Organizational change refers to the actions in which a company or business alters a major component of its organization, such as its culture, the underlying technologies or infrastructure it uses to operate, or its internal processes.
What is Organizational Change?
Organizational change means any significant shift or transformation in how a company operates, particularly regarding its human resources practices. It includes the organization’s growth and development processes in different forms.
According to Porras, Silver 1999, organizations usually experience change as a result of a response due to internal or external factors. It is more like a cause-and-effect phenomenon within an organization dependent on factors such as time, processes, environment, and other contexts.
In the real world, some external factors contain elements like:
- Market Shifts
- Technological Advancements
- Changes in leadership
Similarly, some internal factors would be:
- Low employee engagement
- High turnover rates
- Management of employees
- Change in policies and procedures
Organizations are changing all the time. Hence, it is more of a complex process than a simple one. Some changes are minute while others might be too big. Sometimes, organizational change takes as big of a form that only the name remains the same and nothing else.
In most cases, change comes off as a result of a desire for better things. The nature of organizational change often depends on the cause of the change and what output will it create. In the next section, we will explore more about the same.
Definition of Organizational Change by Industry Leaders
Transformational change starts with an honest acknowledgment of how hard the work will be, how much capacity and discipline the organization actually has, and the personal commitments of sponsoring executives to change first”
Businesses need effective organizational change management to keep up with an ever-changing world. However, the obstacles to change can often prove formidable and intimidating. To survive in the business world, companies have to learn how to handle these challenges and enact constructive organizational change that prepares them for the future.
What is the importance of Organizational Change?
The importance of organizational change has a business perspective. Without change, businesses cannot flourish. They will fail to keep up with the competitive world and update themselves to growing consumer demands.
The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.
Peter Drucker, Management Consultant.
Here are 4 main points highlighting the importance of organizational change:
1. Adapting to changing environment:
As the business landscape changes to external shifts and various other factors, it is important for organizations to adapt to these changes. This enables them to remain relevant and sustainable.
2. Improving performance and efficiency:
Change optimizes processes, resources, and technologies, leading to enhanced productivity, cost reduction, and faster decision-making for better overall performance.
3. Growing innovation and development:
Changing market trends foster innovation and encourage organizations to explore more horizons. This allows companies to stay competitive and hones the way for expansion.
4. Employees become more engaged:
Individuals (especially the millennial and GenZ crowds) want to be a part of something that continuously evolving and is “trending” up to the market standards. Involving them in the change process leads to higher morale and job satisfaction.
Let us go through two examples to understand the above points better.
1. Companies are increasingly focussing on incorporating CRM applications and tools in their companies. Why? According to Gartner Research, the global market for CRM software increased by 12.6% in terms of current USD, reaching a total of $69 billion worldwide, in 2020.
2. Hospitals and medical institutions are growing their investments in electronic health records (EHRs). A report by Grand View Research points out that the estimated size of the EHRs market was USD 28.1 billion in 2022. It is expected to grow at a CAGR of 4.1% between 2023 and 2030.
Hence, it’s evident that organizations seek to introduce change by implementing projects and initiatives. Change is crucial in organizations as it allows employees to explore new opportunities. This ultimately benefits the organization through increased creativity and commitment.
To prepare employees for these changes, the first step is to make them understand the causes of the changes. Failure to do so might lead to lower employee motivation and engagement. Mostly it could end up as
- “I don’t know why we’re doing this.”
- “I don’t know how to use this new technology.”
- “This is not related to the kind of work I do”
What are the Causes of Organizational Change?
As mentioned, change across an organization can occur for various external and internal reasons. All these reasons combine to form 7 main causes of the change. These are:
- Technological advancements: New technologies can disrupt traditional business models and require organizations to adapt to remain competitive.
- Changes in the market: Changes in customer preferences, the introduction of new products or services, or changes in the competitive landscape can all drive the need for change.
- Changes in leadership: Changes in leadership can lead to shifts in strategy or a different approach to organizational management.
- Legal or regulatory changes: Changes in laws or regulations can impact the way organizations operate and require them to adapt their practices.
- Internal challenges: Low employee engagement, high turnover rates, or a need to streamline processes and improve efficiency can also drive the need for change.
- Mergers and acquisitions: Mergers or acquisitions can bring together different organizational cultures, and processes, requiring changes to align with the new organizational structure.
- Globalization: Increased globalization can require organizations to adapt to different cultural norms, market conditions, and regulatory environments in different countries.
