Change Management:

Triggers of Corporate Change

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• The need for corporate change can be caused both externally and internally.
• Externally, companies are faced with an increasingly dynamic environment
that requires constant adaptation of their own structures if they want to be
successful in the sales markets, but also in the preceding procurement
markets.
• External change is caused by the market environment, politics, technology,
ecology, the economy as a whole or institutions, as well as in the markets
themselves, for example through increasing competition.
• To explain internal change, the metaphor of human development is used,
which—like corporate development—is characterized by a sequence of
growth, crisis and higher maturity.
 Company as An open system

• A system basically has two components, elements and their relationships to each other. There is a more or less open border to
the environment of the system.
• Companies are now so-called socio-technical systems, that is, they consist of social (people) and technical (e.g., machines)
elements. Social systems have to solve two problems, that of order and that of stability.
• In the case of companies, order is created by their internal organization and by rules on the course of business. A company is
stable when the system allows companies to successfully assert themselves on the market, that is, does not plunge them into a
lifethreatening Crisis
• If systems do not completely isolate themselves from each other, by having exchange with their environment, we call them
open systems (Fig. 2.1). This is true for companies as they are integrated into numerous markets (procurement market, capital
market, labor market, and sales market) and they would not be viable without this integration
 They seal themselves off from their environment as much as possible. This
Systems—and variant can also be used as “hedgehog tactics” as this representative of the
animal kingdom rolls itself up in case of external dangers and shows the
indeed enemy the unfriendly spines.

companies— Hedgehog tactics only work up to a certain point, as you can see on the
hedgehog himself. For thousands of years the hedgehog was able to fend off
can react to its natural enemies in this way, but unfortunately this was no longer possible
with cars. The hedgehog’s environment has therefore changed too much and
too quickly in relation to the possibilities of natural evolution. Hedgehog
this in two tactics are even less of an option for companies.

ways:
“Hedgehog Tactics” at Pharmacies
1. The pharmacy-only medicines;
2. The prohibition on operating pharmacies as larger chains or chapter
companies;
3. The obligation to have a qualified pharmacist as owner.
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2. If companies cannot resort to “hedgehog tactics”, then as a system they must necessarily adapt to the
changed environment. Adaptation here means that the order of the system, that is, the structural and
procedural organization of the company, must be changed in some way to ensure successful survival. Since
companies are also social systems, they do not exhibit complete order. A purely technical system, on the
other hand, usually reacts in the predetermined, to a certain extent programmed way.

Increasing Environmental Dynamics (Six different business environments can be distinguished)

