11. Change in organisations

Recent years have seen massive restructuring. Companies downsized and delayered, getting rid of levels: - middle-management in order to become leaner, flatter, supposedly more efficient organisations. Often the reasoning was that computer networks allow top managers instant access to information that was previously gathered and transmitted upwards by middle managers, whose other main function was to communicate executives' key messages downwards to the workforce, and in this they were accused of diluting or confusing the messages, or worse. With fewer organisational layers, top managers say they can communicate more directly with front-line employees, the people who actually produce the goods or services, and deal with customers. With less direct supervision, employees have often been encouraged to make more decisions for themselves in a process of empowerment.

Another trend was re-engineering, the idea that an organisation should not change incrementally, but should start again from scratch with no preconceptions about how things should be done, not just in manufacturing but in all the processes that contribute to what an organisation does, hence business process re-engineering, or BPR.

The human side of this, again, was that there would probably be redundancies. The people remaining would probably feel demoralised, wondering when the next wave of change was going to come and whether it would be their turn to be thrown out.

There has been a reaction to downsizing and BPR and a realisation that an organisation's most precious asset may well be its people, and above all what they know. A company's accumulated knowledge and experience is part of company culture and is increasingly seen as a key to success. Many now believe that this collective knowledge and accumulated years of experience is something to cultivate and develop. Some companies have appointed a chief knowledge officer who creates systems to make this knowledge available to the company as a whole in a process of knowledge capitalisation.

Change and the outside world

Today's trendsetters become tomorrow's old fogeys. This is most visible to the person-in-the-street in retail organisations. Corporate history is littered with the names of companies that failed to anticipate social trends: the perception 'old-fashioned' is hard to throw off.

Now everybody is focusing (or should be) on how the Internet is going to change the way they do business. How, for example, will it affect traditional retailing? Will the Saturday morning drive to the supermarket begin to lose its appeal? How will it affect what in five or ten years, will be 'traditional' telephone banking? However, it is not enough for the technology to exist. There are complex social processes involved in the way it is exploited and the way it then evolves.

Read on

Michael Hammer and James Champy: Re-engineering the Corporation, Nicholas Brealey, 1995. The key work on one of the big management movements of the nineties.

Michael Hammer: Beyond Re-engineering, HarperCollins, 1998

John P Kotter: Leading Change, Harvard University Press, 1996 .

David Hussey: How to Be Better at Managing Change, Kogan Page, 1998

Peter Drucker: Managing in a Time of Great Change, Butterworth-Heinemann, 1997

James Champy, Nitin Nohria: Fast Forward: The Best Ideas on Managing Business Change, Harvard University Press, 1996. A selection of articles from the Harvard Business Review by academics and business people.

Robert Heller: Managing Change, Dorling Kindersley, 1998

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12. Strategy

Strategies, whether military or corporate, are two-a-penny unless formulated in terms of resource allocation. Every organisation exploits particular resources, or assets- physical, technological and human - to achieve its goals.

In many industries, however, these assets are so specialised and have taken so long to develop that it is hard, if not impossible, to duplicate them. A company might have the 'strategy' of entering the market for, say, aircraft engines and becoming a world leader. But even one with massive resources at its disposal would find it impossible to enter a field dominated by Rolls Royce, Pratt and Whitney, and a few other key players. A profitable industry is attractive, but in some cases wishing to enter it may just be wishful thinking, and in practice there are no new entrants because the barriers to entry are so high. The rules of the game were established years ago, and will remain pretty much the same until something new comes along to upset them, like a new technology, which other companies may be better equipped to develop.

In brand-new industries, the rules of the game have not yet emerged. The traditional scenario is for a new industry with high growth to have a large number of competitors in the beginning: barriers to entry are equally low for start-ups (brand new companies), and for established companies also wanting to participate, perhaps by setting up a new subsidiary or business unit. The start-ups have the potential benefit of doing things in new ways. They don't inherit a culture from another industry that may not be suitable for the new one, and that may even be a handicap to competing successfully.

After a time, leaders emerge who are able to spread their costs over a higher level of sales, and who are thus more profitable. As growth in the new market slows, smaller competitors with higher costs drop out or are bought by the larger companies in a process of consolidation or shakeout, leaving elite with the resources to dominate the industry, which is now mature.

That is why emerging industries are so attractive. Companies want to get in before the rules of the game become fixed, and be able to influence how they are fixed. Think of Internet commerce. Amazon books was a new start-up and grew not only internally by increasing its own sales but by acquiring other start-ups. Within three years of its foundation, Amazon came to dominate bookselling on the Internet.

A profitable company may buy firms in unrelated industries, including emerging industries, perhaps hoping that some of their acquisitions will turn out to be leaders in their fields and become money-spinners. But it may just end up as a conglomerate of more or less profitable companies, and some unprofitable ones.

Corporate history is full of examples of takeovers and mergers that did not produce the results that were promised. Even a company buying another in its own industry in the same country faces problems in making the acquisition work. The problems in acquiring a company in a different industry or in another culture are enormous. This may not be the best use of resources.

Recently the trend for groups has been towards selling non-core assets, using the proceeds to invest in core activities and concentrate, or focus, on them. This is sometimes referred to as sticking to your knitting. The mission statements in the main course unit are attempts by companies to say what their knitting actually is. Shareholders naturally want the highest possible return on capital. The job of every company is to allocate that capital in the most judicious way. They should invest in the most profitable activities or products for which they have appropriate resources, or for which they can realistically acquire or develop the resources.

These are the big strategic questions. Which activities are the ones to stay in, invest in and develop? Which are the new ones to get into? Which are the ones to get out of? Answering them is not easy: multi-billion dollar mistakes are easy to make.

Read on

Michael E Porter: Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1998

Michael E. Porter: Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1998

T. Irene Sanders: Strategic Thinking and the New Science: Planning in the Midst of Chaos, Complexity, and Change, Free Press, 1998

Gerry Johnson, Kevan Scholes: Exploring Corporate

Strategy, Prentice Hall Europe, 1998 Kenichi Ohmae: The Mind of the Stra

tegist: The Art of Japanese Business, McGraw Hill, 1991 Stuart Slatter, David Lovett: Corporate Turnaround, Penguin, 1999

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