Change is the rule of the business industry and as the industry environment continues to evolve fast, businesses have to respond with appropriate changes in their structures, policies, business processes, technologies, culture, and business orientation. The industry is continuously evolving and while small changes keep happening on a daily basis, many factors may require businesses to bring about major changes in how they work and what they do. One of the best examples is currently evident in the situation caused by the spread of Coronavirus which has forced several large and small businesses around the world to change how they have handled work traditionally.
Many of these businesses have shifted to a work-from-home model and some have partially adopted the remote work structure. While organizational change can happen due to several reasons, it is not always welcomed by the employees but given that organizations want to remain profitable they have to change with time to adapt to the changing situation. Some changes happen fast and some are slow and gradual. However, there are a large number of factors that may make organizational change necessary and urgent. You will read about the most common factors that can necessitate an organizational change in this article.
Changes in workplace demographics:
Inside most of the US workplaces, employee demographics have undergone a major change in less than a decade. The baby boomers have retired in large numbers and millennials have joined the workforce. Changing workforce demographics is a significant factor affecting the workflow as well as business processes and policies. The millennials are a tech-savvy generation with a very different set of preferences as compared to the previous generations in the US workforce. While they are tech-savvier compared to baby boomers, they also prefer different work arrangements and benefits. As baby boomers were ready to retire in large numbers, it led to a significant gap which organizations tried to fill by implementing retention plans. However, the demographic composition of the US workforce has changed a lot and it has a significant meaning for the US companies.
In order to better cater to the expectations of the millennials, companies have adopted policies like flexible work hours, various types of non-financial benefits as well as modified their cultures to better suit the composition of their workforce. Moreover, the growing number of millennial employees in their workforce has also required them to alter their organizational structures and work models. Another major challenge before the US companies that arose due to demographic changes was to deal with the multigenerational workforce and create a harmonious work environment that focused equally on the needs and preferences of all the working generations. Retaining the baby boomers for longer was also a critical challenge before companies since it meant a sudden loss of valuable know-how and companies were forced to devise strategies that could retain these people for longer. Apart from that, they needed to focus on creating HR strategies that could help them overcome age-related stereotypes since they were a major barrier in the retention of the baby boomers.
Technology has come to be recognized as the largest source of change in the twenty-first century. From the rise of the Google search engine to social media, AI, virtual reality, and several other small and large technologies, all of them have accelerated the pace at which the industry was growing. Technology has played a major role in changing our world and it was also the key factor behind the rise of tech giants like Amazon, Google, Facebook, Microsoft, and Apple. Technological evolution brought faster growth to the business industry but it also brought higher competition to the business world. Since any new technological breakthrough introduced by a competing organization could help it gain a significant edge in terms of customer base and revenue. Technology also gave birth to a race that required businesses to always remain ready for one or the other kind of change.
Technology has been igniting rapid changes in the global business environment and tech giants like Amazon and Google invest a very large sum each year in research and development only. For many of these tech leaders, their R&D expenses are the largest part of their operating expenses. Now why they invest as much in technological research and development is not only because of the competitive threat but it also enables them to serve their customers better and strengthen their brand image. If you chart the growth of Netflix, you will see it has come a long way from its foundation and streaming services that were not a part of its portfolio initially are now its largest source of revenue. Its CD business, on the other hand, is no more a very significant driver of revenue and profits. Thus, you can recognize how technology has been driving significant changes throughout the business industry. However, the growth of technology has also required businesses to change their organizational structures and cultures since not all these businesses had a culture driven by technology or data and analytics. Nowadays, data and analytics are driving nearly all the key decisions inside an organization and the dependence of companies on data and analytics for critical decisions and running critical business processes has kept growing, requiring them to create cultures that suit their digital business models.
Globalization brought both opportunities and threats for businesses depending on their capability to adapt to the changes. GDPs of the various nations, their annual output as well as standards of living and costs of production differ from country to country. As a result, several companies in the developed nations found it cheaper to have their supply chains and production networks established in the developing or underdeveloped countries where both labor and raw materials were cheaper and available in plenty. Several of the large companies in the Western nations outsourced production to the Asian nations.
While China rose as a single large source of raw materials and labor, it also grew to become a major market where the companies from the Western nations could successfully find a large customer base for their products and services. India emerged as a major IT hub and a large number of American companies outsourced their IT related work to the Indian companies. Several Western companies outsourced their software development to Indian companies like Wipro and Infosys.
