KEY INTERNAL & EXTERNAL ENVIRONMENTAL ELEMENTS OF CHANGE

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CHANGE MANAGEMENT

CONTEMPORARY CHANGE ISSUES

TOPIC KEY

INTERNAL & EXTERNAL

Buy cheap KEY INTERNAL & EXTERNAL ENVIRONMENTAL ELEMENTS OF CHANGE term paper

ENVIRONMENTAL ELEMENTS OF CHANGE

MAY 00

CONTENTS

1. INTRODUCTION

. IDENTIFICATION OF INTERNAL & EXTERNAL CHANGE FACTORS IN THE INDUSTRY

ENVIRONMENT

. ESTIMATE THE STRENGTH OF THE IMPACT OF EACH OF THE FORCES FOR CHANGE ON INDUSTRY

4. DISTINGUISH AND IDENTIFY THOSE CRITICAL FACTORS DRIVING CHANGE AT INDUSTRY LEVEL

5. INDICATE THE DIRECTION OF CHANGE FROM EACH OF THESE CRITICAL FACTORS

6. SUMMARISE THE LIKELY DIRECTION OF FUTURE CHANGES WITHIN THE INDUSTRY

7. POSSIBLE ORGANISATIONAL RESPONSES TO THE CRITICAL FACTORS DRIVING CHANGE

8. THE CONSEQUENCES OF THE TYPE OF RESPONSE MADE TO CRITICAL FACTORS

DRIVING CHANGE

. CONCLUSION

10. BIBLIOGRAPHY

1. INTRODUCTION

In this report the various internal and external elements of the industry environment from which change may arise will be identified and classified into several broad groupings.

The strength of the impact of each of these factors for change on industry will be estimated and the most critical factors presently driving change at the industry level will be identified from the list. The report will indicate the direction of change of these critical factors and the likely direction of future changes will be summarised. Finally, the different types of responses that organisations can make to the critical factors driving change and their consequences will be outlined.

. IDENTIFICATION OF INTERNAL & EXTERNAL CHANGE FACTORS IN THE INDUSTRY ENVIRONMENT

The environment in which contemporary business organisations operate is undergoing continuous and rapid change. The range of forces that can cause changes to occur in organisations and industries fall into two broad categories

1. Those forces which stem from external sources and

. Those forces which arise from factors which are internal to the organisation or industry in which it operates.

The forces for change within these two broad categories can be classified into a number of groupings which are identified below under each category

EXTERNAL FORCES OF CHANGE

"External change refers to change over which we have very little control. Its introduction is seen as inevitable and outside the sphere and control of most individual managers and when it occurs it create situations over which {managers and organisations] have little control."[Australian Management - a first line perspective p 11].

These external forces are usually macro environmental forces which the affected organisations and industries must react and adapt to because they cannot influence either their magnitude or direction.

External forces of change arise from a number of sources. These can generally be classified into a number of separate groupings such as

Demography ; Economic Conditions; Competition; Social & Cultural Forces; Political & Legal Forces and Technology.

For example the following would be classified as external forces of change

- changes in demographic characteristics such as changes in socio economic status, rising or falling disposable income, changes in age or ethnic composition, changes towards higher density housing and improved infrastructure.

- changing economic conditions such as changing interest rates and exchange rates, rising costs of labour, transport and raw materials, falling tariff protection and booms and busts.

- increased competition form lower priced or better quality products or from new innovations introduced by competitors which improved their performance and efficiency.

- changes in cultural and social factors such as changes over time in customer attitudes and tastes (eg trend away from smoking & fast foods with high fat content and towards healthier lifestyles), in trends towards increased interest in outdoor leisure activities, trends towards certain types of family cars (eg 4-wheel drives), and changes in ethnic and religious composition due to migration policy causing changes in tastes, interests, level and nature of demand for goods and in spending patterns.

