According to a research, 25-30% of business entities, companies and organizations are wiped out every two to three years.
What is the one single reason for this?
These organizations fail to adopt change.
The organizations which adopt change these are one which thrive and flourish. Therefore, change is inevitable even it is not desirable.
Organizational change is a change, reorganization or replacement in process, method, system, operations, technology and structure of organization. Organizational change can be developmental, transitional and transformational.
How does this change occur?
What does cause this change at organizational level?
There might be one single factor affecting organizational change or there might be varied factors behind this change. These can be financial or economic, technological, political, social, legal, staff performance, vision of leadership etc.
All of these and many others can be categorized into two groups- internal and external factors of change
Let’s discuss each of category in detail.
Internal Factors Affecting Organization
Internal factors are those which are originated from an organization itself. These are predictable factors because these lies within organization.
Leadership and management has clear understanding and quickly analyze that what are internal factors and how can organization respond to these and embark on journey of making change.
Following are some of the key internal factors which affect organizational change.
Vision
Some organizations are vision focused. Such organizations continuously make changes to achieve its vision. These organizations also have tendency to revisit and redefine vision. And this is key force behind accepting and executing changes.
They understand that to achieve their grand vision, they must be willing to evolve, adapt, and sometimes even redefine their destination based on the journey’s learnings and the sea’s changing conditions.
Take, for example, a company like Apple. Apple’s vision has always been about innovation and redefining the user experience with technology. This vision has led them through various phases of change, from revolutionizing personal computing with the Macintosh to reimagining mobile communication with the iPhone, and continuously pushing the boundaries of what technology can do in our daily lives.
Values
Organizations core values are also driver of change. Organizations’ core values act as the moral compass guiding their actions, decisions, and strategies. For instance, values like gender balance, cultural and ethic diversity etc are some powerful principles that often lead to big changes in organizational strategies and processes.
A compelling example of this approach is Microsoft’s inclusive design initiative, which focuses on creating products that are accessible to all users, including those with disabilities. This commitment to diversity and inclusion has led to the development of features like the Xbox Adaptive Controller, designed to meet the needs of gamers with limited mobility. Such innovations not only broaden Microsoft’s market but also reinforce its image as a brand that values and promotes diversity
Learn more about: Management of Change and Diversity in the Workplace
Organizational Culture
An organization’s culture is like the soil in which its future grows. If work place culture is vibrant, dynamic and leadership encourages creativity, then it is likely that organization accepts and implements change. Such an environment not only nurtures the seeds of new ideas but also ensures they flourish into impactful actions and strategies, propelling the organization toward a prosperous future.
Let’s take Google as a prime example. Google’s organizational culture is renowned for its emphasis on creativity, openness, and innovation. The company has cultivated an environment where employees feel valued not just for their expertise but for their creative contributions and ideas. This culture of empowerment and inclusivity is a significant factor behind Google’s ability to continuously innovate and stay ahead in the highly competitive tech industry.
Google’s famous ‘20% time’ policy, where employees are encouraged to spend 20% of their time working on projects they’re passionate about, even if these projects don’t align directly with their primary job responsibilities, exemplifies how leadership can foster a culture of creativity and innovation. This policy has led to the development of some of Google’s most successful products, such as Gmail and Google News, showcasing how a supportive and dynamic culture can directly contribute to an organization’s growth and evolution
Learn more about: What is Culture Change in an Organization? And How to Implement it?
Core Expertise
Core expertise of an organization also dictate change. The core expertise of an organization is like a powerful engine that propels it forward, not just within its own walls but across the entire landscape of the industry it operates in. This specialized knowledge and skill set can lead to groundbreaking innovations that disrupt traditional methods, challenge the status quo, and set new benchmarks. So, if an organization is strong in one technical area, it will create innovate solutions and disrupt the existing methods and culture of the entire industry.
