As organizations decide to expand on other markets, managers are facing with new problems and realities. If thirty years ago, companies afford to ignore the international business environment, today they need to think globally.
This new dimension of international business was made possible by unprecedented growth of telecommunications, technology, transport and the existence of international standards. The article aims to analyze the main reasons for organizational change, in terms of contingency theory and strategic approach.organizational structure, contingency theory, strategic approach

Georgiana Surdu

English

Research Papers in Economics

 
 
48 
ORGANIZATIONAL CHANGE- DIFFERENT APPROACHES 
 
Georgiana Surdu
* 
 
Abstract: 
As organizations decide to expand on other markets, managers are facing 
with new problems and realities. If thirty years ago, companies afford to ignore 
the international business environment, today they need to think globally. 
This  new  dimension  of  international  business  was  made  possible  by 
unprecedented  growth  of  telecommunications,  technology,  transport  and  the 
existence of international standards. The article aims to analyze the main reasons 
for organizational change, in terms of contingency theory and strategic approach.  
 
KEY  WORDS:  organizational  structure,  contingency  theory,  strategic 
approach 
 
JEL CLASSIFICATION: M14, M16 
 
Introduction- organization size 
Economic, technological, and competitive forces have combined to push 
many companies from a domestic to a global focus. The importance of the global 
environment for today’s organizations is reflected in the shifting global economy. 
As one indication, Fortune magazine’s list of the Global 500, the world’s 500 
largest companies, indicates that economic clout is being diffused across a broad 
global scale. In Exhibit 1, each circle represents the total revenues of all Global 
500  companies  in  each  country.  Although  the  United  States  accounts  for  the 
majority of the Global 500 revenues, a number of smaller and less-developed 
countries are growing stronger. 
Other countries with fewer companies are: Spain, Mexico, Switzerland, 
Netherlands, Canada, Sweden, Finland, Australia, Malaysia, India, Brazil and 
Italy. 
The dream of every businessperson is to have his or her company become 
a member of the Fortune 500 list, to grow fast and to grow large. Sometimes this 
goal is more important and urgent than to make the best products or show the 
greatest profits. 
But my question is: is bigger better? Huge resources and economies of 
scale  are  needed  for  many  organizations  to  compete  globally.  Only  large 
organizations can build a massive pipeline in Alaska, for example. On the other 
hand,  the  competing  argument  says  small  is  better  because  the  crucial 
requirements for success in a global economy are responsiveness and flexibility in 
fast changing markets. Small scale can provide significant advantage in terms of 
                                                 
* Georgiana Surdu is Assistant Professor at the Romanian-American University  
 
49 
quick reaction to changing customer needs or shifting environmental and market 
conditions. 
 
Exhibit 1.  
 
 
For example, Dow Chemical’s company main objective in the 90’s was: 
becoming the largest, most competitive and profitable company in its branch. In 
2008,  after  reorganizing  the  company’s  organizational  structure  the  Dow 
Chemical company main objective is: being the most competitive and profitable 
in its branch.  
The paradox is that the advantages of small companies sometimes enable 
them  to  succeed  and,  hence,  grow  large.  Most  of  the  100  firms  on  Fortune 
magazine’s  list  of  the  fastest-growing  companies  in  America  are  small  firms 
characterized  by  an  emphasis  on  being  fast  and  flexible  in  responding  to  the 
environment.  Small  companies,  however,  can  become  victims  of  their  own 
success  as  they  grow  large,  shifting  to  a  mechanistic  structure  emphasizing 
vertical hierarchies and spawning “organization men” rather than entrepreneurs. 
Giant companies are “built for optimization, not innovation”.  
 
Organizational design theories 
Managers are concerned with three related goals when they make design 
decisions: 
•  To  create  an  organization  design  that  provides  a  permanent 
setting to which managers can influence individuals to do their 
particular jobs. 
•  To achieve a pattern of collaborative effort among individual 
employees, which is necessary for successful operations. 
United States 
Revenue: 
$5,841 billion 
Number of 
companies on 
Global 500: 189 
Britain 
$1,079 
   (35) 
Japan 
$2,181 
(82)  Germany 
   $1,363 
(34) 
France 
$1,246 
   (37) 
China 
$358 
(15) 
Korea 
$266 
 (14)   
 
