• In addition, it is a useful metaphor to distinguish different aspects of the

organizational environment and their specific relationship to

organizations as triggers of change.

• Figure 1.3 illustrates the PEST factors that exist as part of an

organization’s environment.

All, at some time, will impact upon an organization’s formal and

informal subsystems and their components as well as which

products or services it offers and in which markets.


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Figure 1.3 PEST factors and organizational change

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1. Triggers for change from the technological environment

• Examples of triggers for change emanating from changes

in technology and the economic environment are many

and varied.

• Examples

growth of online business vs traditional bricks & mortar

businesses

Uber/Grab as alternative to taxis

Mobile phones are aimed at younger people who have

made mobile phones a fashion accessory.


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2. Triggers for change from the political environment

• Whether dictatorial or democratic government - their policies, laws and actions

have effect on the world of business, whether it is publicly or privately operated.

• National and international bodies, elected and unelected, influence organizational

life to a greater or lesser degree – UN, IMF, World Bank.

• Not only do changes in the political environment influence organizations directly,

they also interact with changes in the economic environment – eg,

privatization of publicly owned institutions (e.g. in M’sia – airport, electricity,

gas, the railways),

the cooperation between countries to form economic trading blocs (e.g. the

European Union or the ASEAN).

• Brexit/election of Trump – effects on world economy & politics

• Changes coming from one sector of the environment are compounded by their

interaction with influencing factors from other sectors of the environment – a clear

demonstration that environmental triggers for change rarely act as single

influences.


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2. Triggers for change from the political environment

• The most important role for governments is bringing of economic prosperity to their countries. However, they also act as lawmakers at more micro levels.

• The focus for governments in the past was to set policies and legislation for the future of the young, and adults over the age of 65 are often seen as the invisible population.

• From studies over the years, the focus of government policy will now be on how to manage an increasingly older population, and how the younger population will support this.

• In some countries those older people will have an increased political and economic voice, which will have to be considered when delivering services

• Undoubtedly the political environment has enormous influence on the type of change, and also the speed of change and how the triggers/influences might be managed.


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2.Triggers for change from the political

environment


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3. Triggers for change from the socio-cultural environment

• As government policies, laws and actions affect organizations

and people’s everyday lives, so do the attitudes and

expectations of people towards work, in the context of other

aspects of their lives.

• All the factors listed as socio-cultural in Figure 1.3 influence

the way organizations are set up, run and managed as well as

their capacity to attract people to work within them.


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• Examples of how changes in the socio-cultural environment

influence people’s attitudes to work, and trigger other changes

elsewhere:

social expectations for continuous increases in the standard of

living, which must, however, be set against fewer opportunities for

permanent secure employment;

demographic changes causing ‘gluts’ or shortages in the numbers

of young people coming into the labour market in some countries;

changes in family structures where men as well as, or instead of,

women may wish to stay home to look after children;

demographic changes influencing the numbers of people in

different age groups and therefore the numbers of people of

working age compared to those of retirement age.


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4. Triggers for change from the economic environment

• Some factors can be categorized in more than one way. This illustrates the

fact that aspects of the organizational environment are interrelated and

operate in a complex way to trigger change within organizations.

• However, because organizations operate in the main to make money or, in

the case of public sector organizations (e.g. hospitals, schools, some railway

systems) operate within budgets, some of their more serious concerns are

with triggers for change in the economic environment.

• This includes a concern for competitors and other issues, such as exchange

rates, corporation tax, wage rates and skills availability, which determine

their ability to compete (or, in the case of many publicly owned

organizations, operate within budgets)


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4. Triggers for change from the economic environment

• What is clear is that there is no one rationale for the way in which

organizations react or interact with triggers for change coming from

the PEST environment and perhaps constraints coming from their

own histories and the influences of their temporal environments.

• External and internal politics play a part in decisions to change and

in what way.

• While rational decision making may seem attractive, and many

persuade themselves that this is what they are involved in, personal

circumstances, attitudes and emotions also come into play.

• In addition, not only do triggers for change come from organizations’

PEST environment, there are also forces for change operating within

organizations themselves – and these also need to be managed.

Consequently, organizations must cope with not only a plethora of

external forces for change, but also internal forces for change.


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5. Internal triggers for change

• Indicative list of internal triggers for change:

an organization becoming unionized or de-unionized

a new chief executive or other senior manager

the redesign of a factory or office layout

the purchase of new IT equipment

a new marketing strategy

a cut in overtime working

staff redundancies

strengthening of specific departments such as research and development.

• A glance through this list will show that almost all can be conceptualized as

changes in response to influences external to the organization. It is,

therefore, difficult in reality to separate completely internal from external

triggers for change.


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• Thus far the discussion suggests that organizations operate in at least three

types of environment, which together make up the total ‘operating

environment’ of an organization.

1. Temporal environment - consists of the historical developments bringing

changes over time. (eg activities that are mainly industry focused to those

which rely more on knowledge and brainpower)

• Influences organizations in at least two ways.

• First, a general way, through the cycles of industry-based innovation,

which move organizations through major series of developments such as

shown in Figure 1.2.

• Second, a more specific way through the life cycle of the organization

itself.

