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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.
1. Historical context of change
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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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1. Historical context of change
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.
1. Historical context of change-Industrial Revolution
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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.
1. Historical context of change-Industrial Revolution
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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.
1. Historical context of change-Industrial Revolution
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1. Historical context of change
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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1. Historical context of change
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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).
1. Historical context of change
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).
2. An uncertain future
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2. An uncertain future
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2. An uncertain future
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2. An uncertain future
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2. An uncertain future
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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.
3. Organizations today – environmental triggers of change
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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.’
3. Organizations today – environmental triggers of change
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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.
3. Organizations today – environmental triggers of change
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3. Organizations today – environmental triggers of change
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.
3. Organizations today – environmental triggers of change
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3. Organizations today – environmental triggers of change
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3. Organizations today – environmental triggers of change
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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.
3. Organizations today – environmental triggers of change
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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.
3. Organizations today – environmental triggers of change
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2.Triggers for change from the political
environment
3. Organizations today – environmental triggers of change
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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.
3. Organizations today – environmental triggers of change
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3. Triggers for change from the socio-cultural environment
• 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.
3. Organizations today – environmental triggers of change
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3. Organizations today – environmental triggers of change
3. Triggers for change from the socio-cultural environment
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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)
3. Organizations today – environmental triggers of change
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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.
3. Organizations today – environmental triggers of 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.
3. Organizations today – environmental triggers of 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.
4. Organizational responses to change
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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.
4. Organizational responses to change
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4. Organizational responses to change
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
4. Organizational responses to change
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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.
4. Organizational responses to change
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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.
4. Organizational responses to change
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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.
4. Organizational responses to change
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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
4. Organizational responses to change
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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.
4. Organizational responses to change
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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
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