Tesla, Inc., under the leadership of Elon Musk, serves as a quintessential example of how an organization’s core expertise can drive significant change. Tesla’s expertise in electric vehicle (EV) technology and renewable energy solutions has not only positioned it as a leader in the automotive industry but has also compelled the entire automotive sector to accelerate the shift towards sustainable transport.
Learn more about: Tesla Change Management Case Study
Leadership
Change in leadership is akin to a change in the captain of a ship; it can significantly alter the course, speed, and even the ultimate destination of the vessel. Every new leadership brings new vision, new strategies and new working culture to his/her organization. So new leadership is a strong internal factor which affects change.
A prime example of how new leadership can drive organizational change is the transformation of Microsoft under Satya Nadella. When Nadella took over as CEO in 2014, he brought a fresh perspective and a new set of values to the tech giant. At the time, Microsoft was perceived as lagging behind its competitors in key areas, including mobile computing and cloud services. Nadella’s vision focused on “mobile-first, cloud-first,” a significant pivot from Microsoft’s traditional emphasis on personal computing and software licensing.
Under Nadella’s leadership, Microsoft underwent a cultural shift towards a “growth mindset,” a concept that encourages continuous learning, openness to change, and the belief that talents and abilities can be developed over time. This was a departure from the more rigid, hierarchical culture that had previously characterized Microsoft. Nadella emphasized collaboration, breaking down silos, and fostering an environment where innovation could thrive.
Learn more about: Microsoft Change Management Case Study
Performance
This is perhaps the most important factor which drives change. Good Leaders makes strategic shift in their approach to business when performance of an organization is not satisfactory. Good leaders, recognizing the signs of underperformance, are not afraid to enact bold changes in the roles, responsibilities, and structures within their organization to spark improvement and competitiveness in their industry.
A good example of this is Lou Gerstner’s turnaround of IBM in the 1990s. When Gerstner became CEO in 1993, IBM was facing a critical juncture; the company was deeply entrenched in its traditional hardware manufacturing business and was on the brink of being broken up into smaller, independent units due to financial losses and a rapidly changing technology landscape.
Gerstner, coming from a non-technical background in management consulting and consumer products, took a drastically different approach to reviving IBM. Recognizing that the technology industry was shifting towards integrated solutions and services, he made the strategic decision to pivot IBM’s focus away from hardware and towards software and services.
To execute this vision, Gerstner overhauled roles and responsibilities within IBM. He broke down silos between departments, fostered a culture of customer service and innovation, and redirected resources towards growing areas of the business such as IT consulting and cloud computing. This was a massive shift for a company that had been hardware-centric for decades.
Learn more about: IBM Change Management Case Study.
Employees
Confidence of an organization to make change depends on attitude and skills of its employees. If employees approve and accept change and their skills are also in line with intended change then there is more chances that organization will be successful in managing change. This synergy between employee readiness and organizational change initiatives can be a potent catalyst for successful transformation.
Consider the example of Adobe’s transition from selling packaged software to adopting a cloud-based subscription model with its Creative Cloud suite of applications. This was a monumental shift not just in Adobe’s business model but also in how its products were developed, delivered, and updated.
For such a change to be successful, it required more than just a strategic vision from leadership; it necessitated a workforce that was adaptable, skilled in new cloud-based technologies, and supportive of the transition.
Recognizing the importance of employee attitudes and skills in this transition, Adobe invested heavily in training and development programs to equip its workforce with the necessary cloud computing skills. They also fostered a culture that embraced change, encouraging innovation and flexibility.
Learn more about: Short Case Study on Change Management
External Factors Affecting Organization
Organizations function in a large environment. This environment around organizations includes customers, government, policy and laws, social norms, economy, technology, competitors etc.
All of these exist mainly outside of an organization which has no control over these. Besides control, Leadership and managers even has less understanding and knowledge about external changes. So these external factors also drive organizational change.
The external factors of organizational change are difficult to manage because these are unpredictable than the internal factors.
Following are some of the key external factors affect organizational change.
