Change Drivers
"Never make forecasts, especially about the future"
--Samuel Goldwyn

"Change drivers" are those large scale forces that produce change at lower levels of system organization. Typically, these change drivers consist of global, demographic, economic, technological, information, and other factors that create a changing environment to which organizations must adapt. The primary result of these forces is an increase in competition among organizations. In order to compete more successfully, organizations must continually reevaluate the way they do business, and seek to respond faster, use resources more efficiently, produce high quality products and services, and create management paradigms ("mental models of how things work") to keep reinventing business. Some of the recent initiatives to improve organizational response include decentralization, downsizing, total quality management, virtual organizations, and increasing automation. However, there is high risk attached to taking new directions: A study at Ohio State's College of Business reported that only about 50% of business decisions were successful; the lowest rate of implementation was for the most successful practices (e.g., involving workers in the decisions that affect them), and the highest rate of implementation was for the least successful practices (e.g., issuing directives).


Global Change Drivers Demographic Change Drivers Technology Change Drivers Information & Telecommunications Change Drivers (perhaps a subset of technology?) Complexity & Chaos

 

Economic Change Drivers. Another driving force behind organizational change is the gradual erosion of the profit margin for businesses. Following WWII, the other major industrial countries, particularly Japan and germany, had their economies deeply injured by the war. In contrast, the US had successfully mobilized mass production, trained large numbers of military leaders, and created a baby boom. In the 1950s it was a whopping 16.9% that allowed businesses the luxury of running in a somewhat inefficient manner and lax use of discretionary funds. By the 1970s and 1980s the margin of profit was so small that organizations had to return their attention to how they structured and ran their businesses. With so little "wiggle room" they decided to become "lean and mean" by downsizing, reexamining the value chain of their product lines, and find other ways to use their resources more sparingly.

Business goes where the growth (related to globalism). In 1997 the Economist showed the US and Japanese gross domestic product advancing 3.1%. However, countries that had been lagging for years were now growing quickly: China 9.4%, Argentina, 9.2%, Thailand 8.6%, Malaysia 8.1%, Indonesia 7.8%, Chile, 7.7%, Mexico 7.6%, South Korea 7.2%, India 7% (Wind & Main, 1998, p. 37). There is faster growth in living standards and consumption globally: US doubled output per capita in 47 years starting in 1839; it took Japan 25 years starting in the 1880s; Indonesia doubled output in 17 years following WWII, and South Korea and China in 11-10 years.

The Response to Change Drivers

In a rapidly changing environment, each time an innovation occurs that makes an oranization more competitive, it often makes previous successes irrelevant--past success is no guarantee of future success. As a result, organizations must attend to new markets and opportunities, reevaluate their structure and processes, and rethink how they think about the change process. Although many of the current approaches are short-lived attempts at quick fixes, they point out the need to continually reevaluate the way we do business, and seek to understand highly complex and dynamic forces that change the marketplace and the world.

Downsizing, rightsizing, reengineering, delayering, riffed, voluntarily retired, involuntarily retired, adjusted, discontinued, displaced, dislocated, surplused, bumped, rebalanced, outplaced, oursourced, and a host of other terms refer to the ways in which organizations reevaluate and change their staffing pattern and organizational structure. Following WWII, US companies were confident that the way we conducted business was not only a good way, but was the "best" way. Few efforts were expended to revise what had worked in the past. As Germany and Japan redirected their efforts into building their economies (with US assistance to do so!), they were in a position to reinvent their way of doing business--and they did. Japan, for example, listened to a statistician and quality expert named W. Edwards Deming who's ideas on Total Quality Management had not been particularly well received in the US. The US had become "fat," with too many organizational levels that slowed and distorted communication and decision making, too top heavy and expensive with high numbers of managers, and top-driven making them slow to respond to rapid market changes. As a result, organizations begand to "downsize" by cutting layers of organizations and laying off workers. Too often this was done without consideration of long term and spin-off consequences, as shown below:

Downsizing is commonly considered as a "quick fix" to save costs by reducing one of the largest sources of expenditures--salaries. While there are many examples of organizations that have become "top heavy" and "over layered" with too many employees, there are also serious risks involved in reducing the workforce. The diagram shows a potential effect on customer satisfaction: diminishing revenues leads to quick cuts thereby reducing the workforce; this results in heavier workload and decreased customer satisfaction; this lowers revenues even more than before. Point: the intended solution creates even more problems and makes the original one worse!

