Business (9625) | Managing strategic change

Welcome to Managing Strategic Change!

Hello! This chapter is one of the most practical and crucial parts of A-Level Business. Why? Because the business world never stands still. To survive and achieve long-term success, businesses must constantly adapt. Strategic change means making big, fundamental shifts in how the business operates, competes, or is structured.

In these notes, we will break down the crucial models and steps businesses use to lead, plan, and execute these challenging changes without collapsing under the pressure. Don't worry if some concepts seem tricky—we’ll use simple examples to make them stick!

Section 1: Understanding Leadership and Strategic Decision Making (3.3.10.1)

The Essential Role of Leaders in Strategic Change

When a massive change is needed (like shifting from selling physical CDs to streaming music), the role of the leader is amplified. They are the chief navigators and motivators.

• Setting Direction: Defining the new vision and strategy clearly.
• Communication: Explaining *why* change is happening and *what* the new future looks like.
• Motivation and Culture: Ensuring employees feel supported and committed during disruptive times.
• Resource Allocation: Deciding which projects get the necessary capital and human resources to succeed.

Factors Influencing Leadership Power and Style

The best leadership style isn't always the same; it depends on the situation:

• The Leader’s Personality: Some are naturally consultative, others are autocratic.
• The Task: If the change is urgent (a crisis), a more autocratic, decisive style might be needed. If the change involves complex departmental reorganisation, a consultative style is better.
• The Subordinates: Are the employees highly skilled and experienced (allowing for delegation) or inexperienced (requiring more direction)?
• The Business Environment: A rapidly changing, uncertain environment demands fast decision-making.

The Tannenbaum Schmidt Continuum

This model helps leaders choose how much control (authority) they keep versus how much freedom they give their subordinates (employees) when making decisions. It shows a range of leadership styles.

Key Points of the Continuum:

The model moves from Leader-Centred (High Authority) to Subordinate-Centred (High Freedom).

• Tells: Leader makes the decision and announces it. (Autocratic)
• Sells: Leader makes the decision but explains why it is the best course of action.
• Consults: Leader presents the decision but listens to employee feedback before finalising.
• Joins: Leader defines the problem and limits, then the group jointly makes the decision. (Democratic)
• Delegates: Leader allows the subordinates to solve the problem entirely within set limits.

Analogy: Imagine deciding where to go on holiday. "Tells" is your parent saying, "We are going to Rome, end of story." "Delegates" is your parent saying, "Here's the budget; you decide where we go."

Section 2: Managing Change – Models and Techniques (3.3.10.2)

Causes and Types of Strategic Change

Causes of/Pressures for Change:

• External Change: Driven by the outside environment (often PESTLE factors). Example: New government regulation (Legal/Political), a sudden recession (Economic), or the invention of AI (Technological).
• Internal Change: Driven from within the organisation. Example: New CEO, poor financial performance requiring cost cuts, or a change in mission/objectives.

Types of Change:

• Incremental Change: Small, continuous improvements over time. This is less stressful but slower. Example: Regularly updating an online customer checkout process.
• Disruptive Change: Radical, sudden, and often painful change that completely alters the business model or structure. Example: Netflix transitioning from mailing DVDs to streaming entirely.

The Value of a Flexible Organisation

A business that is ready for change (flexible) is more likely to survive unexpected external shocks.

• Restructuring: Changing the way the business is organised (e.g., creating regional departments instead of functional departments).
• Delayering: Removing layers of management hierarchy. This makes communication faster and reduces costs.
• Flexible Employment Contracts: Using temporary, part-time, or zero-hours contracts. This allows the firm to rapidly adjust labour costs and capacity based on demand.
• Organic Structures: Flexible, de-centralised organisations with low hierarchy, ideal for rapidly changing markets (like tech start-ups).
• Mechanistic Structures: Rigid, centralised organisations with tall hierarchies, suitable for stable environments requiring strict control (like manufacturing).

Overcoming Resistance to Change

Change often fails because employees resist it. They are comfortable with the status quo.

Kotter and Schlesinger’s Four Reasons for Resistance:

It helps to remember the acronym SIAS (Security, Ignorance, Self-Interest, Attitude).