New Opportunities
Economic growth acts as a beacon, illuminating new business opportunities for organizations agile and visionary enough to seize them. As economies expand, consumer purchasing power increases, new markets emerge, and technological advancements accelerate, creating a fertile ground for businesses to grow and evolve. And organizations expand when they seize new opportunities in the market. For this to happen organization make changes in their strategies, acquire new expertise and take new staff on board.
A prime example of an organization that adeptly capitalized on economic growth is Amazon. Initially launched as an online bookstore in the mid-1990s, Amazon quickly recognized the broader potential of the internet’s economic expansion. As the digital economy grew, Amazon saw an opportunity not just in selling books but in becoming a one-stop-shop for everything online.
To seize these new opportunities, Amazon diversified its product lines, venturing into electronics, clothing, and even groceries. It also expanded its services to include cloud computing through Amazon Web Services (AWS), which has become a cornerstone of its business model, providing a robust revenue stream separate from its retail operations.
Amazon’s journey from a modest online bookstore to a global e-commerce and cloud computing giant exemplifies how organizations can leverage economic growth to drive change.
Learn more about: Amazon Change Management Case Study
Fashion
Fashion, much like the broader societal trends, acts as a significant external force that can dictate the direction in which organizations evolve, pushing them to innovate and adapt to stay relevant and competitive. This force is not just about clothing or accessories; it encompasses lifestyle, technology, and consumer behavior changes.
As societal preferences shift, organizations across various sectors must recalibrate their strategies, product offerings, and marketing messages to resonate with the evolving tastes and values of their customers.
A compelling example of fashion as an external factor driving organizational change is the automotive industry’s response to the growing trend of environmental sustainability. In recent years, there has been a noticeable shift in consumer preferences towards more eco-friendly and sustainable lifestyle choices. This trend has been particularly pronounced in the automotive sector, where there is increasing demand for electric vehicles (EVs) as a cleaner, more sustainable alternative to traditional internal combustion engine vehicles
Competition
Competition is getting tougher every day. Organizations innovate new marketing tool and strategies and disrupt the entire trend of market. It is such a compelling factor that every player of the industry has to respond and develop it own strategy to survive and thrive in market.
This dynamic ensures that staying static is not an option for any company aiming for growth and sustainability. To thrive, organizations must not only keep pace with but ideally stay ahead of emerging trends, technologies, and consumer behaviors shaped by their competitors’ innovations.
A vivid example of this competitive dynamism is seen in the fast-food industry with the advent of digital ordering and delivery services. Consider Domino’s Pizza, a company that transformed itself into a tech leader within the food service sector through innovative marketing strategies and technology investments.
At a time when online ordering was becoming more popular but still wasn’t a mainstay for many restaurants, Domino’s invested heavily in technology to make ordering a pizza as easy as sending a tweet or using a voice command on your smartphone. This included developing a highly functional mobile app, creating a simple online ordering interface, and even experimenting with autonomous delivery vehicles and drones.
Learn more about: 10 Successful Change Management Companies Examples
New Technology
Technology is also a powerful factor that acts as both a catalyst and a necessity for organizational change. In this digital world, organizations need to upgrade technologies in order to remain competitive in the market. This constant need for technological upgradation reshapes business models, operational processes, and market strategies, making technology a key factor driving organizational change.
An exemplary case of technology driving organizational change is the retail industry’s adaptation to e-commerce and online marketing platforms. Take, for instance, the transformation of traditional brick-and-mortar retail giants like Walmart. A decade ago, the retail landscape was dominantly offline, with online shopping seen as a convenience rather than a necessity. However, as internet usage proliferated and consumer preferences shifted towards online shopping, the need for a robust online presence became undeniable.
Learn more about: Walmart Change Management Case Study
Government Regulation
Government laws and regulations serve as significant external forces that necessitate organizational change. For instance, trade policies, taxation laws, industry specific regulations, labour laws greatly affect the way of doing business. These legal frameworks can alter the landscape in which companies operate, influencing everything from operational costs and market entry barriers to product development and employee management. Organizations need to stay vigilant in connection to government policies and adapt to changes.