Moreover, globalization led to the higher international expansion of companies which led to changes in the composition of their workforce. Their international workforce was now more diverse and filled with people from various cultural and educational backgrounds. Outsourcing trends grew and gave rise to the need to manage business and workforce from a new angle for US businesses. So, on the one hand, while globalization brought additional growth opportunities, it also brought threats on the other. A large number of jobs were outsourced to Asian countries where people were willing to work for cheaper wages resulting in increased employee stress in the outsourcing countries. Employees were forced to compete with a global workforce and this also resulted in higher stress and tension for employees in the home countries. All these changes were brought about by globalization and while trying to come to grips with these challenges, the companies in the Western nations had to alter their business models and structures as well as work processes significantly.
Changing market conditions:
Market conditions can change due to various factors and apart from economic and technological, political and social factors can also drive these changes. For example, digital technology has brought major changes to the lifestyles of consumers worldwide. Other bigger changes have also happened worldwide most of which have been linked to economic or technological factors. Changes in consumer demographics worldwide have also driven internal changes across organizations. Other types of changes in the social or business environments like the 9/11 attacks or the spread of the coronavirus have also forced businesses to bring sweeping internal changes to be able to adjust. While a very large number of people have lost their jobs in the United States, several companies were forced to ask their employees to take unpaid leaves since their businesses were shut down as a part of the lockdown. The spread of COVID-19 worldwide has caused heavy damage to the global economy and resulted in losses worth trillions for businesses globally. Stock markets worldwide have taken a hit and businesses have been forced to seek government aid. In this way, you can see the impact of market conditions on businesses and how they may require an organizational change to happen overnight. The current situation globally has made a very large number of businesses rethink their business models and react in a number of ways that they had previously never imagined.
Business growth brings both opportunities and challenges. A startup will not always remain a startup and as it becomes successful or finds heavy growth, it has to bring internal changes to suit its new status. Moreover, as these organizations find more success over time they grow into more complex structures. The growth and evolution of Netflix is an example. Many times, the organizational processes and culture that were in place at the time of the foundation do not suit the same organization any longer. To avoid being caught in silos, organizations have to bring major organizational changes. With faster growth, new needs arise and businesses also need to restructure themselves to adjust to the new demands. For example, while Google was founded in 1998 as it achieved higher growth, the need for a parent company arose to hold several businesses owned by Google which led to the creation of Alphabet in 2015.
Poor performance can also require an organization to change since without a change growth might become impossible. A perceived threat in the immediate environment can also require an organization to change because if the company is unable to respond fast that will lead to failure and at last a complete shutdown. Several such startups have failed because they were unable to change according to the changing environment and the market situation. However, there is another key fact which is that the companies performing poorly generally find it easier to bring about an internal change than the successful companies which are in a competitively more robust position. In many cases, higher success also gives rise to overconfidence and inertia. What happens afterward is that successful companies start relying on the same strategy that made them successful and keep doing the same thing again and again. It is also why younger organizations find it easier to bring about a change compared to the older ones. Take the example of Microsoft which remained caught in a void for several years and unable to emerge stuck with its core businesses. The situation changed with Satya Nadella as its CEO who helped the company emerge from that void by introducing a cultural change that helped Microsoft change its market image and build higher momentum.
Social and economic changes:
Social and economic changes can also drive significant changes across organizations driving changes in processes and policies. Their social image has become an important factor affecting the reputation of businesses worldwide. Companies invest in their social image to maintain a solid reputation. Changes happening across various societies may also require businesses to bring changes to their strategies and policies to maintain demand and popularity.
Economic changes also have a direct impact on businesses and can necessitate organization wide changes. For example, if the world economy is going through a recession, the company may need to lay off employees or create new strategies that can drive superior demand during difficult times. Social and economic changes are also important external factors that can drive an organization wide change.
A few last words:
In this way, you can see there are so many reasons that organizations need to bring about a change internally. Technology has remained a major driver of change in the industry in the twenty-first century. However, economic factors have also played a key role in driving organizational changes worldwide and so have social factors like the changing demographic composition of the global population. Sudden changes in the business environment may also require organizations to respond with appropriate internal changes.
Otherwise, growth and organizational performance are affected negatively. However, while changing market conditions may require small or big changes internally, bringing a change organization-wide is mostly a complex task requiring a lot of meditation, planning and internal and external communication. Moreover, in a very large number of cases, an attempt to bring organizational change is met with stiff resistance from the staff which may be caused due to an ambiguous situation. However, clever leaders are able to adapt their communication and leadership style to gain buy-in and successfully bring about organizational change.
Other sources: Principles of Business Management.