A radical change which takes an organization to a new and different level of structure and functioning is called organizational transformation. Organizational change is both the process in which an organization changes its culture, strategies, operational methods, technologies, or organizational structure to affect change within the organization and the effects of these changes on it. Organizational change can be continuous or occur for distinct periods of time. Thus organizational change occurs when new business strategies are introduced and implemented. Organizational change usually happens in response to – or as a result of – external or internal pressures.
Need for Organizational Transformation:
- To be flexible, effective and efficient.
- To have a customer-centric approach to organizational activities.
- To create a more productive environment by recognition of current strengths.
- To understand and position themselves to reap the benefits of competitive technology and business alignments.
- To promote an integrated business approach
Sources of Need for Organizational Transformation:
External Sources:
External pressures come from many areas, including customers, competition, changing government regulations, shareholders, financial markets, and other factors in the organization’s external environment.
- New Technology: Technology expands the opportunities for firms to offer not only new products but also new processes. Technological advancements and innovations in communication and computer technology, have revolutionized organizational functioning. New products may create opportunities to expand the business, improvement in productivity and quality. Thus to remain competitive in the market, the organization has to Identify new technology and more efficient and economical methods to perform the task. Thus to accommodate new technology, the organization has to undergo an organizational transformation.
- Economic Environment: Every business has to work with competitors, suppliers, stakeholders, and has to deal with different interest rates, unemployment rates, income settlement, credit policy, gross domestic product, inflation, recession, tax policy, the level of international trade, etc. The organization has to undergo a transformation to cope with these factors. A change in the global market, economies create a ripple-like effect and affect the Indian markets leading to fluctuations in the capital markets, employment opportunities, and rise or fall in the consumer demand.
- Socio-Cultural Environment: Changes in the needs of the customers are compelling the organizations to adapt and innovate their product offerings constantly for meeting the changing demands of the customers. Every society has different sociocultural characteristics based on the region, ethnics, beliefs, settlement, etc. With the change in the values, habits, norms, attitudes and demographic characteristics of society the consumption pattern of society changes. These factors have a high influence on the organization. Thus every organization has to undergo transformation to adjust to the socio-economic environment.
- Political factors: Governmental regulations and the extent of the intervention of the government may influence the need for change. Political factors creating the need for organizational transformation are regulations, deregulations, foreign exchange policy, protectionism, antitrust laws, etc. In India when a political decision of currency ban was taken, many small businesses suffered because they were not ready for such a change and most of their transactions were in cash.
- Pressure of Competition and Globalization: Due to the development of communication systems and ease of transport between different countries the world has become a global village. Due to globalization, multinational companies have entered a new market. It creates a competitive pressure which forces the organizations to change their strategies for remaining in the domestic market and to ensure their global presence. To remain competitive in market Japanese majors like Toyota, Mitsubishi, and Suzuki started their manufacturing and assembling units in India and other southeast Asian countries due to reduced labour cost and economies of scale.
Internal Factors:
- Management Change: One of the most frequent reasons for major changes in an organization is the change of executives at the top and no two managers have the same styles, skills, and philosophies. Thus a new manager can impact strategy and corporate culture. He may favour different organizational design, objectives procedures and policies than a predecessor. Understanding the risks associated with hiring (or promoting for) new upper management is key to making a good decision on the best fit.
- People: Changes in the work climate at an organization can also stimulate change. Employees are the human capital of the organization. An organization without a motivated and dedicated workforce will not be able to perform at its best. If the workforce is lethargic, unmotivated, and dissatisfied then the productivity of the organization is less. To increase productivity the organizational environment should be changed. This change includes employee training, reorientation, replacement, establishing new recruitment policies and procedures.
- Organizational Structure: The organizational structure defines and scopes the authority and hierarchy in the company. The organizational structure should change over time to cope with the change in the internal and external environment. The clear hierarchy and flow of work increase productivity. Structural changes can be regarded as a strategic move on the part of the organization’s to improve profitability and for achieving a cost advantage.
- Crisis: A crisis may also stimulate change in an organization. Strikes or lockouts may lead management to change the wage structure or employee policy. Thus the crisis causes the company to rethink the composition of its management team and its role in the organization. The ability of the organization to successfully employ strategies to manage such a crisis is what differentiates an organization that is able to manage the instability state of affairs.
- Resources: Inadequacy of the resources, may result in a powerful change force for the organization.