Recognizing the need for organizational change is a step towards achieving successful outcomes and remaining competitive in a rapidly evolving business environment. Organizations can increase their chances of success by managing change effectively.
5 Types of Organizational Changes
Organizations go through changes from time to time. Here are some common types of organizational change and ways to manage them:
1. Strategic Change
When an organization changes its overall goals or mission to stay competitive, it’s called strategic change. To manage this change, it’s important to involve all the stakeholders to discuss how the changes should be executed further.
2. Structural Change
Structural change involves changing the structure of the organization with a merger or changing reporting lines. To manage such a change, employees need to be involved extensively in the process, be communicated with the change clearly, and provided support and training as needed.
3. Technological Change
When an organization introduces a new technology or changes its existing technology, it’s called technological change. To manage this change, employees need to be introduced to the new technology during its early phases. Proper training related to the technology is required along with communicating the benefits of the new technology.
4. Cultural Change
Cultural change is also referred to as people-oriented change. Since people are the main elements of the company, changes in how the company deals with its employees hold great value. Hence, cultural change demands transparency, efficient communication, and productive leadership.
5. Fundamental Change
Fundamental change combines all the changes mentioned above and transforms the way an organization operates complement. There are changes from procedures, such as workflow or project management practices to culture, such as diversity policies. Since, there’s a lot of re-shaping going on, such a change needs efficient leadership and management.
“The rate of change is not going to slow down anytime soon. If anything, competition in most industries will probably speed up even more in the next few decades.”
– John P. Kotter, Management Consultant.
Organizational Change Process
Change is a necessary process for businesses to stay competitive, but it can also be challenging to implement successfully. In this section, we outline the four key steps involved in the change process.
Step 1: Develop a vision
When a change is introduced in an organization, a vision must be stated so that employees buy and accept the change. The vision must be communicated competently for individuals to understand the ‘what and why’ of the change. It should answer the following queries.
- What does the future hold?
- Is it easily understandable?
- Is the short and to the point?
- Does it inspire people while also being business-focused?
- Will people connect with it?
Step 2: Recognize and understand the resistance
People have a natural defense mechanism that resists change. This resistance can appear either positively or negatively. Regardless, it is the duty of the organization to acknowledge and perceive resilience.
Here are some statistics on how employees react to changes in organizations:
- 15%: Eager to adopt it.
- 15%: Adamant and against it.
- 70%: Delaying action to observe the outcome.
Identifying ‘good’ resistance can be tricky. When employees have a good reason to disagree with a change, it can actually be beneficial. We should find out why they are resisting and decide whether we can help them or if we need to address the issue at a higher level.
Step 3: Mitigate the resistance
Using Force Field Analysis by Kurt Lewin, two observations were made:
- You can make a choice about whether to proceed with a decision or change.
- You can consider ways to make the factors that support the change stronger and reduce the impact of factors that resist it, in order to increase the chances of a successful change.
What is force field analysis?
Force field analysis is a decision-making tool developed by Kurt Lewin that analyzes the forces that support and oppose a proposed change. By identifying and weighing these forces, it helps to determine the feasibility and potential success of the change and develop strategies to enhance its success.
Once you have identified the factors of resistance incorporate these elements for the mitigation process:
- Prioritize the 80% of the most powerful restraining forces and try to weaken them.
- Leverage the supporting members to preach the benefits of the change.
- Appeal “What’s in it for me” for the individuals’ personal gains.
- Engage employees by involving them in the decision-making process.
- Integrate strong leadership while empathizing with the employees.
Step 4: Communicating mitigation strategies
Here are some communication strategies to mitigate resistance:
- Provide sufficient context
- Fewer words, more messengers
- Select your target audience carefully
- Deliver the message cross-functionally
- Feature multiple options of the same strategy
- Use a feedback system
Approaches to Managing Organizational Change
1. Kurt Lewin’s 3-Step Change Model
Kurt Lewin’s 3-Step Change Model is a widely used framework for understanding and implementing organizational change. This model emphasizes the importance of involving and engaging employees in the change process to ensure its success. Here is a better understanding of the model:
A. Unfreeze: Prepare the organization for change by recognizing the need for change and creating an environment where change is accepted. This involves identifying the areas where change is needed, communicating the need for change, and creating a sense of urgency.
B. Change: In this step, the actual change is implemented. This involves developing and implementing a plan for change, communicating the plan to employees, and providing them with the necessary resources and support to implement the change.
