Unit 2 Strategic Change

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2.1 The Meaning of Strategic Change

Before beginning our discussion on strategic change, it is appropriate to briefly look at the meaning of
the term strategy. It is widely held that the term ‘strategy’ has its origins in the military and carries the
idea of ‘winning the war’ as its overriding aim – which is achieved through careful planning, capacity
building and the effective deployment of forces at hand. Translating this war metaphor into the business
arena, strategy then throws up images of the development of a sound business model, the development
of unique core competences to generate competitive advantage, and the effective deployment of
resources in order to outperform one’s competitors and ensure one’s long-term survival and growth in
an increasingly hostile and volatile business environment – Please refer to Johnson and Scholes (1999)
for a more detailed explanation of the origins and meaning of strategy.

The notion of strategy as ‘winning the war’ can be seen as rather too brutal and tends to reflect a one-
sided, hard-nosed approach to business. This is why there has been an attempt in the literature to build
‘softer’ and more positive images around the term strategy that signal a much more constructive and
inclusive approach to business. For example, Johnson et al. (2011) underline the importance of
deploying competencies and resources to meet stakeholder objectives (as opposed to focusing
exclusively on those of top management).

Strategic Change

Hayes defines strategic change as a process, the primary aim of which is the ‘formulation and
implementation of a [new] strategy’. This involves a set of key decisions about the ‘matching of the
activities of an organisation to the environment in which it operates. This is sometimes called the search
for ‘strategic fit’ (Johnson et al., 1999, p.5). Figure 2.1 illustrates this process.

Source: Adapted from Johnson and Scholes (1999)

Figure 2.1 Strategic change

As can be seen in Figure 2.1, the process of strategic change would (ideally) involve the organisation’s
ability to continuously make timely, incremental and step-by-step changes to maintain some kind of
alignment with wider environmental changes (the dotted curve in the diagram). Organisations that fail
to cope with (or influence) environmental changes can experience periods of strategic drift, leading to a
tipping point (a crucial moment which can ‘tip the balance’ and which warrants swift decision and
action) – where failure to respond can lead to poor organisational performance or force the organisation
to exit the business environment altogether. In most cases, the only way forward is some form of
transformational change through which the organisation can realign itself with its changing environment
and achieve once again strategic fit (Nutt and Backoff, 1997). Read this article by Dwyer and Edwards
(2008) which talks about how to avoid strategic drift.

2.2 Environmental Forces Impacting Strategic Change

Since, as explained in the previous section, organisations do not operate in a vacuum

and have to contend with the external forces at play within their wider operating
context, it is important at this point to identify and consider the nature of these forces.
We will here have recourse to the well known PEST analytical framework to identify the
key macro-environmental forces that can potentially impact strategic change. PEST
stands here for Political, Economic, Socio-cultural and Technological (again
see Johnson et al. (2017) for an extended discussion of PEST). Now, read carefully
Table 2.1 which presents a PEST analysis that accounts for some of the key trends of the
new global economy.

Table 2.1 Key macro-environmental forces impacting strategic change

Political Foreign trade regulations – Taxation

policy – Employment law – Blurring of
private and public sector in service
delivery – Government emphasis on
entrepreneurial activity – Growing tension
between global and national identity.
Economic Rise of BRIC (Brazil – Russia – India –
China) as a major economic force – Move
towards a service and knowledge-based
economy – The usual key indices such as
GDP, interest rates, inflation,
unemployment etc. Internationalisation of
processes of production, labour and
distribution of products.
Socio-cultural Population demographics – Attitudes to
work and leisure – Lifestyle changes –
 Changing customer expectations – New
online behaviours – Emergence of a
global culture.
Technological Speed of technology transfer – Rates of
obsolescence – Development of internet-
based applications – Developments in
GRIN (Genetics – Robotics – IT –
Nanotechnology) that can radically
transform work, business and society.
PEST is now seen as a basic management tool which managers at all organisational
levels should be able to master. You will need to use this framework in your coursework
to address one of the questions asked in your report brief. To give you some practice,
try the exercise that follows. The PEST analysis can be effectively complemented by a
SWOT analysis which focuses on the Strengths, Weaknesses, Opportunities and Threats
which an organisation can use as part of an assessment of its strategic position.

2.3 Change Agency: Approaches to Strategic Change

Change agency refers to the ability of a manager or other agent of change to affect the
way an organisation responds to change (see Hayes, 2018, p.86). Therefore, change
agency is a key variable that can significantly influence the outcome of a change
initiative – and the ability of change agents and their respective approaches to strategic
change are very much a function of the way they perceive themselves and the nature of
the change facing their organisation.

Change agents can entertain a deterministic view of self and change – i.e. they feel that
they are powerless in the face of external changes and that their decisions are only
reactions to wider external forces over which they have no control. This reactive
approach to strategic change is referred to as determinism.

On the other hand, change agents can adopt a more voluntarist view of self and change
– where they reject the view that they are powerless and that their strategic choice can
influence the external environment. This more proactive approach to strategic change is
referred to as voluntarism.

