What triggers change

Internal causes

• Changes in organisational size — growth brings new structures, new layers, diseconomies of scale and a diluted culture (Greiner).
• Poor business performance — falling profit, share price or market share forces restructuring, cost cutting or a change of strategy.
• New ownership — a takeover, a private-equity buyer or a new majority shareholder brings new objectives and often new management.
• Transformational leadership — a new chief executive with a mandate to change direction, culture and strategy.

External causes — the whole of PESTLE: a recession, new legislation, disruptive technology, a shift in consumer tastes, new entrants, exchange-rate movements, supply-chain shocks.

The effects on the business

• Competitiveness: successful change (new technology, better quality, a leaner cost base) strengthens the firm's position; a botched change hands share to rivals while the firm is distracted.
• Productivity: almost always dips first — staff must learn new systems and morale is disturbed — before rising, if the change works. Managers who expect an instant gain abandon good changes too early.
• Financial performance: change costs money upfront (redundancy, new equipment, retraining, consultants) and the returns arrive later. Cash flow tightens exactly when uncertainty is highest.
• Stakeholders: employees fear redundancy and loss of status; suppliers face new terms; customers may face disruption; shareholders want the benefits quickly.

The J-curve: expect a short-run fall in performance during any significant change, followed by recovery to a higher level. Judging a change by its first quarter is one of the commonest management errors.

Your turn — the productivity effect

Your turn — the payback on change

Evaluating the restructuring

Culture, size and the speed of change

• Organisational culture is the single biggest determinant of whether change succeeds. A task culture that values expertise and experiment adapts readily; a rigid role culture, where authority comes from position and mistakes are punished, resists. Culture cannot be changed by announcement — only by changing what is rewarded, who is promoted and how leaders behave.
• Size of the organisation: a small firm can change direction in days — one conversation and everyone knows. A large firm has layers of management, entrenched systems, union agreements and sunk investments, so change is slower, dearer and more likely to be diluted as it cascades down.
• Time and speed of change: rapid change (a 'big bang') can be necessary in a crisis and gives resistance no time to organise — but it causes stress, mistakes and resentment. Incremental change (Kaizen) is easier to absorb and builds consent, but may be far too slow when a disruptive competitor is taking your market.

Managing resistance to change

Why people resist: fear of redundancy or loss of status, loss of familiar routines and competence, mistrust of management, disagreement with the plan, and simple change fatigue after too many reorganisations.

How to manage resistance:

• Communication — explain clearly and early why the change is necessary; a vacuum of information will be filled by rumour.
• Consultation and participation — involving staff in designing the change generates ownership (Mayo) and produces better solutions, because the people doing the job know it best.
• Training and support — much resistance is really the fear of not coping with the new system.
• Incentives — bonuses tied to the successful implementation of the change.
• Identify and use champions — respected staff who back the change carry more credibility with colleagues than any management memo.

Kotter and Schlesinger's caution: negotiation, manipulation and coercion also 'work' in the short run, but they destroy trust and store up resistance for the next change.

Internal, external, or an effect?

Tap a card, then tap the correct category.

Speed of change

Risk assessment and mitigation

Scenario planning asks 'what if?' before the event, so the firm has a considered response instead of improvising in a crisis.

Identifying key risks through risk assessment: each risk is scored by likelihood and impact. Edexcel names three explicitly:

• Natural disasters — flood, fire, storm damage to premises or the supply chain.
• IT systems failure — a cyber-attack or outage that halts orders, payments and production.
• Loss of key staff — a founder, a lead engineer or a chief executive leaving suddenly.

Planning for risk mitigation: business continuity (backup sites and systems, off-site data backups, insurance, dual sourcing, buffer stock) and succession planning (identifying and developing internal candidates so that a key departure does not paralyse the firm).

Your turn — expected loss

Is mitigation worth it?

Match the risk to its mitigation

Tap a risk on the left, then the most appropriate mitigation on the right.

Culture and change

Limitations of scenario planning

The big ideas to know

You have covered the causes, effects and management of change, and scenario planning, for Theme 3.6. Press Finish to see your score.