C. Refreeze: The final step involves stabilizing the change and making it a part of the organization’s culture. This can involve reinforcing the new behaviors and processes through training, creating policies to support the change, and monitoring the change to ensure its success.
In simpler words, It’s like when we want to start exercising regularly – first, we need to make a plan. Then we start exercising, and finally, we need to keep at it until it becomes a natural part of our daily routine.
2. Prosci ADKAR Model
The Prosci ADKAR model is a change management framework that focuses on five stages of individual change. It provides a structured approach to help individuals and organizations successfully navigate change. The five stages are as follows.
Awareness – Why do we need to change?
Desire – What will you gain from it?
Knowledge – Forces of organizational change: How to go about it?
Ability – Implementing and achieving the desired change.
Reinforcement – Rewarding and appreciating sustainable change.
According to research by Prosci, it was observed that 95% of respondents saw effectiveness in driving change by leveraging the ADKAR model.
3. McKinsey 7-S Model
The McKinsey 7-S Model is a popular tool for assessing and optimizing organizational performance. This model identifies seven interconnected elements that must be aligned and integrated to achieve a cohesive and effective organizational strategy. The seven S’s are as follows.
- Strategy: The organization’s plan for achieving its goals.
- Structure: The organization’s formal hierarchy and reporting relationships.
- Systems: The organization’s processes and procedures for getting work done.
- Shared Values: The organization’s core values and culture.
- Style: The leadership style and management approach.
- Staff: The organization’s employees and their skills.
- Skills: The organization’s capabilities and competencies.
4. Bridges’ Transition Model
Bridges suggests that in typical changing efforts, 90% of the time leaders focus on promoting the solution, while 10% of the attention is given to selling the problem. He proposes that this ratio should be reversed. Here’s a brief of his model:
- Ending, Losing, and Letting Go: Acknowledging the need to let go of the old ways and behaviors.
- The Neutral Zone: A period of confusion and uncertainty between the old and new ways.
- The New Beginning: Embracing the new way and making it a permanent part of the organization’s culture.
5 Benefits of Organizational Change
Change is crucial for organizations to maintain their competitive edge and meet the needs of customers. Organizations must be able to manage both the positive and negative impacts of change on their employees. Here are 5 main benefits and advantages of organizational change:
Organizational development creates a continuous cycle of progress. This cycle involves strategies being planned, implemented, evaluated, improved, and monitored. This approach embraces change (internal and external) and leverages it for renewal.
Improving communication is a goal of change to align all employees with shared company goals and values leads. Candid communication leads to an increased understanding of the need for change within the organization. When communication is open across all levels, relevant feedback is received leading to recurrent improvement.
Employee Growth and Development
The need for employee growth and development stems from constant industry and market changes. Changing organizational culture with evolving market requirements can be successful in developing their employees’ competencies too. This is achieved through a program of learning, training, skills/competency enhancement, and work process improvements.
Product & Service Enhancement
Change is a harbor for innovation. Both employee and organizational development lead to product and service enhancement through innovation. Changes encourage a rewarding and appreciating culture while boosting motivation and morale. The forces of organizational change also increase product innovation by using competitive analysis, market research, and consumer expectations and preferences.
Finally, through increased innovation and productivity, efficiency, and profits are increased. Costs are also reduced by minimizing employee turnover and absenteeism. The culture shift to continuous improvement gives the company a distinct advantage in the competitive marketplace.
Organizational Change Examples
Let’s explore two real-world examples of changes at an organizational level. We will see how companies have successfully navigated the challenges that came with implementing change.
Based on the article “Transformational Change at IBM” published on the PMI website, IBM’s changing organizational culture focuses on an Agile Transformation. The transformation included:
- Restructuring the organization
- Adopting new procedures
- Implementing new tools for flexibility
- A new approach to product and service delivery
Apart from that, the company also built emphasis on a culture of collaboration across all departments. This enabled teams to break down silos and enable greater knowledge transfer and innovation.
These transformations led the company to believe in a redefined business model that is more customer-centric.
In carrying out the above functions, they developed new training programs and created a talent development framework to help employees acquire the skills needed for the company’s new focus areas.
IBM’s transformation was not a one-time event, but rather an ongoing process of continuous improvement. The company established a system of metrics and regular feedback mechanisms to monitor progress and identify areas for improvement. This ensured that it remained agile and adaptable to changing market conditions.
Based on the annual reports from those years (IBM, 2011), IBM’s pre-tax income grew from $9.6 billion in 2000 to $22.9 billion in 2011.
