Reading: Lesson 7 - The Changing Organizational Environment

12.7.A - The Changing Organizational Environment

1. THE NEW EMPLOYMENT ENVIRONMENT

1. In recent years, many companies have faced global competitive pressures unlike those they had seen before. That competition forced companies to reconsider their organizational size, structure, and operations. Many were forced to downsize their operations by cutting the number of employees, reducing product offerings, or cutting costs in other ways. Other companies restructured their operations to work and use resources more efficiently. Many large companies reduced employment by thousands of people. Like James Lane in the Reality Check, employees who had spent many years with the same company (some nearing retirement) suddenly found themselves without a job. Many employees who lost their jobs when businesses cut back were unable to find satisfying employment. Some have had to accept lower-level jobs or jobs that pay less or offer fewer benefits. Those who were able to keep their jobs are not certain of their job security, the likelihood of being employed by the same company in the future. They may distrust their employer, believing that the actions of businesses today demonstrate a lack of commitment to employees.
   
2. The Internet has led to the creation of many new organizations that look quite different from traditional businesses. They may have only a few employees, and the employees may not work in the same building or even in the same city. Internet companies may rely on other businesses to perform many of the traditional business functions, and the owners may have more skill and experience with technology than with organizing and managing a business. As traditional businesses observed the impact of the Internet, most began to integrate Internet services and resources into their own companies. Faced with that competition, new Internet businesses began to face the same challenges; they had to become more effective in both business operations and management or they were forced out of business. Today, few businesses rely on the Internet only, but most have incorporated extensive Internet-based operations within their more traditional operations. International competition has grown dramatically as large firms expand into new markets, develop cooperative agreements with foreign firms, or purchase competing businesses that allow them to expand their operations for greater influence and control in the marketplace. Governments as well as businesses and economic associations are attempting to reduce barriers to international trade by reorganizing relationships among countries and negotiating free-trade agreements. Free-trade agreements are treaties between two or more countries that eliminate almost all trade restrictions and subsidies between the countries. In 2015, the United States had free trade agreements with 20 countries, including Australia, Canada, Chile, Mexico, Peru, and South Korea. The United States was also in the process of negotiating two regional trade agreements, one with the European Union (Transatlantic Free Trade Area, or TAFTA) and one with Pacific Nations (Trans-Pacific Partnership, or TPP).
   
3. Probably the most significant change in political structure affecting international business competition and trade was the development of the European Union (EU) in 1957. The European Union was the first and most important international market system in the world. It was formed to increase the economic and political power of the countries of Western Europe in the face of growing global competition. The EU agreements support the free movement of goods, services, capital, and labor across all member countries. The EU parliament also develops and coordinates economic, social, and environmental policies among members. By 2013, the European Union had expanded from the original 9 countries to 28, including countries in Eastern Europe. As a political unit with a shared currency, the European Union has recently encountered challenges in maintaining a coalition given major budget and debt crises in some of the member countries.
   
4. Today, almost all business are facing dramatic changes. Dealing with those changes presents challenges and opportunities for both employees and managers. Much of the pressure to help organizations adapt to change falls on the human resources department. Whether it is a traditional business that has gone through a major restructuring or a new business attempting to build a unique form of organization, human resources personnel help all parts of the organization be effective and successful. Organizational development and career development are two major responsibilities that have emerged for the human resources department in today’s organizations. Organizational development refers to carefully planned changes in the structure and operation of a business to adjust to a competitive business environment. Human resources managers help companies make changes in the way they are organized while maintaining positive management-employee relations. Career development is an effort to match employees’ career plans with the changing employment needs of the business. Human resources managers work with individual employees and managers to prepare them to take responsibility for their own career development through career planning.
   

