3.6.1 - Causes and Effects of Change
In this lesson, you will learn why businesses are pushed into change and how that change can affect performance and stakeholders. This matters in exams because strong answers do not just list a cause such as poor performance or new ownership; they explain how that trigger changes structure, strategy, and results.
Internal drivers of change
Many causes of change begin inside the business. A business may become larger, perform badly, or come under new ownership. In each case, the old way of working may no longer fit, so managers are forced to alter roles, systems, objectives, or strategy.
Rapid growth often makes coordination harder; downsizing can instead simplify some coordination while disrupting retained roles. A business that once relied on informal communication may now need clearer hierarchy, more delegation, formal procedures, and tighter control. Equally, if a business reduces in size, it may remove layers of management or close sites so that costs match the smaller scale of operations.
Poor business performance is another strong trigger. Falling sales, weak profit, or a damaged reputation create pressure to act because owners and senior managers cannot simply accept decline. This can lead to cost reduction, new targets, changed products, site closures, or a replacement senior team. Therefore poor performance often produces faster and more urgent change than steady growth does.
New ownership can prompt change because new owners may bring different priorities. A takeover or merger may lead to new managers, new reporting lines, changed systems, or a different culture. Some objectives and effective routines may be retained; the extent of change depends on the new owners' plans and the fit between the businesses.
| Cause of change | Why it forces change | Likely organisational response |
|---|---|---|
| Change in organisational size | More or fewer people, sites, or activities make the old structure less suitable | New layers, wider delegation, delayering, or revised processes |
| Poor business performance | Pressure to recover sales, profit, or reputation | Cost cutting, new strategy, restructuring, or management change |
| New ownership | New controllers bring new aims and methods | Integration, rebranding, culture change, or new systems |
Sainsbury's 2016 acquisition of Home Retail Group, including Argos, created scope for integration rather than simply keeping both networks unchanged. New ownership and a larger organisational scale meant changes to stores, supply chains, management decisions, and the way the two operations were coordinated.
The exam point is simple: internal causes of change usually mean the existing structure no longer matches what the business now needs, so change becomes a necessity rather than a choice.
Leadership and external change
Not all change is forced by failure. Sometimes change is driven by a leader who wants to reshape the business before decline sets in, or by external forces that make old methods less effective.
Transformational leadership
The ability to implement a vision through radical policies and strategies to bring about positive change.
A transformational leader does not just manage day-to-day operations. Instead, they try to move the business in a new direction. That might involve changing products, culture, investment priorities, or the way decisions are made. Because the vision is radical rather than routine, transformational leadership is a direct cause of change.
PESTLE factors
The political, economic, social, technological, legal and environmental influences that can affect business strategy.
Market change often sits inside these wider external pressures. Customer tastes may shift, rival businesses may change the level of competition, technology may alter how people buy, and legal or environmental rules may force new operating methods. These pressures matter because they come from outside the business, so managers cannot control them. They must respond to them.
A useful chain of reasoning is:
external or market change -> the business's old product, process, or structure fits the market less well -> competitiveness falls if the business does nothing -> managers are pushed into change.
Microsoft under Satya Nadella is often used as an example of transformational leadership. A clearer strategic vision pushed the business further towards cloud services and changed where effort and investment were directed, rather than relying only on older priorities.
A department store such as John Lewis also faces market and technological pressure when more customers expect online browsing, fast delivery, and flexible collection options. If management ignored that shift, the business would become less convenient relative to rivals, so operations, staffing, and investment would need to change.
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