Business 101: Principles of Management

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External factors and internal environmental factors are responsible for many overall organizational changes. With change, managers must plan for challenges they may face when trying to implement new ways of doing things.

Why Organizations Change

Organizational change is the restructuring that takes place organization-wide, akin to a total transformation of the way things are currently done. There are many reasons a company makes radical change. It could be in response to external or internal environmental factors. Sometimes there is an interdependency between external factors and internal environmental factors that require radical change.

External factors are things that management has little control over - like political, social, technological and economic changes that management must respond to. Internal environmental factors involve changes to things like policies or systems, procedures, or a change in the culture.

Radical change can be scary for employees, making change difficult for management to implement. Lucky Duck's Casino recently experienced a change to an external factor that led to change in the internal environment.

When the state regulations mandated that casino-goers must be 21 years of age (not 18 as it was in the past) to gamble, it changed everything for casino owner Chip Bucks. His gambling profits plummeted. The casino was barely half-full of senior citizens playing penny slots. As customers disappeared, he was no longer able to support the casino operations. Money was tight. Bucks thought long and hard.

Bucks teamed up with his brother, Tom 'Longhorn' Bucks, who owned a nearby casino. He believed that the partnership would bring new marketing and management ideas. Staff from Longhorn's casino would relocate to work with Lucky Duck's staff as they merged to become one big casino group. This is an example of change in the internal environment brought about by an external factor.

Bucks was worried about one thing - how would employees feel about the drastic change? His employees have been working with him for years. He knew how difficult the staff was when he changed the uniforms. This change may send them over the edge.

Reasons for Challenges

Managers know that the more planning they do to implement drastic change, the more willing employees will be to accept change. It also means that change in processes and systems will be quicker.

Lucky Duck's employees resisted the change for many reasons. The most common reasons employees resist change are:

• Uncertainty about their future or the future of the organization
• A natural reaction against change; status-quo mentality
• Change threatens security
• New people, processes and systems are not trusted
• They don't understand the reason for the change

With a new staff of experienced casino workers, Lucky Duck's employees now had competition. It also meant learning new ways of performing their job.

Employee-related changes were not the only stressors for these displaced employees. Process-related changes occurred when changes were made to cash-handling procedures. Even the gin-pouring procedures for their signature Lucky Martini changed.

Pitfalls to Implementing Change

Bucks evaluated the way he initiated the change to see if he could have done things better. He realized some of his pitfalls:

• The timing may not have been right
• Process changes may be inadequate
• Insufficient resources
• Lack of commitment to change by employees
• Culture resistant to change

Some employees openly fought change, while others tried to sabotage Bucks' and Longhorn's plans. A few quit.

Overcoming Employee Opposition to Change

To make things right, Bucks and Longhorn can:

• Communicate the need for change
• Work with employees to determine mutually agreed-upon smaller changes
• Perform team-building activities
• Make employees feel as secure as possible during the transformation

Lesson Summary

Organizational change is the restructuring that takes place organization-wide. Change occurs from external factors like political, social, technological or economic changes. Changes in the internal environment can mean changes to processes and systems, procedures, and attitudes, like new ways to perform tasks.

When managers implement change, some of their challenges are employee-related or process-related. Employee-related challenges might include lower trust levels, uncertainty and a lack of understanding for the need to change. Process-related challenges for management might be training a resistant staff to rethink the way they do things.

The good news is that there are ways to overcome the challenges. Managers should openly communicate change so employees can ease into it, work with employees in mutual decision-making, build teams by reinforcing the new culture, and make employees feel as secure as possible.