value insights

Strategic Change Requirements- Valutrics

Strategic change is about ensuring that the organization is consistently relevant in its market arenas. The very essence of strategy involves exploiting change before your competitors do. So in order to exploit or respond to competitive market conditions, strategists need to enable their organizations to adapt.
This is an extremely difficult task for large global organizations. Irrespective of the size of the strategic change, it is difficult, emotional, and time-consuming for all involved. The strategist has to ensure that the organization has the capacity to reconfigure strategy, structure, and processes, and to develop a supportive corporate culture.

Since the global financial crisis, the change imperative has come to the fore for many organizations and has been the focus of many boardroom, senior management, and strategists’ meetings and discussions. No industry sector, public sector organization, or government department has escaped the change imperative. Strategic change can be defined as a difference in the form, quality, or state over time in an organization’s alignment with its external environment.
Misalignment with the external environment can be caused by strategic drift or inertia, which means that the impact of external changes are misconstrued, downplayed, or simply ignored . The banking sector is an example of this misalignment between levels of risk and return on investment. During the early to mid-2000s, many banks continued to lend money, which meant that their operating performances kept growing. Banks kept borrowing money at relatively low interests rates on wholesale markets, as well as from other sources of syndicated debt, and used this money to support retail and commercial operational growth. When the global financial crisis began in 2008, many banks did not have sufficient reserves and experienced increases in loan impairment among their customers. For some banks, this was so great that it required national government support or resulted in the orderly wind-down of some banks. The external and internal drivers that can shape and impact an organization’s overall alignment with its environment are illustrated in Figure.


External drivers include the following.
• Changing market conditions The price of oil is inherently unpredictable and subject to dramatic shifts, which can exert huge pressures on organizations both in the short term to change their pricing structure, hedge their bets, and enhance productivity, and in the longer term to consider alternative fuels.
• Competitive pressures US automobile companies in the 1980s suddenly had to direct their attention simultaneously to quality and efficiency concerns in light of the rise of Japanese giants such as Toyota.
• Product life cycles  Nike transformed the footwear industry, which, until the advent of sports- wear, was in a mature and fixed state with little differentiation and an emphasis on cost-cutting.
• Trade liberalization  This is evident in the impact of privatization on airlines such as British Airways, as well as deregulation, which opened the way for low-cost carriers such as Ryanair and easyJet.
• Technological breakthroughs Witness the dramatic power of the Internet to  change the rules of the game and create whole new opportunities for business models, exploited by companies such as Amazon and eBay.
• Fashion and fads Consider the pressure on managers to follow the ‘strategy de jour’ .
• Structures or procedures being introduced by competitors These might include delayering, downsizing, outsourcing, or relocation.
Whether an organization pre-empts, predicts, or reacts to external drivers will largely be conditioned by the nature of its internal drivers. Even the most successful organizations can fall foul of complacency as they become victims of their own success . The once-powerful sources of success can very easily become sources of rigidity. Sony, which wowed the world for
years by linking its competencies in miniaturization to external trends in sport and fitness, exemplified in cutting-edge technology such as the Walkman, fell victim to complacency and watched as the Internet and organizations such as Apple changed the rules of the game. More recently, Japanese giant Samsung’s focus on memory chips used in digital cameras and music players has brought immediate revenues, but means that it has lost its longer-term focus on technological breakthroughs.

One key reason for misalignment and a failure to diagnose external change relates to the internal driver of managerial competence. In some instances, managerial top teams are unbalanced and do not have the necessary mix of experience to deal with key challenges. This can be especially the case as an organization globalizes into new territories or enters new product markets. Organizations also find it much easier to stick with what they know, focusing on a certain trajectory to the neglect of external factors: for example, a focus on technological proficiency or engineering prowess at the expense of market focus. Organizations are products of their histories and often hold values originally instilled by their founders. These, together with cultural symbols (the visual representation of the company) and routines (for example, the daily behavior of managers and colleagues), as well as power plays within the organization, can mean that the imperative for change is not a core priority and that new opportunities are not explored or exploited. Change can be even more difficult if the organization has invested heavily in a certain area or if change means a core competence is destroyed.

The type of change that an organization introduces can be placed along a spectrum from evolutionary to revolutionary. Evolutionary, or continuous, change involves constantly adapting or readjusting the organization so that it evolves in tandem with changes in its environment. Here, organizations are emergent and self-organizing, and change is constant, evolving, and= cumulative, with redirection already under way . This is often guided by one big idea, or strategic intent, outlining broadly where the organization wants to be and allowing for much learning en route. Evolutionary change can be introduced as a result of proactive learning or attempts to improve performance, or it can be introduced in a reactive manner in order to deal with competitor moves or environmental trends. Barclays Bank has evolved to become a global player focusing on faster growth and developing capabilities shared across disparate operations, from mortgages and Internet banking to Barclay’s Capital, with the objective of forming a unified global enterprise.
Revolutionary, or discontinuous, change is transformative in its effects, often changing the organization’s business model and involving simultaneous shifts in strategy, structure, processes, and culture. Reactive revolutionary change can be triggered by a crisis situation such as dramatic performance deficits, or past mistakes that have left the organization seriously misaligned with environmental trends. A typical example would be a turnaround strategy when organizational performance has declined and the very future of the organization is at stake.
This involves harsh, yet necessary, top-down direction, imposing on employees new ways of doing things in order to rescue the situation. This type of change is intentional and clearly associated with leadership qualities at the top of the organization. Apple Computers undertook a series of discontinuous changes in strategy, structure, and culture. It is often said that revolutionary change is best led by a new CEO who is external to the organization, because he or she can offer fresh insight and perspective that might have been lacking. According to Slatter (1984), aspects of a successful recovery strategy include change of management, strong financial control, new product focus, improved marketing costs, and cost reductions. Revolutionary change signals an often abrupt break with the status quo and often involves a transformation of the organization’s business model. This type of change necessitates a bias for action, and so tends to be directive and implemented more forcibly as a blueprint.

By contrasting evolutionary and revolutionary types of change, we can view the various dynamics of alignment and misalignment that can impact on organizations and the implications that result for the strategist.

Overall, the type and scope of change are interrelated and organizations may well pursue many combinations at once. An organization may have a portfolio of business units, each experiencing a different type of environment and type of change. This indicates how complex and messy the process of managing change can actually be.

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