What is Organizational Change?

In a prior post I discussed the pace of innovation that companies should follow and suggested that it often made more sense to embark on a strategy of evolutionary change to products and technology rather than attempt the difficult feat of revolutionary change that requires completing overturning the way things have been done in the past.  Related questions arise in the area of “organizational change,” which is the process by which companies move from the current state to some desired future state in order to maintain, and hopefully increase, organizational effectiveness.  Companies must continuously evaluate the need for redesigning their organizational structure to deal with changes in their business environment and ensure that the mechanisms and procedures for coordination and control continue to operate effectively.  They should create and implement strategies for planned organizational change in order to strengthen and expand the value-creation activities of the firm.  For example, even successful companies should understand the need to re-align its resources and core competencies in ways that will allow them to continue to grow through the introduction of new products and/or entry into new markets.  Unplanned organizational change may also be needed in situations where companies have fallen on hard times and need to move quickly to restructure their organization in order to survive and launch new business initiatives.

The most common targets for organizational change initiatives include human resources, functional resources, technological capabilities and organizational capabilities:

  1. The skills and abilities of the managers and employees of the company (i.e., human resources) are essential to the efforts of the company to develop and maintain its core competencies and thus establish a competitive advantage.  Accordingly, an important part of continuous organizational change for any company is taking the necessary steps to strengthen its human resources through training and development, socializing new employees into the organizational culture of the company, consciously altering cultural norms and values to keep them consistent with current company strategies, and establishing promotion and reward systems that effectively motive personnel and sustain morale.
  2. The ability of functional departments to increase their value-creation capabilities depends on identifying and implementing necessary changes in their organizational structure, culture and technology.  As companies grow and competitive conditions change the relative importance of functional departments will also change and companies will be forced to realign the resources that are invested in particular functional activities.  For example, as the pace of innovation increases in the company’s chosen market the essential focus of organizational change may be in the functional area in the form of a transition from the traditional function-based organization to a product team structure that is more effective in accelerating new product development.
  3. Companies may seek organizational change through strengthening their technologies capabilities in order to improve their ability to rapidly develop and launch new products, reduce manufacturing costs, increase the quality and reliability of products, and create customized versions of products to achieve differentiated advantages.
  4. An important, but often forgotten, source of organizational change is planned changes to the organizational structure and culture of the company in order to enhance the ability of the company’s human and functional resources to create new value.  For example, a company can modify its organizational structure to improve communication and coordination between functional departments.

While the targets of organizational change can be categorized in the manner described above, it usually necessary to make appropriate changes in several areas at the same time in order for the company to actually achieve the targeted goals and objectives for increased value.  For example, assume a company decides to launch a whole line of new products based on technology that the company has not controlled or used in the past.  In order to pursue this strategy the company will need to recruit the necessary human resources (e.g., scientists and engineers with training and experience in the relevant technology) and support their activities by investing in the necessary functional resources and technological capabilities.  In addition, changes will need to be made in the organizational structure and culture in order to integrate the new business activities into the company and ensure that other functional departments and business units are willing and able to support the initiative.  Among other things this may mean spinning off human and other resources from various functional departments and placing them into a new product team structure that is better suited for the innovative activities necessary for the planned new products to be developed, launched and supported.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is present with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


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