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- changes in the legal environment such as new laws to control business (eg anti-collusion and anti monopoly laws and laws to increase competition), new anti-discrimination, equal opportunity and unfair dismissal laws and new taxation laws such as the Goods & Services Tax and Business Activities Statements recently introduced into Australia.

- Political forces such as Gatt Agreements, changing tariffs, globalisation, migration policy affecting composition and skills of migrant intakes, political uncertainty incl. threats of terrorism and war affecting overall confidence of entrepreneurs and consumers and influencing investment, travel & vacation decisions and spending patterns.

- Technological changes may render existing technology obsolescent and produce irresistible pressure to introduce new technology to replace existing technology in order to increase efficiency, quality and reduce costs to match increased competition from rivals eg Computerised machinery replacing labour intensive machinery or changes in quality and type of personal entertainment products such as the evolution from cassette tapes to vinyl records to CD's to DVD's, changes from videos to DVD's, related changes in equipment needed to play and record music and video. Changes from film cameras to digital still cameras and from video cameras to digital movie cameras or new products replacing old eg. Word processors replacing type writers, digital mobile phones and television sets replacing analogue phones and TV sets.

INTERNAL FORCES OF CHANGE

On the other hand, "internal changes are those changes over which we may have some control. These are changes we introduce ourselves rather than have others introduce them for us. Internal changes are generally introduced to enable an organisation to meet or pre-empt changes in its environment."

In contrast to external changes, the internal changes that occur within organisations are those which arise from the decisions and plans of the organisation's management "for which managers have control and direct responsibility " and therefore "more opportunity to make it work."[Australian Management - a first line perspective p 11].

Internal forces of change can arise from a number of different sources. These sources can generally be classified into a number of separate groupings such as

Production Facilities; Organisational Structure; Organisational Culture; Financial Capability; Human Resources; Company Location; Research & Development Capability and Company Image.

For example the following would be classified as internal forces of change

- changes in the production systems through innovations and or introduction of new technology due to changes in technology occurring in the industry, which result in improved efficiency and lower production costs.

- changes in organisational structure, for instance from a rigid hierarchical structure to a more flexible and empowering team based structure which is able to respond and adapt more quickly to changing customer tastes and expectations and to rapid environmental changes.

- changes in the organisational culture brought about by an analysis of its strengths and weaknesses for continued organisational success and through explaining the benefits and need for change so it is less resistant, less conservative and more conductive to the introduction of managed change at all levels.

- Falling sales revenue arising from falling demand for products and falling prices or steady demand and prices in the face of rising costs for labour and raw materials which can't be passed on in higher selling prices or the high costs of necessary capital expenditure to remain competitive would adversely affect the financial capability of the organisation and its ability.

- changes and adjustments in human resource recruitment, selection and training systems to reflect the organisation's need for individuals with differing skills and the high cost of training and development activities to bring about the required change in the knowledge, skills and perceptions of individual staff supplemented by performance appraisals. [Managing Innovation and Change p1.]

- changes in company location may be necessary to maintain profitability. For instance, a competitor may centralise production in a single plant in a location with low labour costs and gain economies of scale and distribute globally from this large plant. This may threaten the ability of a rival company, whose production occurs in small plants located in a variety of countries to compete, because of their much higher production costs. [Managing Innovation and Change p1.]

- improving research and development capability may be required to keep pace with or stay ahead of the competition by enabling the organisation to focus on areas likely to yield "product breakthroughs" in the form of new products or improvements to existing products which can be marketed in advance of rivals with good profit margins.

- company image may need to be changed to maintain market share and future survival. For example, tobacco companies have made changes to their image by diversifying into other industries. Companies who are forced to make product recalls must do this in a way that restores customer confidence in their product to maintain or regain lost market share.