This includes its particular history built up from its founder days

through periods of expansion and decline, all of which are

instrumental in helping to explain an organization’s ‘idiosyncrasies’ of

strategy and structure, culture, politics and leadership style.


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2. External environment - includes the political (including legal),

economic, technological and socio-cultural environment as well as

those factors pushing for globalization and an increasing concern

with the physical environment (the PEST environment).

3. Internal environment - consists of those organizational changes that

are the first-line responses to changes in the external and temporal

environments.

• Figure 1.4 is a depiction of the concept of organizations as systems

operating in multi-dimensional environments, with all that this means

for organizations and change.

However, this way of conceptualizing the organizational

environment to some extent misses its dynamic nature and the

degree of strength of the wind of change.


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Figure 1.4 The organizational system in multi-dimensional environments

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1. Environmental turbulence

• The dynamics of any organization’s environment have also

been described in terms of the degree of environmental

turbulence.

• Ansoff and McDonnell (1990) - a firm’s performance is

optimized when its aggressiveness and responsiveness match

its environment.

• They propose five levels of environmental turbulence


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Level 1: Predictable. A repetitive environment characterized by stability of

markets; where the challenges repeat themselves; change is slower than

the organization’s ability to respond; the future is expected to be the same

as the past.

Level 2: Forecastable by extrapolation. Complexity increases but managers

can still extrapolate from the past and forecast the future with confidence.

Level 3: Predictable threats and opportunities. Complexity increases further

when the organization’s ability to respond becomes more problematic;

however, the future can still be predicted with some degree of confidence.

Level 4: Partially predictable opportunities. Turbulence increases with the

addition of global and socio-political changes. The future is only partly

predictable.

Level 5: Unpredictable surprises. Turbulence increases further with

unexpected events and situations occurring more quickly than the

organization can respond.


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• The strength of the forces for change can be related to the

degree of turbulence in the environment: the stronger the force

the more probable it is that the environment is moving to Ansoff

and McDonnell’s (1990) Level 5.

• What this implies is that the ability to plan and manage change

becomes ever more difficult as the forces and levels of turbulence

increase.

• This is related to, but complicated further by, the different types of

change that can be experienced by organizations.

• The five levels can be compared to three different kinds of

change situation proposed by Stacey (1996), namely: closed

change, contained change and open-ended change – see next

slide.


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Stacey’s Closed, contained and open-ended change

Closed change – a situation where we can explain in a widely accepted way that a sequence of events and actions will continue to affect the future course of the business.

Such closed change would normally apply to the continuing operation of an existing business.

For example, consider a business that supplies pop CDs to the teenage market.

Managers in the business are able to say with some precision how the number of customers in that market has changed over the past and furthermore how it will change for the next 15 years or so. Those customers already exist. The managers can establish fairly clear-cut relationships between the number of customers and the number of CDs they have bought and will buy.


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• Closed, contained and open-ended

Contained change - other sequences of events and actions flowing from the past are less clear-cut. Here we find that we are able to say only what probably happened why it probably happened, and what its probable consequences were. The impact of such a sequence of events upon the future course of the business has similarly to be qualified by probability statements.

• For example, the supplier CDs will find it harder to explain why particular kinds of CDs sold better than others. That supplier will find it somewhat difficult to forecast what kinds of CDs will sell better in the future; but market research, lifestyle studies and statistical projections will enable reasonably helpful forecasts for at least the short


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• Closed, contained and open-ended

• Open-ended change - There are other sequences of events and actions arising from the past and continuing to impact on the future where explanations do not command anything like widespread acceptance by those involved.

• The company supplying CDs may have decided in the past to diversify into online music distribution, by acquiring another company already in that business. That acquisition may then become unprofitable and the managers involved could well subscribe to conflicting explanations of why this is so. Some claim the failure was due to:

the market for online music distribution is too competitive.

diversification was a wrong move because it meant operating in a different market with which they were not familiar.

it is due to a temporary decline in demand and that the market will pick up in the future.

poor management of the acquisition, or to a failure to integrate it properly into the business, or to a clash of cultures between the two businesses.

• What that team of managers does next to deal with low profitability obviously depends upon the explanation of past failure they subscribe to.


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• Organizations operate in multiple environments (temporal, external and internal).

• Organizations have to continually work to achieve ‘external adaption and internal

integration’. In addition, they need to be ‘quick on their feet’ to anticipate, where possible,

opportunities and threats and react with knowledge to the ‘unpredictable surprises’. The

purpose and focus of efforts to do so are, essentially, what managing organizational change

is all about.

• This means understanding

how the formal aspects of organizational life respond to pressures from the internal,

external and temporal environments – that is how change is leveraged through

strategy, structure and operational processes.

the more informal processes such as power, politics and conflict, culture and

leadership.

• In reality it is difficult to identify all the determinants of change, which will make it difficult to

always prescribe appropriate strategies. It could also be argued that the information

gathered is subjective and personal to the researcher at any one moment in time.

• If managed effectively and applied progressively a continuous process of identifying,

collecting and translating progressive information about external influences will benefit

strategic decision making towards establishing a preparative stance to environmental

factors.

5. Comment and conclusions

Documents

MBH1683 | Leading Organisational Change · PDF filehistorical perspective, ... environment and from within the organization itself –the ... • Metaphors to describe forces that