Importance of Knowing When to Undertake Deliberate Strategic Change in the Organization - Coursework Example

Introduction The dynamic nature of the business environments is one of the key reasons why a business cannot operate for a long period of time without having to redesign itself. In most cases, leaders are faced with critical decisions on the strategic changes that are required in order to ascertain the effective operation of the organization. Bertolini et al (2015, p.92) argue that a key challenge that arises is the decision concerning when to actually implement the strategic change which can involve transforming the business model and core products. This paper seeks to examine the assertion by Bertolini et al(2015,p.92) that knowing when to undertake deliberate strategic transformation , when to change a company’s core products or business model, may be the hardest decision a leader faces. In one way, it can be argued that knowing when to undertake deliberate strategic change in the organization is a difficult undertaking for leaders. Management wisdom and organizational theory posit that in order an organization to survive, it must be compatible with its environment (Huber and Glick, 1995, p5-6). This basically implies that in order for a manager to know when to undertake deliberate strategic transformation by changing the company’s core products or business model, the organization has to be compatible with the environment. A big problem that arises in actually sense is the difficulty for organizations to be harmonious with the environment. This is basically because, today’s the business environment is highly turbulent. The turbulent environment is mostly instigated by increasing complexity which is influenced by an increase in the number of competitors , suppliers or even clients. Other causes of increased turbulence include changes in technology and an increase in the level of knowledge. What is evident that, it is actually difficult for a manager to forecast what will take place in the business environment. As a result, knowing when to actually implement deliberate strategic change to the organization becomes difficult. It can also be stated that knowing when to change a company’s core products or business model, is a difficult decision for managers due to making poor forecasts. . Business more than any other profession, involves a continual dealing with the future, it also involves a continuous process of calculation and instinctive exercise in forecasting (Shim, 2000, p3). Forecasting can be described as a common statistical tool that is used in business where it assists to inform on key decisions such as providing a guide to strategic planning, scheduling production, and issues to do with technology and personal. According to Hyndman and Athanasopoulos (2014, p. 12) business forecasting has often been done poorly and is often confused with goals and planning. Most managers are not aware of the fact that forecasting is about making accurate future prediction using both historical information, current information and future events that might impact on the forecasts (Hyndman and Athanasopoulos, 2000, p. 12). When foresting some managers get information from various department heads in the organizations who sometimes use wrong tools in forecasting. The misconception about forecasting and the use of poor forecasting methods basically means that mangers will not know how when to implement the important strategic changes that are intended at moving the business forward. Leaders of have the difficulty to estimate performance metrics which affects their knowledge of knowing when to implement strategic change. Transformation must be focused on achieving good performance metrics, especially when an industry hits its maturity. Measuring success may fail to spark long-term growth based on the model used by the business to assess the success (Klang, Maria &Fredrik, 456). For instance, Aetna changed its way of measuring their performance when they realize that their customer segment was due to change. Therefore, they had to change how they measure the value of their products and services. They estimated their value based on three factors that included improving the care experience, improving populations’ health and cost reduction. Another corporation that changed their performance metrics to remain sustainable was Adobe when they switched their metric of success to the number of subscriptions and renewal for its cloud-based services. The third aspect of reinventing a business is recognizing its industry position. When Aetna faced disruptions in its two main business fronts because of the Affordable Care Act, the firm had to change its model and focus on how to offer services to help individuals and organizations navigate the complexities in the insurance sector (Bertolini, David & Andrew, pp.100). Therefore, Aetna, just like Xerox were able to maintain their core fronts and expand into new areas by assessing their position in the industry ecosystem and responding to it. Business models are essential for the growth and sustainability of organization. A business model may have worked in the past and today. However, it is not a guarantee that the model may work in the future, thus the need to create an innovative model that may navigate the future operations of the business (Markides, pp.136). For instance, after realizing the fault lines of its business, Aetna changed their model. The company created two major business models to navigate the changing position in the market. The company opened a new consumer unit so as to begin the shift from a B2B to a B2C health insurance provider (Bertolini, David & Andrew, pp 99). The second aspect of the model was focused on health care providers where the company with the aim of cushioning the providers from costs and risks associated with provision of quality healthcare services to huge