2 Drivers for change in the business environment

If you look at the best retailers out there, they are constantly reinventing themselves. (Arthur Martinez, Sears President, 1996)
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Organizations shape, and are shaped by, their changing economic, political and social context. These change drivers are also creating fundamental shifts in how and where work gets done and in who provides which products and services for whom. In this changing context, some organizations stagnate while others prosper. By and large, organizations are more interested in performance than productivity. They want to be able to add value to what they are producing for their clients and customers and secure lasting competitive advantage. In this chapter we will consider some of the factors driving organizations to reinvent themselves in order to survive and thrive.

Competitive pressures
At the heart of the pressure for change affecting organizations in every sector is increased competition resulting from globalization, the growth of consumer power and the scientifictechnological revolution. Among the most common and influential forces of organizational change are the emergence of new competitors, innovations in technology, intervention from external bodies, government regulations, new company leadership and evolving attitudes towards work, according to Vecchio and Appelbaum (1995). The impact of increased competition should not be underestimated. In an increasingly global marketplace the proliferation of new customers, channels, suppliers and means of production means that companies have to bring new products to market quickly and cost-effectively, and that the process of product/service innovation has to be continuous. These effects are seen within every industry: mature industries are consolidating or, like manufacturing in the UK, are in rapid decline. In the past few

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Drivers for change in the business environment 27

decades, industries such as ship-building and repair, mining, motorcycle and car production have all but disappeared from the UK, while they burgeon in China, Korea, Japan and elsewhere. Conversely, the service economy has grown in the UK but is increasingly under pressure due to skills shortages. Service operations are increasingly outsourced to India and other developing economies, where the combination of call centre technology, high skills and relatively low cost make outsourcing and offshoring attractive options for employers. Boundaries between organizations are blurring. Public sector bodies find themselves operating according to commercial disciplines while commercial organizations are under pressure to act as good corporate citizens. Competitive pressures are compounded by demographic changes. In the UK, an ageing workforce will have to work for longer. There is a growing demand for the knowledge and skills to cope with changing workplace requirements and skills shortages exist in key areas. As the Information Age gains strength, life-long learning is reflected in education policies. Similarly, the expansion of university places to a wider cross-section of the UK population suggests that possessing a first degree appears to be becoming a minimum entry qualification Buy this to todays labour market. file from http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=1382 In the 21st century, companies must respond to an expanding set of expectations from an increasingly aware and demanding set of external stakeholders; expectations from societies about the ethical treatment of individuals and a respect for the environment; expectations from employees about their employment and quality of life. Todays concept of quality goes beyond product and service issues to encompass organizational and management development and learning, together with the role of the organization as corporate citizen.

Globalization
Predominantly driven by US commercial expansionism in the past three decades, globalization is causing a rapid blurring of boundaries (geographic, market sector, corporate), creating both threats and opportunities for businesses. US companies lost much of their competitiveness in the last three decades of the 20th century. US firms once competed mostly with each other. While less than 10 per cent of US firms faced international competition in 1960, 70 per cent of US companies have to compete internationally today. In the global marketplace, new and substantial competitors do not always play by the same rules. Costs of labour vary dramatically. During the last decade of the twentieth century, US productivity rose only slowly. In comparison, many industrialized nations, especially in Asia, were enjoying rapid productivity gains, with Japan in particular enjoying a rate of growth six times as fast as the US economy. Within the global economy, governments have tended to liberalize and deregulate their national economies. Reductions in international trade barriers are enabling new overseas competitors in mature production and service sectors to challenge established markets and time-honoured ways of doing things. The economy of the West is becoming predominantly a service economy, with the

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28 Understanding Change
UK in particular seeing the development of high technology, financial services and travel and tourism as major growth areas. According to Sumantra Ghoshal (Ghoshal and Haspeslagh, 1994) companies now need a global presence. This calls for different ways of conceiving how business needs to operate in a truly global context. Kenichi Ohmae (1990) suggests that the route to global competitiveness is for companies to use each of the three Cs of commitment, creativity and competitiveness to achieve business success. Ohmae points out how globalization will ultimately affect all aspects of business life: The essence of business strategy is offering better value to customers than the competition in the most cost-effective and sustainable way. But today, thousands of competitors from every corner of the world are able to serve customers well. To develop effective strategy, we as leaders have to understand whats happening in the rest of the world, and reshape our organization to respond accordingly. No leader can hope to guide an enterprise into the future without understanding the commercial, political and social impact of the global economy.

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The impact of global instability

Unforeseen forces can also drive change. Set underlying economic and social trends against dramatic world events since the start of the new millennium and the pace of change looks as if will accelerate further still, with critical incidents serving to highlight growing global inter-dependence and vulnerabilities. For example, some of the deeper shifts taking place in the UK economy were already evident in 2001 when a CBI survey exposed a degree of overcapacity in everything from investment banking to landscape gardening. During 2001 alone, 150 000 manufacturing jobs were lost, according to John Monks, former General Secretary of the TUC. As the economic downturn took root, service industries were also badly affected, as were investment banking, insurance, travel and consultancy businesses. The profound effect on investor confidence of terrorist incidents, and the run-up to war with Iraq, lead to volatile money markets and made 2002 a year of global economic and political instability. For instance, in the months following September 11, 2001, while air travel was temporarily disrupted, the market took the opportunity to unlock the previous tight grip of the major national airlines, for whom air travel had proved highly lucrative in the past. These now suffered a huge reversal of fortunes, with the low cost airlines experiencing serious growth, leaving the major national airlines floundering or forced to follow suit in order to survive, or like Sabena and others, put out of business. National economies were also hard-hit. In the UK, organizations with larger turnovers were hit a great deal harder than their smaller counterparts, with some 75 per cent of organizations with an annual turnover of 100500 million

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