. ESTIMATE THE STRENGTH OF THE IMPACT OF EACH OF THE FORCES FOR CHANGE ON INDUSTRY

There has been "fierce domestic and foreign competition during the past decade." This has fuelled change and innovation in organisations. It has resulted in increased expenditure on research and development and accelerated changes in technology. Declining financial capability due to loss of market share or declining sales due to technical obsolescence of production facilities or product range or changing consumer expectations have influenced organisational change. Laws designed to protect the environmental and allow litigation by consumers affected by exposure to dangerous products (eg tobacco; asbestos) have led to change. Government regulations such as anti discrimination laws, EEO, Occupational Health and Safety laws and taxation changes have also led to organisational change. Poor company image arising from changes in social and cultural factors (eg health concerns about fat content of fast foods) have led to changes to improve the company's image. Other social cultural factors (eg trend for baby boomers to eat at home) has resulted in changes being made by the take away food outlets to cater for this change. Forces of change have also led to organisational cultural shifts and organisational restructuring. Production changes have occurred due to demands for improved quality. Changing technology has forced changes in human resource practices and increased emphasis on training to enable workers to acquire the necessary skills and knowledge. Company location has also influenced change in some sectors of industry where it has impacted on the cost of production. [Managing Innovation and Change p 1, 01.] [Ref5-p. ]

The estimated strength of the impact on change of these forces are indicated in the tables below

(i) EXTERNAL FORCES Demography ; Economic Conditions; Competition; Social & Cultural Forces; Political & Legal Forces and Technology.

No. FORCE ESTIMATED STRENGTH OF IMPACT FOR CHANGE

1 Demographic Low

Economic Conditions Medium to High

Competition High

4 Social & Cultural Factors Low to Medium

5 Political & Legal High

6 Technology High

(ii) INTERNAL FORCES Production Facilities; Organisational Structure; Organisational Culture; Financial Capability; Human Resources; Company Location; Research & Development Capability and Company Image.

No. FORCE ESTIMATED STRENGTH OF IMPACT FOR CHANGE

1 Production Facilities Medium

Organisational Structure Medium

Organisational Culture Medium

4 Financial Capability Medium to High

5 Human Resources Medium

6 Company Location Medium

7 R & D Medium to High

8 Company Image Low to Medium

4. DISTINGUISH AND IDENTIFY THOSE CRITICAL FACTORS DRIVING CHANGE AT

INDUSTRY LEVEL

The critical external factors driving change at the industry level are

Economic Conditions; Competition; Legal Forces and Technology.

The critical internal factors driving change at the industry level are

Production Facilities; Organisational Structure; Organisational Culture; Financial Capability; Research & Development Capability.

5. INDICATE THE DIRECTION OF CHANGE FROM EACH OF THESE CRITICAL FACTORS

The direction of change from the critical factors identified above are indicated in the tables below

(i) EXTERNAL FORCES Economic Conditions; Competition; Legal Forces and Technology.

No. FORCE DIRECTION OF CHANGE

1 Economic Conditions Upward pressure

Competition Upward pressure

Legal Upward pressure

4 Technology Upward pressure

(ii) INTERNAL FORCES Production Facilities; Organisational Structure; Organisational Culture; Financial Capability; Human resources; Research & Development Capability.

No. FORCE DIRECTION OF CHANGE

1 Production Facilities Upward

Organisational Structure Upward

Organisational Culture Upward

4 Financial Capability Upward

5 Human Resources Upward

6 R & D Upward

6. SUMMARISE THE LIKELY DIRECTION OF FUTURE CHANGES WITHIN THE INDUSTRY

Taking the manufacturing industry in Australia as an example, the industry will need to change in response to a range of external and internal forces which will affect its operational success in the future.

These include changing economic conditions for this industry in Australia, arising from, the globalisation of markets, the reduction in government protectionist policies, the emphasis on developing export industries able to compete with the rest of the world on price and quality, the push for achieving world's best practice, becoming a knowledge nation, being at the cutting edge of technology, reacting to interest and exchange rate changes and changing financial and work practices in response to changes in business activity reporting and taxation laws and the new responsibilities for risk management and employee consultation imposed by new Occupational Health and Safety laws.