populations. Just like Aetna, Netflix pursued the same strategy when its mail orders DVD services were threatened by streaming services (McCord, pp. 73). The firm had to change and fit in the industry, a move that brought the company back to profitability and world-leader in streaming content. Bertolini et al (2015, p.92) highlight that adapting strategic change in also mired by big obstacles. This obstacles can actually affect the knowledge of when to transform the business model and core products. It is often argued that the only things that remains constant is change. Today’s managers are more than before needed to prepare for changing occurrences that affect the business. For instance issues such globalization constantly affects business operations in many ways. There is therefore need for managers to manage the occurring changes. A difficulty that arises is One of the key obstacle of organizational change that affects the knowledge of when to transform the business model and core products is the challenge of managing organizational change. Another key obstacle that can affect the knowledge of when to transform the business model and core products is employee resistance to change. Indeed, it can be stated that organizations have adopted various approaches of lowering employee resistance to change. Some of the approaches include the use of the Kotter and Schlesinger’s (1979) six method approach (Bradutanu, 2015, p. 82). Despite the adoption of such approaches, a study by Yue, (2008, p 84) discloses that overcoming resistance to change is still a big challenge for managers and can actually affect the entire change process. For instance when looking at resistance to change that arises due to sunk capital. The plight of some companies is that their heavy capital is blocked in permanent assets or fixed assets. In the event that an organization wished to introduce a change in the business model or product, these sunk costs present a difficulty. Sunk costs are not only restricted to physical assets but they can also be expressed in terms of people, For example some employees in the business retain their jobs due to their seniority, though they do not bring any significant impact. Unless such people are motivate to produce higher performance, the payment of their services like their salaries and benefits, represent sank costs of the organization (Pathak, 2011, p.102). In such scenarios the existing resistance to change makes it difficult for a leader to know when to introduce strategic changes to the organization.   On the other hand, it can be argued that the decision of knowing when to undertake deliberate strategic transformation, when to change a company’s core products or business model, is actually not the most difficult decision. Some of the key reasons include; Detecting the fault lines The ability to detect fault lines is another reason why knowing when to change the business model is not a difficult decision for leaders. For instance, the steps that were taken by Mark Bertolini when he joined Aetna illustrate what leaders need to do so as to reinvent and lead change in an organization (Bertolini, et al, pp. 93). When he joined Aetna, Bertolini realized that their business may not be stable in the long term based on the existing market environment, especially with the enactment of the Affordable Care Act in 2010. Bertolini detected the fault lines based on the business model the company, with more than twenty-two million customers with policy covers, was using in the market (Bertolini, David & Andrew, pp. 94). Aetna provided insurance policy covers to organizations, and intensively pursued a B2B approach in the market. The conservative American insurer was doing well even during the 2008-2009 recession. The company recorded impressive results at the end of the 2010 trading period, an indication of its ability to defy market trends where insurance sector was facing massive job cuts and unclear prospects compounded by the recession and the enactment of the Affordable Care Act (Bertolini, David & Andrew, pp.98). Despite the impressive results, the CEO through the board made a case for a change in the business model as he opined that the industry was bound to change and players needed to think of new ways of making business decisions in the market (Bertolini, David & Andrew, pp. 95). The CEO opined that the company needed to focus on a new segment of the consumer market and proposed to target individual policy covers as opposed to the conservative institutional based approach. He argued that small changes may not be the best as they risked a slow decline or disruption for the company should new entrants get into the market. However, it is not only Aetna’s leadership that illustrates the need and impact of a reinvention or change model for a business (Klang, Maria & Fredrik, pp.455). At the core of detecting the fault lines is the need for the top executives to understand customer needs. The needs of the customers are the core function of an organization and when it fails to understand that, its growth prospects are endangered and uncertain (Bertolini, David & Andrew, pp. 97). For instance, Aetna’s customers were predominantly big institutions like the government, universities, and corporations among other employers. The company failed to recognize the need to sell to the immediate customers and concentrated on developing a one-fit-all approach (Buckingham & Ashley, pp. 43). The approach disadvantaged policyholders as they could not choose a cover that suits them at an individual level. The essence of such realization is that individual are dynamic and their needs are different. When a leader understands such a scenario, they need to create innovative solutions that cater to every individual need of the consumers (Buckingham & Ashley, pp. 44). Aetna, under the leadership of Bertolini, pursued this approach and has continued to increase its