Influential forces behind change

Before the different factors influencing the capacity for change are discussed, the author would like to stress how all influencing forces can be interpreted as either restraining or driving forces, wherefore, this should be taken into consideration when reading the following part.

A restraining force is something that is limiting the process of change, whereas a driving force is something that is having a controlling influence on the change and

hence enhancing the change process. The influencing forces are divided into six parts;

environment, management fashion, leadership, culture, structure and resources and capabilities. This distinction into internal and external forces has been made in order to make the understanding of what actually influences the capacity for change more comprehensive. The distinction is also in accordance with Melin’s (1989)

“Field-of-forces metaphor” where Melin seeks to distinguish the internal and external forces but also the strategic forces of interacting. However, whilst Melin’s model of 1989 purely seeks to describe the forces in the fields, the author aims to be able to see how these factors or forces influence the company’s ability to change.

Each category of influential forces, is to be seen as a incorporation of a series factors constituting each force, of which only a small number can be discussed in this paper.

Therefore the chapters discussing each influential force are by no means exclusive or exhaustive.

2.3.1 Environment

External factors are factors that the company cannot control and has to adapt to. The organisation should continuously adapt to the environment and monitor it. There are different analyses concerning external factors. The author chooses PESTLE and Porter’s five forces as they are complementary. The first analysis deals with factors which are not usually linked to the firm. The second analysis focuses on external factors which often interact with the firm activity. All these trends are not acting separately but interact between each others.

According to Kotler (2003) six external forces can impact the firms’ activity.

PESTLE analysis

Political-legal: This element is composed of laws, government agencies, pressure groups that influence and limit various organisations and individuals. Sometimes these laws also create new opportunities for businesses. Legislation is important for businesses as it might protect them from unfair competition. It can offer companies opportunities as well as threats if the legislation requires big changes inside the company.

Economic: Markets require purchasing power. The purchasing power in an economy depends on current income, prices, savings, debts and credit availability. They must also pay close attention on consumer-spending patterns.

Social-cultural: Society shapes our beliefs, values and norms. People absorb a worldview that defines their relationship to themselves, others, organisations, society, nature and to

the universe. The company has to take this into account as it helps to define and understand its customers, its prospects and customer changes. Hence, the firm can prevent certain behaviour and adapt to changes. Furthermore, people make up the markets. The firm has to take care of different factors according to target: Size, growth rate of population in cities, regions, nations, age distribution and ethnic mix, educational level, households’ patterns, regional characteristics and movements.

Technological: It is one of the most dramatic forces shaping people live. Every new technology is a force for “creative destruction”. The economy growth rate is affected by how many major new technologies are discovered. New technologies also create major long run consequences that are not always foreseeable. The marketer should monitor the following trends in technology: the pace of change, the opportunities for innovation, varying R&D budgets and increased regulation. Technological changes might change the market positioning of a company dramatically.

Environmental: Deterioration of the natural environment is a major global concern that companies has to take into consideration as it has been of growing importance for customers and taken into consideration in legislation and government taxes. New regulations affect certain cities very hard. There are four trends in the natural environment: shortage of raw materials, the increased cost of energy, increased pollution level and the changing role of governments.

When doing the analysis of the macro environment the history should be considered – if one only monitors present-day aspects an adequate analysis cannot be attained. It is also essential to acknowledge that the affecting forces within the framework of PESTEL intervene with each other and cannot be analyzed independently (Johnson & Scholes, 2002).

Porter’s five forces

The Five Forces Model by Porter is used in order to “identify the sources of competition in an industry” (Johnson & Scholes, 2002). The Model recognizes five major forces that have an effect on industry competitiveness. The forces are competitive rivalry, the threat of potential entrants, buying power, supplier power and the threat of substitutes. The main issues for the firms are to find a relevant position within the industry and manage the forces appropriately in order to be profitable.

Kotler (2003) summarise Porter’s five forces in its eleventh edition as follows:

Threat of intense segment rivalry (industry competitors): There are different kinds of threats.

