Organizational Barriers to Transformational Change

According to the punctuated equilibrium model, organizations evolve through relatively long periods of equilibrium (stability), which then get disrupted by shorter periods of instability to accommodate more fundamental revolutionary change. These revolutionary periods then attempt to re-stabilize the organization into a new equilibrium period. From this perspective, organizations resist change because resistance to change establishes the fundamental condition that supports revolutionary transformation. The above description reflects that organizations in the past (the 1980s and 1990s) sustained their competitive advantage for longer periods of time and underwent a minimum number of transformational changes in their life cycles. But today’s business environment has become more turbulent, uncertain, and dynamic and the periods of stability have shrunken. As a result, competitive advantages are difficult to sustain. Under these constraints of time, managing organizational change has become even more difficult and complex.

There are many sources of organizational barriers, but most of them originate from organizational routines, old organization cultures, and organizational stakeholders. But why transformational change is so difficult for organizations? Different organizational theories offer different explanations for barriers to change. But if we can identify and understand change, we can attempt to manage it successfully. Let us examine some most complex barriers that organizations encounter in transformational change:

Organizational Capabilities

Organizational capabilities are those things that an organization can do very well. Our focus here is on the capabilities of an individual or a group of individuals that perform the work. Each organization possesses capabilities that are developed based on routinized behavior. Routinization is a crucial step in developing capabilities. Only through the repetition of tasks, the work can be completed effectively and efficiently. Over time, this behavioral pattern gets embedded in the system and influences the way an organization operates, which creates a particular barrier to change. This routinized behavior makes it more difficult to develop new skills and routines. This results in getting trapped in a “competency trap” where “core competencies become core rigidities,” creating a strong barrier to change.

Organizational Culture

Our focus here is on “people,” typically a large group of individuals that form the culture of a department, team, or an organization, and how they collectively think, perform, and behave in an organization. A strong organizational culture can support the strategy and organizational routines, but a weak culture can become a barrier to change. Old routines (ways of behaving) can also provide barriers to change since they get so embedded in the system that they affect the way an organization operates. Barriers to changes should be identified first and then removed: old structures, systems, and ways of behaving to facilitate change. Without considering the existing barriers, it is possible to leave the old behaviors unchanged, which would eventually result in obstructing change. When Sergio Marchionne was appointed as CEO to transform Fiat (car maker), it needed a cultural change first if Fiat had to put in place a restructuring program. Marchionne’s responsibility was to transform Fiat into a more agile and brand-focused company. Here are some of the cultural issues Fiat was facing when Marchionne was appointed:

• The HQ in Turin (Italy) made major decisions.
• Executives who performed below average were transferred to a remote location instead of being removed from their job.
• Executives in the hierarchy were not talking to each other instead, they would communicate through their secretaries. This is a typical example of poor cooperation and collaboration.
• Many manufacturing issues, messy factories, and workers trying to solve complex problems instead of using benchmarking best practices.

Powerful Stakeholders

Powerful stakeholders in an organization, such as the CEO, can provide a significant barrier to transformational change. For example, if a powerful CEO of a company feels that the proposed transformational change is a potential threat, then he can use his power to alter the proposed change paths to limit the risks in his favor. In mature industries where the pace of technological change is low, senior managers can provide resistance to move into high-paced technological-based industries that require an organization-wide change to achieve strategic innovation.

Compatibility between Strategy, Structure, and Systems

Organizations in their early stages of development find difficulty in establishing a strategic fit between their strategies, structures, and systems and the external environment. But once successfully established, it is difficult to rearrange the elements of this complex configuration, which then becomes a barrier to change. Because to keep pace with the changing external environment, it is not enough to make incremental changes in the limited dimensions of strategy. The implication is that this increasing misalignment with time between the organization and its external environment finally forces the organization into a revolutionary transformation as described by the punctuated equilibrium model above. In other words, a major decline in the short-term performance of an organization or sustained decline over several years will substantially increase the likelihood of revolutionary transformation. This new transformation will require a new mission, a change in strategy, goals, objectives, and possible change in leadership that was tied to the old configuration. Many large companies, including GM, GE, Nokia, Toyota, and Siemens, have undergone transformational changes in recent years.

Limited Search in Finding Solutions

Barriers to change must be identified first, and then potential solutions should be searched towards removing the barriers. But organizations have limitations on their searching capabilities, which in turn becomes a barrier to change. To find solutions, people normally tap into their existing knowledge base and therefore prefer exploitation over exploration activities. The limitations on their limited search capability can be due to two reasons, first, by bounded rationality: people have limited information processing capabilities, which constrains the choices they can think of, and second is satisfaction: people do not search for optimum solutions, instead they stop their searching efforts once they reach a satisfactory level of performance.

References and Further Reading

1. E. Romanelli and M. Tushman, Organizational Transformation as Punctuated Equilibrium: An Empirical Test, Academy of Management Journal (October 1994), 37(5), pp. 1141-66.
2. Ashok N., Internal Sources of Strategic Transformation: Competitive Advantage through Innovation, A&N Strategy Consulting (August 7, 2018).
3. J. Balogun, V. Hope Hailey, and S. Gustafsson, Exploring Strategic Change (United Kingdom: Pearson Education Ltd., 2016), Chapters 1, 2, 4, and 5.
4. R. M. Grant, Contemporary Strategy Analysis (United Kingdom: John Wiley & Sons, Ltd., 2013), Chapters 5, 8, 10, and 16.
5. T. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (New Jersey: Prentice-Hall, 2000), Chapters 8 and 9.
6. M. Hensmans, G. Johnson, G. Yip, Strategic Transformation: Changing While Winning (Great Britain: Palgrave Macmillan, 2013), Chapter 1.