Strategic Renewal & The Speed of Change

Research Paper (undergraduate), 2010

28 Pages, Grade: 1,0



1. Introduction

2. Strategic Renewal
2.1 Reasons for Strategic Renewal
2.2 Types and Areas of Strategic Renewal

3. Pace of Change
3.1 Overview
3.2 Continuous Renewal
3.2.1 Definition
3.2.2 Characteristics
3.2.3 Conditions
3.2.4 Kaizen
3.3 Discontinuous Renewal
3.3.1 Definition & Classification
3.3.2 Characteristics & Measures
3.3.3 Conditions
3.3.4 Reengineering
3.4 Alternatives Approaches to Strategic Renewal

4. Conclusion

5. Bibliography
5.1 References
5.2 Further Readings

1. Introduction

People change, organisations change, whole industries change. This fact can be clearly observed in all aspects of human life. Only a few weeks ago the author communicated with an employee of Thomas Cook, one of the largest tour operators of the world, and expressed his bewilderment about the absence of the destinations Australia and New Zealand in the new catalogue of the product management department he used to work at. The answer simply was that another department would now be responsible for these destinations. Actually these were not the only news. The team has been relocated to another floor, has been merged with another team, and by the way has a new boss. Moreover, only days ago the author read the news from a relaunch of Air Marin as no-frills tour operating brand of Thomas Cook. This brand did already exist until 2003 and was then abolished to strengthen the Thomas Cook brand Neckermann Preisknüller.

These are only small changes within a large company, but they tell the tale of a larger process taking place behind the scenes, a process of change, of strategic renewal. But what is strategic renewal and why are so many companies are involved in change processes despite the estimation that about 70% of all renewal processes do fail (Palmer et al, 2009, p. 49)?

2. Strategic Renewal

2.1 Reasons for Strategic Renewal

Broadly speaking, strategic renewal is the reaction of companies to changes in their environment (Ravasi & Lojacono, 2005), as shown in Figure 1.

These environmental change forces, as exemplary outlined in figure 2, can either occur within the industry the company is involved or are of external nature. In the first case, applying Michael Porters model of five forces, these changes can be caused by competition, new and existing, shifts in the power and bargaining structure towards suppliers and customers, or by the development of potential substitute products. External changes can be classified best with the PESTEL model, structuring environmental changes as being of political, economic, social, technological,

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environmental and legal nature. All these factors do influence the performance of an organisation. To keep it at a high level, every company has to adapt to these changes by reconfiguring “the way they combine resources and capabilities into their products and services” (Baden-Fuller & Volberda, 1997).

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Figure 2: Forces for Change

(Palmer et al, 2009, p. 63; derived from Leana & Barry, 2000)

Referring back to the example of Thomas Cook and its brand Air Marin, changing customer preferences caused this strategic alteration. More and more tourists prefer individual travelling in contrast to the package tour as popular during the second half of the last century, so the relaunched brand offers only accommodation and flights at very low daily rates. Considering the fact that the same brand was dismissed some years ago to strengthen the all-inclusive low cost brand of Neckermann Preisknüller, this relaunch illustrates quite an extraordinary strategic reorientation away from the sole concentration on all-inclusive concepts, acknowledging the need to offer all-exclusive products as well.

2.2 Types and Areas of Strategic Renewal

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However, there are different views about how strategic renewal occurs. Baden-Fuller and Stopford (1994a) for example describe strategic renewal as alteration of resource patterns and the strategic course of an organisation to improve its overall economic performance. Due to its influence on strategy, systems, processes and stakeholders as well as culture and structure of a company, as exemplary described earlier at the product management of Thomas Cook, this renewal perspective is called corporate transformation (Ravasi & Lojacono, 2005) and is based on an economic perspective towards change. The areas influenced by strategic renewal are shown in figure 3.