1. The social environment: It includes hard measurable facts such as sociodemographics, but also more
qualitative data on lifestyles or social values.
2. The macroeconomic environment: This includes the general economic environment, which affects all
companies. Cyclical developments as well as changes in the economic structure are to be subsumed here.
3. The political environment: Political framework conditions, political stability, changes in legislation as well as
changes in power are the contents of this category.
4. The technological environment: The direction and speed of technological progress are decisive information
from this segment. Both basic and applied research is of interest.
5. The ecological environment: Changes in climate, flora and fauna, the occurrence or depletion of mineral
resources are important issues in this sector.
6. The institutional environment: This includes both physical (e.g., transport, telecommunications, electricity)
and intellectual infrastructure (e.g., schools, universities, and research institutions).
Categories of The Corporate Environment
 However, in order to support the thesis of increased environmental
dynamics, a few examples will be given:
Ageing society: This sociodemographic development which is visible in many industrial societies, is a
fact that is foreseeable but not easy to handle. Simulations commissioned by the Federal Government
of Germany have shown that even on the basis of positive assumptions regarding immigration, there is
a considerable deficit in terms of population development in the long term.
Climate change: The topic of climate change, which has been discussed in the media and science for
years, is increasingly becoming part of people’s everyday lives. 2018 was the warmest year in Germany
since weather records began while 2019 was the warmest year in Europe. Companies are also
increasingly affected by climate change. This is due to a significant increase in natural disasters and
extreme weather conditions, which directly affect the insurance industry, for example.
Spread of modern communication technologies: They provide a particularly striking illustration of
change in both the technological and institutional fields. Taking Germany as an example, the year 1877
can already be considered the beginning of operational fixed network telephony.
Increasing digitalization of the economy: In the coming years, digitalization will lead to drastic changes
in companies, terms such as Internet of Things, artificial intelligence or Big Data may serve as evidence
of this. These technologies will lead to the replacement of traditional business models by digital ones
and to an increasing digitalization of internal company processes and the interface to the customer. In
2015, the consulting firms Heads and Deloitte conducted a study to determine how strongly different
industries will be affected by digitalization
Age Pyramid
Impact of Digitalization
 The VUCA World
A number of other developments could easily be addressed, such as the Brexit (Great
Britain’s exit from the European Union) from the political sphere or the “change in
values” from the social environment. However, the dynamics with which corporate
environments in the twenty-first century differ from those of the 1960s, 1970s and
1980s of the past century should also be sufficiently clear.
The acronym VUCA is becoming more and more popular to denote such a dynamic
business environment. VUCA stands for an environment characterized by four aspects:
volatility, that is, rapid change, uncertainty regarding the future direction of
development, complexity with regard to the interaction of the environmental
components involved, and ambiguity, that is, ambiguity in the interpretation of
information
So what is successful today is not necessarily so tomorrow. In addition to changes in the market environment,
comprising technological, political, social or economic change, market-immanent developments are also responsible
for this phenomenon. Four factors can be cited in this respect.
Imitation: Regular benchmarking of competitors, easier access to information via modern communication
technologies and globalization in general, ensure that successful strategies lose their uniqueness ever more
quickly. A company like the American coffee house chain Starbucks, for example, already had imitators in some
countries before the original even entered the market
Displacement: This phenomenon refers to the fact that good strategies are replaced by better ones. Apparently,
the “joy of experimentation” in the sense of testing new business models has grown strongly. Proof of this is the
large number of companies that have succeeded in the past one or two decades in transforming newly founded
companies into corporations of global importance. Often, but not always (see e.g., Starbucks), this has had to do
with further developments in the field of communication and information technology, as the examples of eBay,
Google or Facebook show.
Exhaustion: Product life cycles are increasingly tending to have steeper growth phases, but hardly any extended
maturity phases. In other words, markets literally explode, but are exhausted more and more quickly or even
disappear again. One example of rapid market exploitation is mobile connections, the development of which is
described above (See Sect. 2.1.2), was already quite a lot to read.
Cannibalization: In particular, the spread and commercial use of the Internet has further increased market power
on the customer side. Almost complete price transparency at the push of a button via the numerous comparison
portals has perfected the market mechanism and thus deprived suppliers of market power. The result is a
tendency to price and discount battles, of a kind never seen before.
Internally Induced Change
The Metaphor of Human Development
In addition to the change triggered by external influences, there is a second cause for the need for change, which is based
on internal development processes. To understand this in more detail, it is helpful to compare the growth and development
of companies with that of human beings. In a figurative sense, this means that companies also show something like puberty
and a midlife crisis.
Pioneering phase: In this start-up phase of companies, the company founder usually dominates and is a kind of
head of the family over the company. Below its position, there are hardly any pronounced structures.
Improvisation and direct communication between the founder of the company and his employees characterize
the picture. Often the proverbial creative chaos prevails at first, or the company founder limits this chaos with a
rather authoritarian management. In most cases, there is a relatively close personal relationship with the
customers as well as with the employees. Customer wishes are taken into account directly and
unbureaucratically, products and services are still little standardized. If the company now grows strongly, also
because of creativity and customer proximity, this type of management naturally reaches its limits and an
internally caused crisis develops.
Differentiation phase: The organizational problem of the grown company is now overcome by the founder
delegating tasks and responsibilities. Specialized departments are emerging with their own managers at the
top. In order to enable coordination between these new areas, a higher degree of standardization of
procedures is also required. In the production of goods and services, the growth in market size enables the use
of more efficient technologies, for example, larger machines.
Integration phase: This last phase can be overwritten with internal and external relationship maintenance. On a
higher level the original human togetherness is now being restored. A participative internal management style
is just as much a part of this as the cooperative formation of networks with suppliers and customers
The Life Cycle of The Company
The ‘Burn-Out Syndrome’ in Companies

Excessive growth: The problem here often lies in increasing debt quotas in order to finance excessive growth.
Often in the form of costly mergers and acquisitions. If the mergers do not function as planned, which is not
uncommon in practice, or if bad economic times break out, insolvency often results, because interest and
repayment obligations are too high.
Uncontrolled change: Once saturation has occurred in the core business areas, diversification is carried out
without planning in order to generate new growth areas. Apart from flops in these attempts, the entire
organization is also overloaded and collapsed by the constant change.
Too powerful corporate management: A dominant, seemingly visionary and selfconfident person, who may
well be successful in the beginning, acts rather uncontrolled at the top of the company. Growth visions are
believed and followed uncritically, with the corresponding consequences.
Exaggerated culture of success: In terms of success, companies are moving away from the efficiency
postulate; they are being too generous and paying excessive salaries and social benefits. If these are
shortened or have to be shortened, the result is often a lack of understanding and demotivation on the part
of the employees, with considerable effects on the service provided.