2.4 Planned and Emergent Change

According to Coram and Burnes (2001), most change writers tend to fall into one of two
broad camps: those who support the planned approach to change and those who
espouse the emergent approach.
Planned Change

Planned change represents a proactive, rational, and structured approach to the

management of strategic change. It involves a process of diagnosis, forecasting,
planning, implementation and evaluation. Its primary purpose is to ensure the long-term
effectiveness of the organisation, stressing the need for a collaborative approach to
change whilst keeping in view performance outcomes and stakeholder interests (Coram
and Burnes, 2001). It is underpinned by a voluntarist outlook – where it is formulated in
anticipation of future problems and because of managers’ belief in their ability as
shapers of their environment (Hayes, 2007; Mullins, 2007).

However, some criticisms have been directed at planned change. First, the fact that
planned change is usually led from the top makes it easier for managers to slip into a
rigid, autocratic mode of orchestrating change. Second, there is an in-built lack of
flexibility in ‘planning ahead’ as managers cannot account for all the variables within a
dynamic and unpredictable environment. Third, planned change is based on a rather
naïve assumption that shared understanding can be readily achieved around change
projects – obscuring in the process the political and the ‘messy’ nature of organisational
change. Finally, planned change is obviously not suitable for all change situations, which
sometimes call for a more contingent and adaptive approach to change management –
and ‘sticking to ‘the plan’ can isolate the organisation and desensitise it from its context
(Coram and Burnes, 2001).

Emergent Change

Emergent change represents a reactive, ad hoc, and unstructured approach to the

management of strategic change. It involves a process of continuous adaptation to
environmental change, which is viewed as dynamic, unpredictable and often hostile. It
also recognises that change can be a messy process and that agreement over change
objectives can be difficult to reach – thus showing greater awareness of the politics of
change. It is underpinned by a determinist outlook – where managers have a firefighting
role, having the ability only to respond to environmental changes (Burnes, 1996;
Pettigrew and Whipp, 1993).

Emergent change is not free from criticism. It tends to downplay the importance of
strategic vision and direction – which could be interpreted as a sign of manager
incompetence. It also condemns managers to a firefighting role as they ‘muddle
through’ the process of continuously crafting and experimenting with change initiatives.
This can be a drain on resources if too much attention is given to strategy formulation
and not enough to its implementation. Finally, the emphasis on politics and negotiation
means that agreement over strategic goals and objectives can be extremely difficult to
reach. (Again, see Coram and Burnes (2001) for a more detailed discussion of the
strengths and limitations of emergent change).

2.4 Planned and Emergent Change

Logical Incrementalism

Quinn (1993) proposes a ‘third way’ which falls between planned and emergent change
and which he refers to as logical incrementalism. Thus, following Quinn, managers can
navigate a middle way between planned and emergent approaches to strategic change
management. Such an approach enables both strategic direction through planning and
the much-needed flexibility to make adjustments to original plans in view of
environmental changes. As such, logical incrementalism involves a process of both
direction and adaptation – a process referred to by Burnes (1996) as ‘choice
management’ – planning for the unplanned.

Research-based evidence for logical incrementalism

Quinn (1993) looked for evidence of logical incrementalism by observing managers in
Xerox, IBM and General Motors. He found that by the time the strategies developed by these
managers had become clear, many of the key elements of these strategies had already been
implemented – suggesting a mix of adaptation and direction and lending some support to
logical incrementalism.

2.5 Evaluating Strategic Change: The Balanced Scorecard

Strategic change projects have to be monitored and evaluated as it is the only way of
determining their effectiveness and measuring their outcomes – which can prove
particularly challenging. In the early 1990s, Kaplan and Norton investigated new ways to
measure organisational performance that moved away from the exclusive focus on
financial measures that prevailed back then. They developed the balanced scorecard
which allowed for a more holistic approach to evaluation and enabled the simultaneous
evaluation of four different dimensions of organisational performance, including:

• Financial Measures – return on investment, sales growth, profit, etc.

• Customer-related measures – customer satisfaction, retention, market share, etc.
• Internal business processes measures – quality, response time, production costs.
• Learning and growth – level of competencies, capacity for learning and
innovation.

The balanced scorecard is a useful tool for monitoring and evaluating strategic change
projects as it: (i) allows for a systematic review of the change process at each of its key
stages (short-term, mid-term and long-term evaluation), (ii) can be used to achieve
shared understanding around change objectives and how these can be translated into
clear operational goals, and (iii) enables an understanding of the causal inter-
relationships between the four categories of measures and their impact on change
outcomes (Norton and Kaplan, 1992). Importantly, it integrates business imperatives
with HR concerns and can enable a fundamental symmetry between effective market
and people strategies.

Research-based evidence on the usefulness of the balanced scorecard

Kaplan and Norton (1992) use Echo Engineering as an example to validate the
usefulness of the balanced scorecard. In researching this company, they found that
the balanced scorecard enabled the establishment of a causal relationship between
employee morale, customer satisfaction and financial performance – where the
employees with the highest morale provided the kind of service that resulted in the
most satisfied customers, who in turn were the ones who promptly settled their
accounts. Read more about this in Chapter 29 in Hayes (2018).