Indeed, the competitors can be numerous, strong or aggressive. The market can be stable or declining, plant capacity additions can be done in large steps, fixed costs can be high, exit barriers might be high and competitors can also have high stake in staying in the segment. These engender price wars, advertising battles and new product introductions.

Threat of new entrants: If barriers to entry are high and exit barriers are low it might attracts new entrants.

Threat of substitutes: There is a danger if actual or potential substitutes for the product appear because it places a limit on prices and profits.

Threat of buyers growing bargaining power: There is a threat if the buyers possess as strong or growing bargaining power. This occurs when they are more concentrated or organized, when the product represents significant fraction of the buyer’s costs, when it’s undifferentiated, when buyer’s switching costs are low and when the buyers are price sensitive.

Threat of suppliers growing bargaining power: Suppliers bargaining power is high when; they are able to raise prices, reduce quantity to quantity supplied, are concentrated or organised, there exist few substitutes, the costs of switching products are high and when the supplied products are an important input.

2.3.2 Management fashion

Zucker (1998) states that managerial action is often based on fashion rather than on true programs of change (cited in Carson et. al., 2000). Many current and previously popular concepts within the strategy field such as core competences, reengineering and vision can be seen as management fashions (Carson et. al., 2000; Fink, 2003; Clark, 2004). Drucker and Davenport (1997) label managers’ appetite for new fashion as

“fashion consciousness” while Carson et. al. (2000) wonder whether this should be seen as an attempt to outsource critical thinking.

Carson et. al. (2000) define management fashions in the following terms: (1) subject to social contagion, (2) are or perceived to be innovative, rational and functional, (3) are aimed at encouraging better organizational performance, (4) are motivated by a desire either to remedy some existing operational deficiency or to prospectively capitalize on opportunities for improvement, and (5) are considered to be of transitory value, as

there is no conclusive research showing its efficiency.

Adopting management fashion is a way for organizations to signal that they are progressive, committed to change and dealing with their past (Nohria & Berkley, 1994 cited in Carson et. al., 2000).

Even though management fads have become broader in their scope and more complex to implement, their life time has actually decreased as managers want to embrace new concepts earlier. The reason is psychological. As environmental pressure increases, a temporal disorientation might cause people to overestimate elapsed time, make quicker decisions and favor change over continuity. Hence, the shorter fashion life time (Carson et. al., 2000).

Even though management fashions cannot consistently produce positive results or even be directly inefficient and wasteful (Abrahamson, 1999), managers continuously adopt new ones to “fix the problems”. When fashions are flawed, managers tend to become more risk seeking and adopt more transformational and radical fashions (McGill &

Slocum, 1993 cited in Carson et. al., 2000).

The author believes that management fashion will act as both an enabler and constraint for organizational change. Institutional pressure forces organizations to adapt to new fashion, but also makes it difficult to implement change not in line with the prevailing fashion. However, the prevailing fashion might not represent the kind of change necessary considering the external environment and strategic drift might occur.

Management therefore needs to find a balance between following and fighting the fashion.

2.3.3 Leadership

Mintzberg and Waters (1983) argue that in order to initiate the conceptual strategic change the strategist’s mind-set must be altered before a change can occur.

Furthermore, the ability to unfreeze the mind or recognize a change necessity is stressed in order to make a change happen and then refreeze it after implementation.

Organizations ought to have a strategist with an appropriate mind-set in relation to the organizational setting. Scholars suggest three main configurations for the strategist (see Table 2.1). First, if an organization encompasses a simple structure the strategist’s mind as a concept attainer is the most appropriate – one leader that devises and conceives corporate strategy. Second, if the setting is a machine bureaucracy the mind-set of a

planner is the most relevant – planning or implementing an already pursued strategy.

The last configuration in a setting of complex adhocracy emphasizes the fact that “every man is a strategist” (Mintzberg and Waters, 1983) while strategist is perceived as a pattern recognizer (Mintzberg and Waters, 1983).