50 
•  To create an organization that is cost effective- one that achieves 
the  first  two  goals  with  a  minimum  of  duplication  of  effort, 
payroll costs, and so on. 
Recent managerial experience and organizational research have provided 
an  approach  for  thinking  about  organization  design  issues.  This  approach 
emphasizes that the characteristics of an organization are contingent upon various 
situational factors, the tasks that members must perform to accomplish the firm’s 
strategy  in  this  environment,  and  the  psychological  characteristics  of  the 
members. 
The  framework  of  contingencies  (denominated  ‘situational’  by  Lorsch 
(1977)  emphasizes  the  need  to  study  the  influence  of  circumstances 
(contingencies  or  situations)  on  organizational  structure  and  administrative 
behavior, while the strategic choice approach shifts the focus to the decisions 
made by the organization’s leaders in terms of products and markets and their 
impact  on  organizational  forms,  i.e.  it  integrates  strategy  into  the  model  and 
assumes  that  manager'  perceptions,  preferences  and  choices  interact  with  the 
process of adjustment to the requirements of the environment in order to achieve 
objectives (Child, 1972). 
Although  the  contingency  framework  has  generated  numerous  (mainly 
empirical) studies of the different factors that contribute to organizational design, 
this research has mostly focused on describing their influence individually and in 
isolation.  This  type  of  analysis  concludes  that  bureaucratic  organizational 
structures are more appropriate in stable and predictable environments, while a 
less  formalized  and  centralized  organizational  structure  is  more  suitable  in 
unstable and unpredictable environments (Burns and Stalker, 1961); furthermore, 
a functional hierarchy is argued to be desirable in situations where products are 
related  in  terms  of  technology,  but  with  increasing  diversity  of  products  and 
markets  (diversification),  divisional  structures  (Galbraith  and  Kazanjian,  1986) 
are  more  desirable.  Finally,  more  flexible  (decentralized  and  divisional) 
organizational  structures  are  needed  in  new  markets,  while  over  time,  as  the 
organization  acquires  experience  and  tasks  become  increasingly  predictable,  a 
more centralized and functional structure is required (Hollenbeck, 2000). 
One  of  the  most  common  and  relevant  research  topics  in  the  field  of 
contingency or situational theory involves analyzing the effect of a set of mainly 
external  factors  on  the  design  of  an  organization  in  order  to  verify  the  most 
efficient organizational structures (Powell, 1992; Baligh et al., 1996; Forte et al., 
2000; Pettigrew et al., 2000; Meilich, 2006). 
This theory began with the work of Burns and Stalker (1961), who argued 
that the appropriateness of an organizational structure depends on environmental 
conditions. According with this, Lawrence and Lorsh (1967) state that companies 
which match their internal characteristics to environmental requirements perform 
better. Accordingly, it is not possible to establish an ideal organization for all 
situations (Galbraith, 1973).  
 
51 
The work of these authors reflects the main foundations of contingency 
theory: 
•  The focus is on the business environment, with less importance 
being ascribed to internal elements. 
•  The  alignment  between  organizational  designs  and 
environmental factors leads to better performance. 
•  There is no optimal organizational form for all circumstances 
In  contrast  to  this  theoretical  approach,  which  seeks  to  downplay  a 
company’s ability to influence its performance (in the form of adaptation to the 
chosen environment) in favor of a purely reactive response to the demands of the 
environment, the approach known as strategic choice gives greater importance to 
the effects of strategic decisions made within the company itself. 
Although some authors in the field of situational theory (Chandler, 1966; 
Rommel,  1974)  considered  strategy  as  the  process  by  which  an  organization 
adapts to environmental pressures but without being able to influence them, the 
strategic choice perspective places greater emphasis on the active role of leaders, 
the  powerful  impact  they  can  have  on  organizational  design,  and  how  they 
respond to the situational factors that contribute to their preferences (Child, 1972, 
1997; Miles and Snow, 1986). 
 
Changing organizations  
All organizations must constantly adapt and innovate not only in products 
and services but in management structures and working practices. Organizations 
are told that they must reinvent themselves. The magnitude and the extent of the 
changes to be made are important and can generally be classified as follows: 
•  Macro  level  change.  This  type  of  change  is 
transformational, comprehensive, revolutionary and discontinuous. 
It represents a break with the past. It generally results in a complete 
overturning of previous organizational structures and processes. 
•  Micro  level  change  -  which  occurs  daily  at  the 
operational level. This type of change is localized and evolutionary 
in  nature,  building  on  past  performance  over  time,  leading  to 
improvements  such  as  better  team  work  and  improved 
communications 
 
Leavitt
1 suggests  organizations  can  create  change  by  intervening  in  4 
areas: 
•  Tasks; goals and strategies on one level to individual jobs 
•  Organization; structures, systems and procedures 
•  Technology;  new  equipment,  work  methods,  information 
systems 
                                                 
1 Leavitt,  H.  J.  (1964)  "Applied organizational change in industry",  in  Cooper,  W.  et  al  New 
Perspectives in Organizational Research, Wiley  
 
52 
•   People; replacing, reducing, expanding, re-training 
 
Change  is  usually  associated  with  progress,  however,  today’s 
organizations have to predict and create their own change. Change is being driven 
by the need to develop the ability to compete, grow and survive in an increasingly 
competitive environment that is re-shaping the very nature of business. 
The  key  pressures  for  change  can  be  attributed  to  the  following 
environmental forces: 
•  Market forces: 
•  Technological advances 
•  Political and  economic 
•  Internally 
 
