How companies respond to demands from external forces to effect radical change

Radical change, defined as a rapid shift in a firm’s strategic orientation, can affect a firm’s products, its markets, and its ways of competing. It is a critical point in the alignment of strategy and structure – where the disruption it creates can have harmful implications for organisational performance.

Prior studies have looked at how unintended consequences shape the way radical change is realised. This paper develops a theoretical model of how actions by people across an organisation co-evolve strategy and structure in order to bring about a mandated radical change.

The paper argues that radical change not only presents an appropriate context through which to explore how strategy and structure move together, but that doing so requires us to view radical change as a dynamic process that people enact.

The researchers conceptualised the construction of change in strategy and structure as a social ordering of organisational arrangements that shape and are shaped by people’s actions. This approach focuses attention on how people act within organisations, and facilitates a theoretical understanding of the role of such actions in constructing the social order of organisations.

The paper examines a simultaneous shift of strategy and structure during a mandated radical change. Such a change is often imposed by a powerful, external actor, and must be complied with by the organisation lest sanctions follow. Under a mandate, espoused changes to strategy and structure are particularly influential in shaping actions, as people consciously endeavour to enact the specific strategy and structure set out in the mandate. In the case presented in the paper, a rapid and radical simultaneous shift in strategy and structure had to be delivered as part of a mandated, legally-binding regulatory framework that had been strategically negotiated by senior managers of an organisation.

The study looks at how people’s actions bring about this mandated and radical shift in strategy and structure, tracking the process in real-time from inception to strategic review. It finds that efforts by actors throughout the organisation to perform the espoused strategy and structure (ESS) had unintended consequences. However, it also found that managers could not allow these unintended consequences to shape the change process. Rather, knowing that they had to deliver the mandate, they initially engaged in reinforcing cycles of action, exacerbating the unintended consequences until the change process broke down. Such breakdowns triggered a different cycle of reflecting actions in which top managers engaged with employees throughout the organisation with the regulator about how to modify the ESS whilst continuing to adhere to the mandate. This reflecting action cycle enabled modification of the ESS, as actors sought to work out what actions were consistent with the principles of the mandate.

Drawing these findings together in a conceptual framework, the study highlights breakdowns as enabling triggers in the dynamic process of co-evolving strategy and structure in order to realise a mandated radical change.

It theorises these cycles as different modes of action through which actors construct the relationships between strategy and structure in producing radical change.

A mandated radical change that is externally imposed and contains penalties for failure is particularly influential in the way it shapes peoples’ actions.

The framework presented in the study makes the following contributions to our understanding of change:

• It extends understanding of how breakdowns shape the dynamics of radical change. In the context of mandated radical change, breakdowns trigger a switch to a reflective mode in which actors can consider adapting their actions to their evolving understanding of the intent behind the mandate.
• In examining actions across the organisation, it extends understanding of how people’s actions produce radical change in the context of unintended consequences and breakdowns.
• It builds on existing studies of managerial strategising roles to show that top managers are active participants in iteratively working out how to perform the change.
• It goes beyond existing studies that examine how people enact strategic change by giving equal emphasis to strategic and structural change and how they co-evolve within people’s actions.

The pre-published version of the paper is available for download at City Research Online. The paper has been accepted to Academy of Management Journal.

The paper was recently discussed in an article by Andrew Hill in the Financial Times.