Table 2.1 the role of strategist in different configurations

The role of the strategist in three different configurations

Configuration The role of the strategist

Simple structure Concept attainer

Machine Bureaucracy planner

Adhocracy Pattern recognizer

Source: the mind of strategists (Mintzberg & Water, 1983)

According to Hellgren & Melin (1993) there is a necessity to focus on a leader or strategist’s way of thinking in order to comprehend strategic change processes at a profound level. The strategist’s way of thinking reflects the leader’s life experience and personality – which constitute the way the leader thinks. Furthermore, it comprises reasonably stable assumptions, values, and thoughts regarding the leadership role.

Hellgren & Melin (1993) claim that the way of thinking is relatively difficult to change since it is highly dependant on the setting. A leader with an established way of thinking who works in an environment with values as stable as his or hers will find it hard to initiate radical change. However, the degree of power the leader has is also important – if the power is high enough the leader can to some extent neglect the established values and environment and pursue his or her way of thinking (Hellgren & Melin, 1993).

Rowe (2001) identifies three forms of leadership and their effects on performance:

managerial, visionary and strategic. Managerial leadership tends to maintain stability and the status quo, whereas visionary leadership leads change. But strategic leadership is the most powerful. He defines strategic leadership as the ability to influence those with whom you work, to voluntarily make decisions on a day-to-day basis that enhance the long-term viability of the organization, while at the same time maintaining the organization’s short term financial stability.

Rowe’s study, based on theory and anecdotal evidence, shows that strategic leadership has a dramatic effect on a company’s performance, greater than managerial and visionary combined. He argues that strategic leadership is something more powerful a synergistic combination of the managerial and visionary leadership (Rowe, 2001).

Table 2.2 three types of leadership

Type of leadership Attribute

Managerial leadership Tends to maintain stability and the status quo and emphasizes short-term financial stability

Visionary leadership Visionary leadership leads change and is based on creating long-term wealth

Strategic leadership

A synergistic combination of the managerial and visionary leadership. The ability to influence those with whom you work, to voluntarily make decisions on a day-to-day basis that enhance the long-term viability of the organization, while at the same time maintaining the organization’s short term financial stability.

Source: Creating wealth in organisations: The role of strategic leadership (Rowe, 2001)

2.3.4 Resources and capabilities

The resources a firm can control are physical, human, financial and intellectual capital.

The resources can be categorized as inadequate, threshold and unique. The inadequate resources do not adequately meet the needed level of performance standards. The threshold resources are the resources needed to stay in business while the unique ones create competitive advantage and are intricate to imitate (Johnson & Scholes, 2002).

The resource based view has a focal point on the intrinsic aspects of a firm and views the aggregated firms as heterogeneous regarding the resources and capabilities they control in contrast to the environmental extrinsic view of resource homogeneity within the industry. The resource based view can be seen as an “inside-out” (Connor, 2002) method in supporting the development and management of an adequate strategy.

There are different views regarding how the resources may support a sustainable competitive advantage. Barney (1991) argues that a sustainable competitive advantage can be attained if a firm controls adequate resources. However, according to Grant (1991) the essential part is the way in which the firms combine their resources and acknowledged capabilities in order to create a sustainable competitive advantage. Furthermore, Prahalad

& Hamel (1990) argue that core competences are the resources or competences a firm controls which create or support sustainable competitive advantage.

A prerequisite regarding the potential of creating a sustainable competitive advantage is that the resources encompass certain features. According to Barney’s (1991) static view

resources should be valuable, rare, imperfectly imitable, and non-substitutable. Grant (1991) has a dynamic view and stresses the necessity that capabilities and resources are durable, not transparent, imperfectly transferable, and non-replicable.

Table 2.3 Comparison of Barney’s and Grant’s points of view about RBV

The Barney 1991 framework The Grant 1991 framework How to achieve

SCA

Depends on the resources that the firm controls (static view)

Depends on the way firms combine their resources or

One of the forces that influence organization’s capacity for change is culture.