As a result of these conditions, in summary, therefore in relation to the manufacturing industry in Australia, it is likely that

· within this industry, the direction of future change will be upward, in most if not all of the critical external and internal factors identified above.

7. POSSIBLE ORGANISATIONAL RESPONSES TO THE CRITICAL FACTORS DRIVING

CHANGE

In order to remain viable and successful, organisations need to respond to the external and internal changes in their environment in appropriate ways that benefit the organisation.

Organisational success depends significantly on the effectiveness of its responses and adaptations to the constantly changing external and internal environment in which it operates. [Australian Management - a first line perspective p 117].

Organisational reactions to change may be either proactive or reactive.

"Reactive change …[is] generally… designed to alleviate problems imposed upon the organisation by a changing environment and is often classified as a knee-jerk reaction to unforeseen (or ignored) changes in the working environment." If an organisation waits until it is forced to change by the changing environment (reactive) its managers can lose "the opportunities to plan the change better and benefit from its introduction."

"In contrast, proactive change is planned [change] in response to the anticipated future environmental constraints [or forces] that will act upon an organisation." [Australian Management - a first line perspective p 11].

8. THE CONSEQUENCES OF THE TYPE OF RESPONSE MADE TO CRITICAL FACTORS

DRIVING CHANGE

Managed change which is proactive and planned is the preferred organisational response to the environmental forces faced by an organisation. The initiation of managed change often occurs in an attempt to improve performance and to counter forecast declines in performance which are anticipated if change is not introduced.

Although planned change involves forecasting the future environment and actual future conditions may vary somewhat from these forecasts "anticipated change is less stressful [for the organisation and its staff] than unexpected change." Also, when managed, proactive and planned change occurs in response to the critical factors driving change, rather than reactive change, the overall effect and impact of the changes is much more likely to be beneficial to the long term interests and continued success of the organisation. [Australian Management - a first line perspective p 11].

CONCLUSION

In today's climate an organisation's survival may depend on using successful strategies that achieve a regular renewal of the organisation in the face of competition and other external pressures for change. [Reference No. 5 page 1.]

Most organisations must be ready to cope with the external and internal factors that bring about the changing environments in which the organisation operates. The changing environment will offer opportunities and threats to an organisation. To assist them to analyse their environment an organisation can carry out a TOES analysis.

This process starts with an examination of the threats and opportunities for the organisation which are present in their external environment and then proceeds to an examination of the organisations internal environment in terms of their strengths and weaknesses. This is preferable to a SWOT analysis because you have to know what the threats and opportunities are in the external environment before you look at your strengths and weakness and develop appropriate change strategies to deal with those threats and to take full advantage of the available opportunities .

In conclusion, "Managed change should be proactive and planned." The proactive management of change helps to ensure that the changes introduced into the organisation are more predictable, timely and carefully planned and more likely to promote the continued operational success of the organisation. On the other hand, "enforced change implies lack of choice and being forced to do something you would not otherwise do." [Ref 5 p .] Hence in contrast to managed change, it is evident that " Unmanaged change is the basis for a chaotic and unpredictable work environment and in many cases, business failure." [Australian Management - a first line perspective p 118].

BIBLIOGRAPHY

1. Australian Management A First Line Perspective [Chapter 6.]

. Hand Out DLH/JKQ MACROENVIRO FORCES.doc/500

. Hand Out Chapter 7 - Managing Innovation & Change

4. Hand Out Introduction to Management Chapter 1. Managers and Workforce Diversity (page 14)

& - The Manager's Changing Environment Competition & the Global Economy (page 17).

5. Hand Out Orientation Appendix Supplementary Reading What Causes change (page 17 - 5).

6. RHINESMITH, Stephen H. Managing Organisational Change (pages 1 16).

7. SAVILLE, James & REID, Howard, Managing Operations- Chapter 8 "Managing Change" 16

Prentice Hall; Australia.

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