The  three  step  model,  attributed  to  Lewin
1,  observed  that  changes  and 
consequent improvement in group performance is short lived. After a period of 
time,  behaviors  revert  back  to  previous.  In  order  for  change  to  succeed,  old 
patterns of behavior must be discarded before new behaviors are adopted. For this 
to occur there must be recognition for the need for change to occur. Therefore if 
change is to be successful the new behaviors must be embedded in and secured for 
the future. To do this he suggests three steps (table 1). 
Table 1.  Lewin's three step model 
Step  1  
Unfreezing the present  
Forces  that  maintain  current  behavior  are  reduced 
through analysis of the current situation. Imperatives 
for  change  are  realized  through  dialogue  and  re-
educational  activities  such  as  team  building  and 
personal development.  
Step  2  
Moving to a new level 
Having analyzed the present situation, new structures 
and processes are put in place to achieve the desired 
improvements.  
Step  3  
Refreezing  the  new 
level  
The changes implemented are then 'frozen' in place to 
ensure  that  they  become  part  of  normal  working 
procedures.  This  is  done  by  putting  in  place 
supporting mechanisms such as policies, procedures 
and reward systems.  
 
The three step model is somewhat general and broad and over the years 
has been developed and expanded by other commentators. 
The  contingency  theory  of  leadership  and  change  offers  some  help  to 
manage  change  effectively.  Leaders  must  do  whatever  the  circumstances 
                                                 
1 Lewin, K. (1958) "Group decisions and social change", in Swanson, G. et al. Readings in Social 
Psychology, Holt, Rhinehart & Winston  
 
53 
necessitate. In other words 'it all depends'. This is an attractive concept to some. It 
avoids  prescriptive  suggestions  and  is  non-judgemental,  but  such  an  approach 
could be seen as inconsistent. The approach suggests that the best approach to use 
'depends on the circumstances'. The aim is to distil useful generalizations about 
various change management strategies and apply them to given certain conditions. 
Nonetheless,  when  individuals  have  not  been  prepared  for  or  involved  in  the 
change to take place, rumor can abound resulting in concern and resistance. This 
can be due to:  
•  fear of losing job, loss of status  
•  inability to see the need for change  
•  unfavorable view of the person leading the change  
•  not consulted  
•  perception that change will create more work  
•  the negative influence from others, colleagues and peers.  
 
Change  can  be  particularly  threatening  for  individuals  during  times  of 
economic uncertainty. However getting people on board is crucial to any change 
effort. 
On the other hand, acceptance of change can be influenced by perceptions 
of: 
•  improved working conditions, increase in pay, benefits  
•  opportunities  for  growth,  development,  recognition, 
promotion  
•  potential for new challenges  
•  a feeling that change is required  
•  respect for the person or department introducing the change  
•  being able to contribute to the change.  
 
Conclusions  
The challenge facing today's organizations is how to implement change 
that  will  drastically  affect  the  organization's  ability  to  improve  performance. 
Change management skills will be vital for organizations to succeed in the next 
century. Managing change is now a core competence for all organizations, not just 
for those with structural or financial problems: Regardless of the industry, all 
organizations will have to create new rules and identify the team players that will 
help them take it forward. 
How  to  transform  your  organization  or  manage  change  cannot  be 
prescribed by any one model of change management. Extract the key principles of 
change that seem to 'fit' with your organization, its strategies and culture. It is hard 
to offer a clear answer regarding which to be the size, the moment or the strategy 
that a company should follow in order to achieve success.  
 
 
  
 
54 
References: 
Burns, T., Stalker, G. (1961) The Management of Innovation, London: 
Tavistock 
Child,  J.  (1972)  “Organizational  Structure,  environment  and 
performance: the role of strategic choice”, Sociology, 6(1):1-22 
Greiner, L. E. (1998) "Evolution and revolution as organizations grow", 
Harvard Business Review, May-June, Vol. 76 (3), p. 55-67 
Hollenbeck,  J.  (2000)  “A structural approach to external and internal 
personteam fit”, Applied psychology: an international review, 49(3):534-549 
Kotter, J. P. (1995) "Leading change: Why transformation efforts fail", 
Harvard Business Review, 
Leavitt,  H.  J.  (1964)  "Applied  organizational  change  in  industry",  in 
Cooper, W. et al New Perspectives in Organizational Research, Wiley 
Lewin, K. (1958) "Group decisions and social change", in Swanson, G. et 
al. Readings in Social Psychology, Holt, Rhinehart & Winston 
Lorsch,  J.  (1977)  “Organization  design:  A  situational  perspective”, 
Organizational dynamics, 6(2):12-14 
Nasrallah,  W.;  Qawashem,  S.  (2009)  “Comparing  multi-dimensional 
contingency fit to financial performance of organizations”, European journal of 
operational research, 194(1):911-921 
Powell, T. (1992) “Organizational alignment as competitive advantage”, 
Strategic management journal, 13(2):119-134 
 
   

The Management of Innovation,

ORGANIZATIONAL CHANGE- DIFFERENT APPROACHES

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ORGANIZATIONAL CHANGE- DIFFERENT APPROACHES

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