What are the barriers to organisational change?
The first barrier to change is most people don’t like change. They tend to stick to what they know and what worked before. However, change is happening: like it or not.
A second barrier is specific to mature markets; here organisations can only grow by winning share from competitors. Mature markets are not themselves barriers to change but they drive behaviour which is a barrier to change. Companies and industries that have been successful over many years, believe that this will be repeated in the future. This is no incentive to make major changes and change often involves high career risk. So, people and companies focus on only incremental and low-risk improvements.
The third barrier is depending only on price to compete. Many organisations rely on price to compete and continually reduce their prices. Reducing prices will reduce margins, so they struggle to innovate and add value to their customers. This is a vicious cycle that encourages them to lower prices further to win more business. Competing on price is unsustainable, and a barrier to change.
Relying on price to sell often means organisations stop investing time to understand what adds value to the customers. As they become more dependent on selling on price, the organisation tells itself the customer does not value anything except price. For fear of losing business they don’t test if this assumption is true. So, they stop trying to understand how to add value to customers. Often not understanding how to add value to customers leads to another problem: the organisation incurs unnecessary costs and delivers no value to the customer. These unnecessary costs reduce margins and lead to increased pressure on price.
The final barrier to change is the pressure for short-term results: pressure to produce revenue or profit, this day, this week, this month or this quarter.
In a $2 billion revenue organisation, a CEO has phoned salespeople asking about this week’s orders against budget. Faced with a choice between trying to get an order this week or trying to invest time in delivering 200 orders next financial year, salespeople always choose the short-term and chased this week’s order. The tragedy is that by chasing this week’s order, the salesperson ensures that in a year’s time, the situation will be no better. It will probably be worse because of increased competition. (The senior management below the CEO wanted their people to be more strategic, but could not understand what was stopping their staff being more strategic.)
This continuous pressure for short-term results drives out strategic behaviour. Strategic behaviour is behaviour that will produce results beyond this financial year and will strengthen the organisation’s competitive position. We understand the need to produce short-term results, however you must balance between action for short-term results and strategic action for long-term results. Compared with their Asian and US neighbours, corporations in Australia and New Zealand are some of the most risk averse. This risk aversion leads to less reinvestment in growth strategies, and adopting a defensive rather than offensive mindset.