Corporate transformation usually is initiated by responsible managers due to current (reactive approach) and upcoming (proactive approach) influential and hostile environmental changes and/or a, possibly consequential, deterioration of an organisations’ competitive position. Therefore, according to this approach, strategic renewal can be described as the search for the most favourable combination of resources and capabilities of a company within current and future circumstances due to economic and shareholder pressure. (Ravasi & Lojacono, 2005; Palmer et al, 2009)

Another approach to strategic renewal is based on viewing an organisation as living and developing organism-like entity. This organisational learning perspective understands strategic renewal as increasing an “organisations’ adaptive capacity” (Palmer et al, 2009, p. 50). This approach can also be characterised by creating a focus on product innovation and business development as the “effect of a relentless search for new combinations of available technologies, underpinned by the creation and exploitation of product and market knowledge” (Ravasi & Lojacono, 2005, p. 54), emphasizing the permanent character of this process.

Furthermore, the two approaches to strategic renewal can as well be seen as differentiating change processes according to inside-out versus outside-in perspective. Whereas corporate transformation is depicted as reaction to external change forces, the learning perspective can be seen as focusing on internal strengths.

Summarizing, strategic renewal can be categorised either as being a reaction to environmental changes mounting to an increased economic pressure on companies, or as being a permanent process of strengthening the adaptive abilities of firms. Important aspects of strategic renewal are the areas of change, as already described, the magnitude of the change actions, and of course the pace of the renewal process (please see figure 4). But what factors determine the pace of change? And what speed is appropriate for which situation?

3. Pace of Change

3.1 Overview

Considering the process of corporate transformation, there seems to be quite an agreement over the areas influenced (please see figure 3) and the “purposive nature” (Ravasi & Lojacono, 2005, p. 54) of it. But the issue of the correct timing remains rather undefined.

Early theoretical approaches supported a rapid, revolutionary and discontinuous change process, simultaneously affecting strategy, culture, power and control systems as well as organizational structure and processes (Ravasi & Lojacono, 2005). This revolutionary approach is best expressed by Hammer’s concept of reengineering. This concept expresses the need to break away from old rules and ways of conducting business to achieve an improved level of performance. According to this concept, change cannot be planned and accomplished in small steps, but only with one huge strategic turnaround (please see figure 5) where the outcome is rather uncertain (Hammer, 1990). This approach can be also classified as second-order change.

On the other hand there are supporters of strategic renewal as evolutionary and continuous process of change, depicting it as long-term and incremental. Strategic renewal is to be achieved by continuous adjustments and gradual development within organizations. This approach rather focuses on maintaining and developing an organisation than fundamentally transforming it (Milde, 2009; Palmer et al, 2009).

Figure 5 shows the process of continuous strategic renewal (Path B) in comparison to the revolutionary change process (Path A) as described before. In the two graphs it is visible that for discontinuous change approaches the actual transformation leaps, picturing the scale of the change processes, are considerably larger and within larger timeframes compared to the evolutionary transformation leaps, which occur in shorter time intervals at a smaller scale.

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An exemplary continuous renewal concept, also classified as first-order change, can be found in the Japanese management concept of Kaizen. This philosophical concept aims at on-going improvement in all areas, not only focusing on maximising economic performances. Rather than solely concentrating on outcomes, the main focus lies on improving processes and quality control. The underlying idea is that outcomes will improve accordingly when processes and quality are optimized. (Schwager, 1997; Gábor Sebestyén, 1994)

Nadler and Tushman (Palmer et al, 2009) developed the diverging concepts of first-order and second-order changes further, distinguishing between anticipatory and reactive changes within the dimensions of continuous and discontinuous renewal. Consequently, a matrix was developed, as shown in figure 6 (Palmer et al, 2009). Figure 6 shows that strategic renewal can be undertaken as a result of foreseeing (anticipating) future changes in the external environment of an organisation. An example for such tuning activities based on the status quo to adjust the strategic fit of a company to its environment is the continuous implementation of newly developed technologies into their products by Sony. Incremental changes induced as reaction to external changes are for example all the firms following Sony’s lead and copying the newly developed application because it is demanded by the market. Thus they adapt to the changing customer demands. Reorientation as a rapid and revolutionary turnaround in anticipation of future changes involves major adjustments affecting strategy and structure of companies. Exemplary for this is Apples’ reorientation towards the design aspect of its products since 1997, anticipating the rising demand for stylish designed technology. Another example would be Oticon’s radical organisational change at the beginning of the 1990s, accompanied with a new philosophy of improving living quality of hearing-impaired people, leading to new product designs. The fourth quarter of the matrix contains strategic reorientation, a rapid renewal necessary because of changes in the environment. Often such radical “breaks with past practices and directions” (Palmer et al, 2009, p. 87) are caused by threatening severe external changes and are crucial for the survival of the company. Exemplary for these “frame breaking” measures (Palmer et al, 2009, p. 87) is General Motors in 2009. The company had to react to the financial crisis and restructure its portfolio and their respective managing approach to survive.