However, there are some highly successful examples of downsizing. For example, ABB Ltd, a Swiss-Swedish electrical engineering company, in 1987 cut the combined headquarters staff of 6,000 people to 171. They supervise 1,300 operating companies with 5,000 profit centers in 140 countries. Downsizing can be a viable option, but its long term consequences should be considered. [also see articles on "Downsizing" and "Revenge Effects.] . Some results of downsizing have not been impressive:

Creative Destruction

Innovation is also a requirement in the emerging organization. As noted above, following WWII, Japan and Germany placed strong efforts into rebuilding their damaged economies. They initiated strong research and development with government support for their inventiveness, while in the US, inventors have more of an adversarial relationship with the government. American organizational cultures are tend to restrict open communication. For example, most American companies are lucky to receive suggestions from employees. In 1985, Matsushita received one million suggestions from their employees! For some US companies, like Microsoft, 90% of their revenues come from products that were not developed two years previosuly. Still, for many organizations it is difficult to balance the need for structure and set procedure with flexibility and creativity that leads to innovation and invention. However, some businesses are breaking ground--or better:

Time, like quality, has become a commodity. The faster a business can respond, the better it can position itself. The Just-in Time (JIT) idea was developed by Taiichi Ohno of Toyota who observed that Japanese street peddlers often had a booming business, because customers could get what they wanted when they wanted it. A faster response means a more satisfied customer and an advantage over competitors: Outsourcing has become one of the bywords of the 1990s, and refers to contracting for certain services or functions outside the organization, rather than providing it from within. It has grown to an $800 billion a year business and the proportion of businesses using outsourcing increased from 58% in 1992 to 86% in 1996 (Wind & Main, 1998).

Teams & Teamwork

Teams are another attempt to reengineer the way businesses work. The hierarchical and rigid structures of many large organizations often slowed decision making and distorted communication. In addition, much of the expertise of the front line workers was left out of planning, and they were not often given responsibility over their work. Increasing specialization of workers also left individuals doing segments of work properly, but leaving the overall product poorly integrated. Teams worked so well in Japan, and recently the US has been enamored with Japanese management successes, that teams seem to be a current interest in the workplace. The proportion of companies that planned to use teams grew from 60% in the 1990s to 68% in 1993, and more recent estimates have been as high as 82% (Gordon, 1992). That they are successful is attested to by the following results:

Many teams can also fail, and the shift to teams to make an organization should be carefully thought out and the workers prepared for the transition. Some of the sources for such failure include:

 

Education & Training

Part of the reason that other countries are excelling in innovation is that they may be better preparing their youth to enter the workforce and engage in knowledge conpetition. As an example, Japan has a higher literacy rate, higher school completion rate, requires more school time, and provides better financing than does the US. This disparity has led the US to recently propose the School to Work Act in which American businesses work more closely with school systems. Some other facts:

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Worker Adjustment in the New Workplace


 

These demands have required us to reexamine and redefine what it means to be successful. Previously, our esteem, status, and career success was reflected in the visible and often tangible rewards directly related to the job. Today, downsizing and delayering are reducing career ladders to a few rungs, titles (and even the concept of "job" according to Bridges) are lost, power is shared, and status differences are reduced as employees are empowered. We must reassess what rewards are relevant to workers, involve them in determining incentives, and create new reward structures that are meaningful.


Links


Quotable Quotes


References

1996 Industry Report (1996, October), Training, p. 69.

Gordon, J. (1992, October). Work teams: How far have they come? Training, 29, 59.

Harmon, F. (2001). Business 2010. Washington, DC: Kiplinger.

Wind, J. Y., & Main, J. (1998). Driving Change. New York: Free Press.

last updated 2-16-02
David X. Swenson Ph.D.
dswenson@css.edu
Please do not use without permission


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