Research two organisations that have gone through change. How useful are the environmental scanning tools (eg PEST) in identifying the key drivers for change that have affected these organisations?
Using the categories identified in chapter two of Senior (2002), how would you characterise the types of change these organisations have experienced.
Support your arguments with evidence from the two cases.
Environmental scanning tools such as PEST or PESTEL which refers to political, economic, sociological and technological, environmental and legal factors are usually used in the analysis of the critical factors involved in organisational change, (Johnson & Scholes, 2002). In this essay two organisations are examined that of WaterCo, a British utility company and Kodak, an international consumer electronics company using a PESTEL analysis of the various factors involved in their organisational change.
PESTEL Analysis
Political
Both Kodak and WaterCo are significantly influenced by political factors in terms of organisational change although it can be argued that the influence on WaterCo has been more pronounced. The political context of globalisation though is a main consideration for Kodak but it is diffuse and spread over other factors as discussed subsequently. However WaterCo’s existence as an independent private company can be attributed to changes in the political environment of the UK favouring privatisation under the prevailing economic ideology of the time which saw a large number of public utility companies privatised and/or broken up into smaller and more efficient companies. WaterCo itself was privatised in 1989 and is one of the major water companies in the UK with over 400 employees. The main responsibilities for this firm are providing fresh water and treating waste water for their UK based customers thus maintenance work forms a core component of the services they provide, (Cooke, 2002).
Economic
Kodak has been significantly impacted upon by changing externalities in the economic environment. This has been as a result of processes of globalisation opening up more markets and bringing more competition for the company. A socio-economic consideration for the company has been the influence of changing demographics in terms of the customers it services (Tan & Tiong, 2005). Increased wealth and increased disposable income coupled with increased access to novel technological developments for a larger amount of people have radically altered certain parts of Kodak’s market forcing it to adapt and adopt changes which make it a much more successfully competitive organisation. Economically also globalisation has increased the number of and size of competitors which threaten Kodak thus economic considerations in organisational change for Kodak have occurred at micro and macro levels.
For WaterCo the principal economic concerns have been related to the cost of investment in personnel and technology it has had to make in response of the changes brought about in the company by the influence of these factors. The success of such strategies will also arguably be determined by the cost-benefit calculations arising out of the economic costs of pursuing these strategies in managing change successfully for the company.
Sociological
Linked to the economic factors above social changes have significantly impacted Kodak in relation to changing demographics in terms of the customers it targets. As such then changes in customer’s needs and preferences for high-tech imaging products and changing life styles has increased the pace of organisational change in Kodak in terms of meeting these needs. Increased globalisation arguably has led to customers demanding faster responses to their needs creating much more competitive business fields attempting to satisfy these desires. According to the CEO of Kodak the company’s business is not about technology but about pictures illustrating the company’s attempt to relate to the lifestyles of consumers, (Macher and Richman, 2004). This is because customers have become more service sensitive as well as technique and quality orientated as a result of higher educational levels and income levels creating much more discerning customers in relation to these.
For WaterCo the sociological context of human resource has been a major influence. Flexibility in terms of labour in British firms has been mainly achieved by enlarging the scope of tasks (Poole and Jenkin, 1997) and a relaxation of organisational boundaries, (Geary, 1995). As a result employees in WaterCo have become more flexi-skilled and multi-skilled following training which focuses on their own core knowledge for certain positions and more self-management in task performance flowing from and contributing to a flatter organisation architecture. In response to these developments WaterCo developed a computerised management information system in order to produce a more effective communication channel with employees responsive to their concerns as well as providing training courses about health and safety to improve the performance of maintenance workers in relation to new regulatory procedures. It has been argued that due to the historical nature of conflict-orientated relationships with trade union organisations in such industries rates of investment in employee development have traditionally been low, (Sparrow & Hiltrop, 1994). As such then due to the significant impact of external forces organisations such as WaterCo have sought to survive in a changing competitive environment by the incorporation of changes gradually to its organisational structures and operations.
Technological
Technology from the analysis undertaken here can be argued as being the main factor in the external environment producing organisational change in both companies. Out of the four thousand types of equipment in WaterCo many of them are over twenty years old and not representative of new technological developments designed according to revised and improved engineering standards. This consideration needs to be added to the fact also that rapid development of technology has meant more complex and advanced machines and electronic instruments being produced by suppliers’ which leads to increased competition in this field in terms of companies possessing staff with the necessary skills to deploy such technologies effectively, (Cooke, 2002). Threats from this can be seen in the take-over bid by another maintenance service competitor in 1995 which forced WaterCo to reconsider the importance of their services in terms of balancing quality and total cost in order to maintain its core competence in this industry. As a result a new management group was set up to take charge of investment in technology development within WaterCo in order to meet new long term strategy goals in this respect
In contrast to the water industry, the rate of technological development in the imaging industry has been and is even more rapid and has forced both new entrants and established companies to respond and adapt quickly in the face of radical and architectural innovation as defined by Henderson (1996). As a result Kodak which has long held a global leadership in the imaging market had begun to fear that the development of digital technologies might provide vital threats to the company’s core chemical processing business. At this stage technological changes which had occurred in the external environment had largely driven organisational changes within Kodak discussed subsequently below.