Numerous attempts have been made to identify this organizational phenomenon and its impact on the changes an organization is undergoing. Though depending on the trends among scholars and general changes the definitions of corporate culture vary, the most frequent explanation is that of ‘shared philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms that knit a community together’

(Kilmann, Saxton, & Serpa, 1985). Mintzberg and Westley (1992) refer to culture as the broadest conceptual level encompassing influential factors in the strategic change processes. Despite the variety of definitions, most of the authors agree that culture is a collective phenomenon that has to be viewed as part of the organizational totality:

corporate culture can not be changed or altered separately from the rest of organization and is dependant on an integrative and systematic approach towards all organizational components. Kilman, Saxton, and Serpa (1985) clearly state that corporate culture can not be dictated and imposed as a top-bottom process by the top managers. Nonetheless, managers play a pivotal role in culture formation, transmission of values, acceptable ways of thinking and behaving in an organization. According to Schein (1992) managers play an essential role of ‘culture embedding mechanisms’: they continuously measure and monitor, react to and interpret environmental and internal changes. Finally, as Barney (1991) claims, culture is also one of the valuable, rare and hard to imitate resources around which a company may attempt to build its sustainable

competitive advantage.

Yet the most important aspect of culture with regards to organizational change depends on the level of its direction, pervasiveness, and strength, as defined by Kilmann, Saxton, and Serpa(1985). Direction refers to culture’s ability to influence members’ behavior and guide them towards accomplishment of organizational goals; pervasiveness depends on the degree of embeddedness of shared values among the members, while strength indicates the level to which culture can affect the employees. The degree of the enumerated factors as well as their fit with organizational structure and strategy influences culture’s impact as a hindering or driving force behind organizational change, its pace and degree. Therefore, it is important to have a change-oriented culture and managers that can draw the lines for the guiding behavior among organization’s members and as a result enhance capacity for change. Finally, it is impossible to change culture without making adjustments to organizational structure, its systems and programs, goals and visions (Minzberg & Westley, 1992).

2.3.6 Structure

Another important factor, perhaps not driving change in itself but allowing it to flow more or less smoothly, is the organisational structure. Structure is the conceptual and functional framework of an organisation, as well as the configuration of its resources (Hall & Saias, 1980). In other words this can be viewed as external (macro) and internal (micro) structure.

Researchers argue about whether strategy follows structure or vice versa. The most common view is the one proposed by Chandler (1962) stating that the environment and the resources of the organisation influences the strategy which in turn determines the organisational structure. In the article Strategy Follows Structure by Hall and Saias (1980) the Chandler (1962) model of change is reviewed. Among other things the authors highlight; unless structure follows strategy, inefficient results will occur.

However they also argue that strategy grows out of structure and in turn may lead to its modification (Hall & Saias, 1980). This reversed view that strategy follows structure is brought up by authors on the topic in the Melin (1989) Field of Force article. From a strategic choice viewpoint it is here mentioned that certain strategy is evolving from inside the organisation and is consequently partly a result of the existing structure. As above mentioned the discussion about whether strategy drives structure or vice versa could go on and on. Suffice it to say that there is a reciprocal relationship between the two. As Mintzberg (cited in Amburgey & Dacin, 1994) states, strategy and structure do follow one another as the left foot follow the right- but they do not have equal strides.

Bureaucratic structures can be reasons as to why some strategies plans fail. For example when there are inconsistencies between operational and strategic plans or when the rigidity of structure does not allow for important alterations in the implication processes. Amburgey and Dacin (1994) further mention that strategic perceptions are conditioned by structure. Hall and Saias (1980) also highlights how elements of structural characteristics act like a filter and by paying greater or lesser attention to incoming information determines what the organisation is able to see. When information is interesting it is transmitted to other elements of the structure. At the same time and on the contrary if information gatekeepers judge the information to be irrelevant for the organisation there will be a halt in the information flow. If an organisation has experienced success in the past it might be inclined to act according to these past achievements even though the present and future events demand change of structure and activities. Research indicate that decentralized structures tend to respond rapidly to events, whilst bureaucratic structures restrict the information flow and limits the ability to pick up on relevant information that otherwise would initiate change (Hall

& Saias, 1980).