1. Self-Interest: Employees fear they will lose something of value (status, pay, power).
2. Misunderstanding/Ignorance: Employees don't understand *why* the change is happening or *how* it will affect them personally.
3. Low Tolerance of Change (Attitude): Some people simply dislike uncertainty or disruption.
4. Different Assessments of the Situation (Security): Employees may genuinely believe the change is a bad idea or that the current situation is fine.

Kotter and Schlesinger’s Six Ways of Overcoming Resistance:

1. Education and Communication: Explain the logic of the change clearly to reduce misunderstandings.
2. Participation and Involvement: Involve employees in the design and implementation of the change. This builds ownership.
3. Facilitation and Support: Provide training, counselling, and time off to help employees adjust.
4. Negotiation and Agreement: Offer incentives or trade-offs (e.g., better redundancy packages or guaranteed retraining) to those who might lose out.
5. Manipulation and Co-option: Giving resistors desirable, but non-essential, roles in the change process to gain their endorsement (Use this approach ethically!).
6. Explicit and Implicit Coercion: Forcing compliance (e.g., threats of job loss). This is fast but risky and damages morale. (Use as a last resort).

Lewin’s Force Field Analysis

This is a powerful tool used to analyse the forces supporting a change (Driving Forces) and the forces opposing it (Restraining Forces).

The aim is to identify ways to strengthen the Driving Forces and weaken the Restraining Forces so that the change can happen successfully.

\( \text{Change occurs when Driving Forces} > \text{Restraining Forces} \)

• Driving Forces (Pushing for Change): High competition, desire for higher profit, new technology opportunities.
• Restraining Forces (Holding Change Back): Employee resistance, high cost of implementation, outdated machinery, strong organisational culture.

Don't just push harder (increase driving forces); that often makes the restraining forces push back harder (e.g., increasing employee hours causes a union dispute). A smart manager reduces the restraints first (e.g., offering training to address employee fear).

Section 3: Preparing for and Adapting to Change (3.3.10.2)

Planning for the Unknown

Strategic change can be unpredictable. Businesses need to prepare ways to handle unexpected events.

• Forecasting: Predicting future trends in sales, costs, or market conditions. This helps identify the *need* for change early.
• Strategic Planning: Long-term, overarching planning that sets the roadmap for the business (e.g., using SWOT analysis to decide whether to diversify).
• Scenario Planning: Developing plans for several potential futures, not just the most likely one. Example: Planning for a "best-case scenario" (rapid market growth) and a "worst-case scenario" (severe recession).
• Contingency Planning: Creating specific backup plans for high-risk, high-impact events. This is the "Plan B" if the worst happens. Example: Having a detailed plan ready if a key supplier's factory burns down.

Ensuring the Business Can Adapt

Adaptability is the cornerstone of survival. Businesses can ensure they are ready to pivot by:

• Developing a flexible organisation (as discussed above, using flexible labour and de-layering).
• Building a culture of innovation that rewards experimentation and learning from mistakes.
• Investing in advanced technology that allows quick shifts in production or service delivery.

Section 4: Organisational Culture (3.3.10.3)

The Importance of Organisational (Corporate) Culture

Corporate culture is often described as "the way we do things around here." It encompasses the shared values, beliefs, attitudes, and norms that influence how employees and managers interact and make decisions.

• Influence on Strategy: A risk-averse culture will reject bold diversification strategies. An innovative culture will embrace disruptive change.
• Competitiveness: A strong, positive culture (e.g., customer-focused, high quality) can become a competitive advantage.

Influences on Organisational Culture

• Founders and Leadership: The values of the original leaders usually stick.
• History: Past successes and failures (e.g., a history of product innovation or strict cost control) shape current behaviour.
• Organisational Structure: Hierarchical structures often lead to formal, rule-based cultures. Flat structures often lead to informal, collaborative cultures.
• Industry Type: Financial services tend to have risk-based cultures; charities often have caring, mission-driven cultures.