One illustrative example of government regulations driving organizational change involves the General Data Protection Regulation (GDPR) introduced by the European Union. Implemented in May 2018, GDPR represents one of the most significant changes in data privacy regulation in decades. It was designed to harmonize data privacy laws across Europe, protect EU citizens’ data privacy, and reshape the way organizations across the region approach data privacy.
The introduction of GDPR compelled organizations worldwide to reassess and often overhaul their data handling and privacy practices. Companies that deal with the personal data of EU citizens, regardless of where the companies are based, had to ensure their processes were compliant with the stringent requirements of GDPR. This included obtaining clear consent from individuals before processing their data, ensuring the security of the data being processed, and providing individuals with the right to access, correct, and delete their data.
For many organizations, compliance with GDPR meant implementing significant changes in their operational procedures, IT systems, and customer relationship management practices. Companies had to invest in new technologies and systems to ensure data security, update their privacy policies, and train employees on compliance and data protection practices.
Politics and Economy
Internal and external politics, along with the broader economy, play a pivotal role in shaping the business landscape. Political events, such as elections, policy changes, or geopolitical tensions, can have immediate and profound impacts on a country’s economy, influencing market confidence, exchange rates, and investment flows.
Similarly, economic factors like inflation rates, economic downturns, or booms significantly affect consumer spending, borrowing costs, and overall business growth. Organizations must therefore remain astutely aware of these political and economic climates, ready to adapt their strategies and operations to safeguard their interests and capitalize on emerging opportunities.
A stark example of how political events and economic conditions can impact businesses is seen in the Brexit referendum. The decision by the United Kingdom to leave the European Union sent shockwaves through the global economy, affecting market stability, currency valuations, and creating uncertainty around trade agreements and regulations. For businesses operating within and outside the UK, Brexit necessitated a thorough reevaluation of their operations, supply chains, and market strategies.
Companies had to navigate a landscape of changing tariffs, border controls, and regulatory standards that directly impacted their costs, market access, and competitiveness. For instance, automakers in the UK, which had long benefited from the seamless integration within the EU’s single market, faced potential tariffs on exports to EU countries and disruptions to their just-in-time supply chains due to border checks. This led some to reconsider their manufacturing footprints, with companies like Honda and Nissan announcing closures or scaling back of UK operations in anticipation of these challenges.
Social Change
The social changes refer to change in norms, change in level of education, urbanization, migration etc. These social changes are also powerful external factors which affect the environment which push organizational change to make change. These changes can alter consumer behaviors, workforce expectations, and market dynamics, compelling organizations to adapt their strategies, practices, and products to stay relevant and competitive.
A prime example of social change driving organizational adaptation is the rise of remote work and digital nomadism. This shift, accelerated by advancements in technology and further propelled by the global COVID-19 pandemic, represents a profound change in work norms and lifestyle preferences. As high-speed internet and digital collaboration tools became more widely available, and as people sought greater work-life balance, organizations had to rethink their traditional office-centric work models.
One notable case is the technology company, Twitter. In response to the pandemic and changing social norms around work, Twitter was one of the first major companies to announce that it would allow employees to work from home “forever” if they chose to. This decision was not just a reaction to immediate health concerns but also an acknowledgment of a broader social shift towards valuing flexibility, autonomy, and the integration of work with personal life.
Final Words
There are many factors affecting organizational change. These factors like rapid advancements in technology, shifts in consumer behaviors, to new government regulations, or even internal dynamics like leadership changes. Recognizing these triggers does more than just prepare us for the inevitable; it empowers us to map out a strategic response, tailor-made to navigate the complexities of change. So, remember that the key to mastering organizational change lies in our ability to identify, analyze, and adapt to these influential factors. With this knowledge in hand, defining the path of change, designing its strategy, and implementing the necessary shifts become not just possible, but achievable.
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