Causes and Types of Change

This study note outlines the main causes of change in business and some simple ways to categorise the different types of change.

Change in business can be caused by a variety of internal and/or external factors. The types of change vary too, with a useful distinction being made between incremental change, step change and disruptive change.

CAUSES OF CHANGE

The causes of change in business can be categorised into internal and external:

INTERNAL CAUSES OF CHANGE

This is change caused by decisions taken by the business itself. These can include:

Restructuring: when a business is in financial difficulties it may choose (or have) to undergo a process of "restructuring". This usually involves changes to the capital structure of the business to reduce the amount of debt, as well as reductions in the scale and scope of the business' activities (e.g. closing down business units)

Delayering: this involves removing one or more layers from the organisational hierarchy - the aim of which is usually to reduce costs and improve decision-making and communication through a flatter organisational structure.

New leadership: the arrival of new leadership is often followed by a change in business strategy and subsequent changes to the products and markets in which a business operates and how it competes. An attempt to change the organisational culture is also frequently a feature of change instigated by new leadership.

EXTERNAL CAUSES OF CHANGE

These causes of change are linked to changes in the external environment facing all businesses or businesses in specific markets and/or locations. Examples include:

Social trends / attitudes: for example the growing resistance by consumers to businesses using single-use plastic in products and packaging

Economic conditions: for example the economic uncertainty created by Brexit or the growth of protectionism in developed economies

Laws / regulations: for example changes to minimum pay requirements (National Living Wage), data protection (GDPR) and restrictions on advertising & selling.

Technological advances: a significant source of external change, particularly through the creation of new business models (e.g. streaming) to challenge existing, established business models.

TYPES OF CHANGE

The types of change in business can be categorised into:

INCREMENTAL CHANGE

These are the many small changes that businesses make day-to-day as management respond to opportunities and threats.

They usually involve relatively little, if any, resistance to the changes made.

STEP CHANGE

These are the more dramatic or radical changes which management make. They are often triggered through the arrival of new senior leadership and/or when it is recognised that the business is suffering from strategic drift.

Step change are substantial - they often involve significant alteration in the business' activities and require a well-organised change management process to enable them to be made successfully.

DISRUPTIVE CHANGE

Disruptive change is a form of step change that arises from changes in the external environment.

Disruptive change impacts the market as a whole, challenging the established “business model” (i.e. how products and services are sold)

Rapid improvements in technology have been a leading driver of disruptive change since technological innovation provides new ways of delivering goods and services as well as reducing barriers to market entry.