The publication “A Case Study of McDonald’s Organizational Development” describes how McDonald’s tackled organizational change in the 2000s.
At the time, when McDonald’s entered the Chinese market, they faced declining sales and negative public perception due to concerns about food safety and hygiene. As a response to that McDonald’s revamped its brand image and introduced healthier menu options to cater to changing consumer preferences.
Other steps that were taken:
- Restructuring: McDonald’s restructured its operations in China by consolidating regional offices and streamlining its supply chain to improve efficiency and reduce costs.
- Leadership Development: They invested in leadership development programs: sending Chinese executives to the company’s headquarters in the US for training and development.
- Cultural Change: McDonald’s implemented a cultural change program that focused on improving communication and collaboration between employees and enhancing customer service.
The organizational development program led to improved sales and a more positive public perception of McDonald’s in China. What was the result? Despite the presence of numerous fast food brands in the Chinese market, McDonald’s has managed to maintain its position as one of the leading restaurant chains.
Organizational Change Management VS. Change Control
The success of changes is heavily dependent on individuals being able to adjust and adapt to new ways of working. Therefore, it is crucial to prioritize effective organizational change management strategies to support individuals through the transition process. It is also important to ensure that they have the necessary resources, training, and support to carry out their work differently.
“Adults are much more likely to act their way into a new way of thinking than to think their way into a new way of acting.”
– Richard Pascale, Economist, and Business Advisor.
What do you mean by Organizational Change Management?
Organizational Change Management is a process of preparing the organization to accommodate the impact of change. In simple words, it lays out a procedure to deal with the differences in how things were done in the past and they would be done in the present. Apart from that special efforts are made to embed and integrate the change into the daily operations and culture of the organization.
What is Change Control?
Change control is a process used in project management to manage and approve changes that could affect a project. It includes two types of changes:
a. Changes to the technology used in a project
b. Changes to the project’s plan: its cost or duration
By using a structured process for change control, project managers can reduce risk, make sure all changes are properly reviewed and approved, and minimize the impact of changes on the project.
The important point here is that Organizational Change Management (OCM) is not Change Control. Here are some highlighted differences to make you understand better:
|Organizational Change Management
|Managing the human side of change: employee engagement and communication.
|Managing changes in project performance and cost.
|Managing employee transitions, culture, and organizational readiness.
|Changes in the project plan and development.
|Broader: entire organization and culture
|Narrower: particular project
|All employees and stakeholders are affected.
|Only project managers and technical experts.
|An iterative process of planning, communication, organizing, and training.
|A structured process of assessing, approving, and implementing changes.
|Adoption of new processes and technologies and increased organizational effectiveness.
|Minimization of risk and impact of changes on project cost and performance.
Frequently Asked Questions (FAQs)
1. How to overcome resistance to organizational change?
One of the best ways to overcome resistance to organizational change is to involve employees in the change process. Communicate the reasons and benefits of the change before starting to implement it. Tackle good resistance with support and feedback and constantly celebrate milestones for the employees during the process.
2. How does organizational change affect culture?
Organizational change alters the way things were done in the past and hence, transforms the values and beliefs of employees. It creates new norms and expectations which influence employee satisfaction, engagement, and commitment to the organization.
3. Differentiate between evolutionary change and revolutionary organizational change.
Evolutionary change is a gradual, incremental, and continuous process while revolutionary change is often sudden and drastic. The former involves small modifications and does not disrupt the organization a lot, however, revolutionary changes have higher levels of disruption. Examples of both include evolutionary change: continuous improvement and revolutionary change: merger or reorganization.
4. What is planned vs unplanned organizational change?
Planned organizational change is a deliberate and proactive approach to improving performance or achieving strategic goals. It involves a formal process, such as change management, and is typically incremental or radical. On the other hand, unplanned organizational change is reactive and may occur suddenly due to unexpected events, such as natural disasters or economic downturns. It is often disruptive and can lead to negative outcomes if not managed effectively.
5. What are some organizational change failure examples?
Some examples of organizational change failure include
- Kodak’s inability to adapt to digital photography.
- Blockbuster’s refusal to embrace streaming services.
- Nokia’s inability to compete with smartphones.
- New Coke’s unsuccessful rebranding.
6. How do internal and external factors drive organizational change?
Internal factors like changes in strategy, technology, or management, and external factors like economic shifts, competition, and regulations can drive organizational change. These factors create a need or opportunity for organizations to improve, adapt, or transform. Organizations must be able to identify and respond to these factors in a proactive and strategic manner to navigate change successfully.