How Organizations Respond
Businesses have to adapt as market forces change with time. Changes can be caused by the emergence of new consumer segments or the availability of a cheaper source of raw material or integration into the global economy. In the past fifty years, businesses have continuously adapted to respond to an increasingly globalized world. For example, many firms have become global brands which have as much equity in emerging markets such as India as they do in the developed markets such as the United Kingdom. Pepsi is one such example which is as synonymous with youth in the UK, as it is in India (although in the UK Pepsi may rely more on soccer than cricket for its branding).The local firms competing with giants such as Coke and Pepsi have either perished or have been acquired.
Another reason for change in market forces has been the rapid emergence of technology. Outsourcing is perhaps the most overanalyzed example. Since teams can connect over optical fibers and telecom networks, certain jobs have been shipped to countries where abundant manpower has been available at a cheaper rate. The organizations that learned to outsource earlier gained a competitive advantage over the organizations which did not.
Market forces also change due to change in the political climate of the local country. Leading political parties in a country often differ sharply on key policy issues such as taxation and trade barriers. Severe tax structures in many countries have often compelled organizations to route their financial transactions through tax havens.
Cultural changes also alter market forces significantly. Today’s youths have grown up with the internet and have a different worldview. The proportion of young, adult and retired citizens in a country also changes with time, altering the feasibility of business models. For instance, Pepsi is better positioned to dominate a young market in India (with 50% of the population below 25) than Coca-Cola as this beverage company has a better track record in successfully positioning its products for youth. However, this market opportunity may shift after two or three decades, as the middle-age demographic becomes more prominent, a target segment which Coca-Cola has traditionally been more successful in targeting.
In the short term, organizations respond to changes in market forces by changing company policies or launching new advertising campaigns. Less frequently, organizations have to respond to market forces with long-term strategic shifts. This may mean replacing new products with old, targeting new unexplored markets and altering the marketing positioning.
Organizations may have to restructure. For example, IBM used to have a workforce consisting of the best qualified electronics engineers in the world. This has changed. Over time, the number of workers employed at low cost has become more critical for their success than having the very best qualified workers. So IBM has a large workforce in India, consisting of not necessarily the most qualified engineers, but of those who are good enough to create usable computer code at a low cost. This radically different strategy requires a different organizational structure. To manage this larger, less-qualified workforce, a company needs a larger and more qualified human resource department. To utilize a global workforce, the company must also frame policy and procedures that are consistent all over the world. Since distance between top management and the entry level workforce has increased, the organization also has to manage its internal communication differently.
Resistance to Change
Most businesspeople would agree that making changes to stay relevant in a changing world is absolutely essential. Most would also say that they are up for the task. However, most people resist change and very few are able to successfully adapt with time. This is human nature: people are creatures of habit and resist change.
So to induce change in organizations, management has to make gradual adjustments. For instance, the management may know that it makes more sense to immediately procure all of its raw materials from a new company in China. However, abruptly changing the procurement policy would create a lot of internal resistance. So management may start with procuring 20% of raw material from the new source and gradually increase it to 100% over a few quarters so that all the internal stakeholders have time to understand that the new sourcing policy makes a lot of sense.