market share. The example of Nestle Food Inc. also provides a perfect case of focusing on customer needs rather than pursuing a conservative and traditional model (McCord, pp.73). The brand transformed itself into a market-driven, health, nutrition and wellness company so as to meet the changing needs of the consumer who was keen on eating healthily. Fault lines in a business can be navigated well when a firm continuously assesses the skills and competencies among its employees. For instance, Aetna realized that the biggest risk it faced was the lack of talent and capabilities of the employees to drive change model. The company had to relocate its technology driven Healthagen model to the Silicon Valley where it was sure of getting the right talent and skills (Bertolini, David & Andrew, pp 100). The company knew that it could get technology-savvy experts who could develop software to deliver, track and manage client’s healthcare needs. However, it is not only Aetna that realized the need for talent pool as other firms like Xerox, Nestle, and Adobe among others undertook the initiative with huge successes (White, pp.42). However, it is not a guarantee that moving or creating a pool of talent will lead to growth and sustainability. The human resource department must configure the best pool for the organization. Adopting Risky behaviour Many companies have actually attained after just taking the risk of changing their business models without struggling with the idea of when the strategic decisions should be made. For instance when IKEA changed from selling mail order to new products which entailed the selling household products at low costs, the industry was transformed as well as the customers. Additionally, companies such as Nestle started with vending its Nespresso coffee machines at small margin but on the capsules, the company sold on high margins. The outcome was a radical increased growth in the profit margins for the Nespresso brand (Björkdahl and Holmén, 2013, p213).What is evident from such examples is that the decision to make certain strategic changes is sometimes not difficult, it is just based on risk taking. The highlighted companies took the risk of price reduction when introducing a new brand. The implication was that the companies were able succeed due to such risks. Imperatively, the decision of knowing when to change can be difficult for some leaders and it does not guarantee any success or positive results (McCord, 2014, p. 71). However, leaders need to think outside the box all the time. Creative and innovative strategies have worked for many corporations with impressive outcomes as a proof that such strategies may be untested, risky, and bound to fail than succeed, but leaders have a responsibility to try them (Frankenberger, et al, 2014, p.174). Failing to try them exposes them to future instability and slow decline, especially when an industry faces disruptions (White, 2013, p42). Big corporations like Adobe, Nestle, and Netflix among others have taken such transformations in their lifetime to highlight the need for reinvention and change of business models. It can also be stated that leaders are aware of when to change a company’s core products or business model. Managers can actually identify situations of danger or the need to change the strategies adopted in the business. For instance when the performance of the organization deadlines, managers tend to formulate business models and strategies that can be used to improve the performance. Additionally managers, also just make decisions to radically change their business models as a way to transform the industries in which they operate. For instance many fortune 500 companies have in the recent years changed their business models radically which has resulted to a transformation on the industries in which they operate. For instance Walmart, Apple and Google are distinctive organizations that radically transformed their business model a move that greatly changed the industries in which they operate (Eurostat and OECD, 2005). The change in business models is by organizations indicates that instigating change by altering the business model or products implies that knowing when to make such decisions is not a difficult decision. Bertolini et al (2015, p. 92). Discloses the fact that “knowing when to undertake deliberate strategic transformation, when to change a company’s core products or business model, may be the hardest decision a leader faces Crisis, Change and Creativity:  Critically discuss the view that (Bertolini et al. 2015, p. 92). " PS: May take in considerations on change management and resistance to change as well. References: Bertolini, B., Dunca, D.,& Waldeck, N. (2015). Knowing when to reinvent: Detecting marketplace ‘fault lines’ is the key to building the case for preemptive change. Harvard Business Review, December, p. 90-102). Word count: 3000 words (+/- 10% and excluding bibliography and appendices). References Bradutanu, D. (2015). Resistance to change - a new perspective: A Textbook for Managers Who Plan to Implement a Change. Lulu.com. Eurostat and the Organization for Economic Cooperation and Development (OECD) (2005). The Measurement of Scientific and Technological Activities. Statistical Office of the European Communities Björkdahl, J and Holmén, M. (2013). International. Journal of Product Development, 18, Nos. 3/4, p213-216. Huber, G and Glick, W. (1995). Organizational Change and Redesign: Ideas and Insights for Improving Performance, Issue 1995. Oxford University Press. Hyndman, J and Athanasopoulos, G. (2014). Forecasting: principles and practice. OTexts. Pathak, H. (2011). Organizational Change. Pearson Education. Shim, K.(2000). Strategic Business Forecasting: The Complete Guide to Forecasting Real World. CRC Press. Yue, W. (2008). Resistance, the Echo of Change. International Journal of Business and Management. 3(2), p84. Read More