2. THE ROLE OF HUMAN RESOURCES IN CHANGE

1. Consider all the ways that employees can contribute to the success or failure of a business. Employees play a major role in product quality, customer satisfaction, equipment maintenance, and efficient use of materials to limit waste. You can probably think of many other ways that employees can help or hurt the business for which they work. The ways businesses organize work and resources also affect their success. Inefficient work processes, delays in receiving needed materials, and problems within distribution and shipping all hinder a business’s ability to meet customer needs. To maintain their competitiveness, companies are now paying a great deal of attention to how they structure their organization, how work flows through the business, and how employees work together and with their managers. Today, businesses are making important changes in their organizations to make sure they can remain competitive and profitable. Two important ways that businesses are using organizational development to make changes include improvements in work processes and the creation of effective working relationships. Improving work processes means improving the way work is accomplished. The goals of work process improvement are to eliminate errors, improve quality, and reduce costs. The focus of the second element of organizational development is on the people who complete the work. Studies have shown that employees who believe they are an important part of the organization will be committed to its success and will work to achieve the company’s goals. Several important relationships contribute to an effective organization: relationships among a company’s personnel including management-employee relationships, relationships with people in the company’s partner and supplier organizations, and relationships with the company’s customers.
   
2. One of the purposes of organizational development is to improve the way work is accomplished. This includes the materials and resources used, the organizational structure and relationships among work units, the job duties assigned to individuals and groups, and work procedures and operations. Most of the emphasis on improving work processes is directed inside the company. But improving work processes also involves the way businesses work with each other as part of product development, production, distribution, sales, and customer service. Improving the way work is accomplished may require using new technologies, rearranging work areas, changing relationships between departments and work groups, and modifying procedures for completing tasks. Remember the concerns James Lane had about the changes Alliance Industries was planning in the Reality Check. The company was undergoing changes that would affect all of its operations and employees. The company had to find ways to reduce costs while keeping quality high. It is not easy for most companies to make these types of changes. People may be reluctant to use new technologies or change the way they have been doing things for many years. It may be difficult to identify new ways to organize and accomplish work, because people in the company are familiar only with the way things have been done in the past. Often organizational development programs bring in experts from outside the company to help identify new work processes and to work with employees and managers to help them accept and respond positively to the changes.
   
3. The history of business is filled with stories of organizations that experienced years of success, only to fall on hard times and ultimately fail. The causes of a business failure may be that competitors were able to improve their products and services, customers did not receive the service they expected, costs were not controlled, or the organizational structure did not adjust to new conditions. No matter what the specific cause, the reason for the failure of a previously successful business is most likely the inability to change. It may be that the executives of the company did not recognize the need for change, believed the company did not need to change, or were unable to plan and manage the needed change. The factors and conditions within which a business operates and that can affect its success are known as the business environment. Factors and conditions outside the business are the external environment; those occurring inside the business are the internal environment. Today, the external factors most likely to result in problems for an organization involve changes in workforce demographics, competition, consumer expectations, technology, and the global economy. Several important internal factors that affect a company’s success are quite similar. They include changes in the makeup of the company’s workforce, employer-employee relationships, outdated work processes and technology, ineffective organizational structure, and poor management practices. The Figure below shows several key indicators that an organization may be experiencing problems requiring major change. Every organization should pay careful attention to its external and internal environments to monitor those indicators. Companies that do not pay attention often recognize problems too late to take the necessary action. When sales and profits decline and the business has not recognized the need for change or invested in new technology and procedures, it is often too late. 
   

   
   

4. When a business tries to solve a problem, it often discovers that the problem results from a fundamental flaw in operations. Effective organizational development programs identify and resolve the underlying operational flaw in order to permanently solve the original problem. For example, one company found that production levels had declined significantly during June, July, and August. When company managers studied the problem, they discovered that employee absences were almost double on Mondays and Fridays than on the other days of the week. Production was frequently delayed on both of those days because work teams were not complete and the temporary employees brought in on those days were not as efficient. To solve the production problem, the employee absence problem had to be resolved. Working with employees, the managers learned that the way vacation days were scheduled encouraged employees to take off Mondays and Fridays to create short summer vacations. A revised policy allowed employees to schedule three-day vacations in the middle of the week. This change reduced Monday and Friday absences and solved the production problem. Another company experienced an increasing number of customer complaints regarding late deliveries of products. The company had used the same parcel delivery service to make deliveries to customers for more than 20 years. A study of the problem revealed that the delivery company had changed its distribution procedures. It was using larger trucks and making fewer trips to many cities to cut its costs. To improve customer service, the company stopped using that parcel service and contracted with a new, smaller delivery company that used a computerized delivery scheduling system. This change allowed the company to schedule product delivery with customers at the time of purchase and reduced late deliveries by more than 80 percent. Solving the underlying delivery service problem resolved the issue of customer complaints.