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Figure 6: Types of Changes depending on the Pace

(Author, 2010; based on Palmer et al, 2009; adapted from Nadler & Tushman, 1995)

Summarising, there are two main ways of corporate transformation: Continuous renewal, also called first-order change, and revolutionary discontinuous renewal, also called second-order change. Within this classification the two approaches can be distinguished with regard to the relation between the external trigger and the actual process of change as anticipatory or reactive. (Palmer et al, 2009)

3.2 Continuous Renewal

3.2.1 Definition

Continuous Renewal or first-order change can be defined as involving “adjustments in systems, processes, or structures, but it does not involve fundamental change in strategy, core values, or corporate identity” (Newman, 2000, p. 604).

Thus, continuous renewal describes incremental change processes as organisational development to ensure the stability and continuity of a company. It involves continuous small changes and adjustments to adapt to variations in the external environment, and therefore to maintain or retrieve organisational success. The overall objective can be described as maintaining status quo (Milde, 2009; Palmer et al, 2009). However, continuous renewal should not only be reactive to the external environment, but also anticipatory, based on an internal drive for improvement and change within a company (Imai, 1986, in De Wit & Meyer, 2004).

3.2.2 Characteristics

As already stated, continuous renewal stands for an evolutionary approach to corporate transformation. This includes an uninterrupted improvement, an optimisation, of processes, structures and systems at a moderate but steady pace and with gradual changes. Continuous adjustment and gradual constant development are characteristics of this approach as well as permanent learning and a high level of flexibility. (Milde, 2009)

As can be derived from the definition, evolutionary change consists mainly of small adjustments of systems and processes. Such small scale improvements, like for example a more effective way of exploiting new technology, which nevertheless often lead to competitive advantages usually take place on an individual basis within organisations, thus heavily depending on the participation of an organisations’ bottom-line staff (Palmer et al, 2009). Rooted at staff level, such change processes are also more likely to be accepted by employees, reducing potential resistance.

This approach to strategic renewal is an organic adaption of a company to a changing environment. Due to the small scope of the transformational steps, the outcome of the process is usually known, which implies a relatively low risk of failure. Therefore, referring back to the estimated 70% fail rate of change processes, the continuous renewal perspective takes more time, and thus more gradual changes, to generate visible results, but is more likely to prove successful than revolutionary change over time (Milde, 2009; Palmer et al, 2009). This would imply that first-order change is preferable compared to second order renewal. But the decision as well as the successful implementation of change processes is subject to several influences. Due to being rather time consuming, first-order change is not recommendable in urgent situations with high economic pressure and large scope of environmental changes. Moreover, there are more preconditions for successfully applying evolutionary strategic renewal.


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Strategic Renewal & The Speed of Change
University of Applied Sciences Bremerhaven
Organisational Behaviour & Change Management
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An excellent paper, both well structured and readable, following a simple and clear argumentation.
Change Management, Strategic Renewal, Strategic Change, Organisational Behaviour, Organisational Change, Organisational Strategy, Speed of Change, Pace of Change, Continuous Change, Continuous Renewal, Discontinuous Change, Discontinuous Renewal, Kaizen, Reengineering
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B.A. Jens Kaulbars (Author), 2010, Strategic Renewal & The Speed of Change, Munich, GRIN Verlag,


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