Hofstede's Features of National Cultures

When operating internationally, businesses must understand that national culture heavily influences organisational culture. Hofstede identified several dimensions:

1. Power Distance: The degree to which less powerful members of society accept that power is distributed unequally. (High PD: Autocratic leadership accepted. Low PD: Employees expect consultation).
2. Individualism vs. Collectivism: Whether people define themselves primarily as individuals or as part of a group (e.g., family, company).
3. Masculinity vs. Femininity: Measures the preference for achievement, heroism, and assertiveness (Masculine) versus cooperation, modesty, and quality of life (Feminine).
4. Uncertainty Avoidance: The degree to which a society tolerates ambiguity and uncertainty. (High UA societies prefer strict rules and structure).
5. Long-Term vs. Short-Term Orientation: Focus on future rewards (perseverance) versus focus on the present (respect for tradition).

Did you know? If a multinational company (MNC) tries to implement a highly decentralised management structure in a high Power Distance country, it will likely fail, as employees and local managers expect central authority to make key decisions.

Changing Organisational Culture

Changing culture is notoriously hard because it involves changing deep-seated behaviour and beliefs.

• Reasons for Change: Merger/Takeover, poor performance, new technology introduction, or adapting to massive market shifts.
• Problems: Culture is slow to change, resistance is guaranteed, and old habits often creep back (strategic drift). It takes years and absolute commitment from the top leadership.

Section 5: Strategic Implementation (3.3.10.4)

Implementing Strategy Effectively

Choosing the best strategy is only half the battle; the strategy must be implemented effectively.

• Leadership and Communication: Leaders must inspire belief and constantly communicate the progress and success of the strategy.
• Value of Planning: Detailed action plans, timelines, and resource allocation schedules are vital.
• Organisational Structure: The structure must match the strategy. A global expansion strategy requires a regional or matrix structure, not a rigid functional structure.

Matching Organisational Structure to Strategy

The structure dictates how resources flow and decisions are made.

• Functional Structure: Organised by business function (e.g., Marketing, Finance, Operations). Best for stable, small/medium-sized businesses focused on efficiency.
• Product-Based Structure: Organised by specific product lines or brands. Ideal for businesses with diverse product ranges (e.g., Unilever).
• Regional Structure: Organised by geographical area (e.g., Asia division, European division). Essential for multinational companies focusing on local customer needs.
• Matrix Structure: Employees report to two managers (functional and project/product manager). Excellent for complex, innovative projects but can lead to confusion over reporting lines.

Network Analysis in Strategic Implementation (Critical Path Analysis - CPA)

When implementing a strategy, managers use network analysis to plan and control complex projects by identifying the fastest way to complete them.

• Understanding/Interpreting Network Diagrams: These diagrams show all the tasks (activities) required, their duration, and the order in which they must be completed.
• Earliest Start Time (EST): The earliest point an activity can begin (calculated by moving forwards through the network).
• Latest Finish Time (LFT): The latest point an activity can finish without delaying the entire project (calculated by moving backwards through the network).
• Total Float: The amount of time an activity can be delayed without delaying the whole project.

  \( \text{Total Float} = \text{Latest Finish Time} - \text{Duration} - \text{Earliest Start Time} \)

• Identifying the Critical Path: This is the sequence of activities that have zero total float. If any activity on the critical path is delayed, the entire project will be delayed. It determines the minimum completion time for the project.

Quick Tip for CPA: Focus your managerial attention (resources, quality control) only on activities on the Critical Path. These are the ones that matter most for meeting the deadline!

Difficulties and Failure of Strategy

Why Strategies Fail

Even well-chosen strategies often fail during implementation due to:

• Poor leadership and communication.
• Lack of resource commitment (under-budgeting or lack of skilled staff).
• Failure to overcome resistance to change.
• Inappropriate organisational structure.

Strategic Drift

This is one of the most common reasons long-established strategies fail.

Strategic Drift occurs when the strategy of a business slowly becomes less relevant to the changing market environment because the organisation is too slow to adapt.

Example: A high-street retailer maintains its strategy of opening physical stores and ignores the massive shift toward online shopping. Initially, performance is okay, but over time, the gap between their strategy and market reality widens until crisis hits.

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Congratulations! You have navigated the complexities of strategic change. Remember, in your exams, you must not only recall these models (Lewin, Kotter, Hofstede) but also apply them to real-world business scenarios. Good luck!