Environmental
Both Kodak and WaterCo are within industries which need to take cognisance of environmental factors. For both companies though the nature of these influences are inextricably linked to social, legal and political factors. In WaterCo’s case the company is subject to intense regulatory scrutiny by Environmental Protection Agencies and Public Environmental Advocacy groups in relation to the conduct of its service in treating waste water and providing drinking water to the British public. Factors of influence here have seen the company be engaged in training programs for its employees and company wide in ensuring the company meets these standards and possesses the knowledge and skills to do so in terms of its human resources.
Green issues have also been a concern for Kodak as the nature of its products historically have been ones hard to dispose of and ones which are unfriendly to the environment in terms of for example the chemicals used in the manufacturing process. However change for Kodak in terms of this influence has been clearly linked with developments in technology and a greater emphasis on more superficially friendly digital products. Superficially in the sense that environmental concerns are still expressed in terms of the construction of digital products by some advocacy groups globally.
Legal
Legal considerations are again more a concern directly for WaterCo in terms of the regulatory environment it must contend with as being a utility company providing services to the public. Furthermore a distinct process which has led to changes in WaterCo has been the development of new safety standards in relation to the operation of the equipment it uses. Such heavy machinery has seen a slew of legislative developments in the UK raising safety standards within the industry seeking to reduce the number of work related accidents. WaterCo has made a significant investment in educating, training and retraining staff in light of these developments and the organisational change for the company in this regard has been a principal component of its human resource strategy.
For Kodak principal legal influences arise out of considering the amount of countries which the company operates in. As discussed below Kodak has responded to these challenges through the pursuit of joint-ventures with mixed success. Thus Kodak can be said to attempt to minimise its exposure as much as possible in being a multi-national company to the influences of national legal environments.
Discussion
It is useful to consider the external environmental forces which have had important effects on an organisation from both a macro view as defined by Taylor and Cooper (1988) and from an industrial perspective, (Pettinger, 2004). In this way we can address the significant point concerning the complexity of contexts in which organisational change occurs. Rates of technological development have generated intense competition for WaterCo which to a large extent has increased the demand for internal adaptation to these technological changes. This is because the water industry is a highly mechanised process-orientated industry and the services provided by WaterCo depend particularly on the machinery used to deliver the process. According to Senior (2002) organisational change in the technological field can be seen as a radical change because of the vital influences of these processes on all levels of corporate operations. In additional to changes in physical resources organisational structure and human resource structures must change correspondingly also for these types of changes to be managed successfully, (Grundy, 1993). A flatter organisational structure can be used in order to improve communication processes and employee training, (Graetz et all, 2002). Skills are an essential factor for the company but the core of these skills needs to be retained in the face of increasing automation and complexity. As such technological change rarely occurs by itself, (Baldry, 1998). Change can be argued to have been mediated in an incremental and evolutionary way rather than a revolutionary one within the water industry, (Senior, 2002).
Kodak like WaterCo has been significantly influenced by a variety of factors as identified by a PESTEL analysis which can be grouped under a general heading of globalisation. Kodak has similarly also been significantly influenced by technological changes in altering and changing its organisational structures and cultures. Kodak operating within a fast growth industry has suffered from a shorter period of evolutionary change and was faced with revolutionary changes much sooner and as Greiner argues (1998) long-term growth of organisations is pushed by a large degree by revolutionary change. Digital technology was hence already prominent in several markets but Kodak was too far behind and ‘ill-suited’ to develop and pursue the development of digital technologies on its own, (Macher and Richman, 2004). The management team at Kodak adopted a two-tier strategy, which on the one saw them responding to the rapid technological change through merging with other companies that had already developed successful digital products, such as the buying of the Imation Corporation’s medical imaging business in 1998, (Kodak Buying Medial Imaging Operation, 1998). Secondly they pursued joint venture tactics in order to react to the changes in this industry by matching with strong performers in areas of the industry.
However these tactics were unsuccessful as organisational conflicts occurred between joint-ventures and central management. It was obvious then that the firm’s structure and systems at the time were not capable of developing new technologies efficiently thus the management team responded by sheltering the joint venture from Kodak’s main body and making it an independent entity, (Macher and Richman, 2004). As a result this allowed the independent division to develop specific routines responsive to the project’s demands and progress went efficiently from there. This corresponds with the findings of a recent survey of Information System managers which revealed that 39% of organisations have adopted an Object-Oriented (OO) technology process to some extent in project developments, (Glass, 1999). Researchers concluded that the OO approach is however only an evolutionary adjustment from the structured systems it supplants, (Meli, 1994; Parodi, 1995; Booch, 1996). In Kodak’s case the revolutionary changes occurring in the technological field can be clarified as a radical change that spread into all the level of organisation, (Senior, 2002, Booch, 1996). It is fair to say that future growth would seem to be very depended on the company engaging with and possessing the will to carry out future revolutionary changes, (Bigelow, 1980).
To conclude change in an organisation’s architecture often determines the success of organisational change, (Greiner, 1998). Strategies need to effectively respond to outside forces causing revolutionary and evolutionary changes. As Greiner (2000) points out each of the growth phases begins with a period of evolution and followed with a revolutionary period which pushes the organisation into the next stage of growth for firms within the specified industry. However different strategies and organisational structures may be appropriate under the different circumstances characteristic to the specified industry. Therefore organisational change is the result of external environmental changes and internal demands in terms of structure, system, product and human resources necessary for the organisation to mediate successfully the various elements in change.
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