Changes in within the internal and external environments of the organizations are inevitable overtime, and it is central to the survival and even success of an organization. The effectiveness of the organizational change strategy is determined by, multiple factors, which include leadership, the organizational structure, the organizational culture, the competitive environment, the nature of the industry and other market dynamics, but crucially, on the innovation strategy of the organization, Cameron & Quinn (2011). This paper asserts that while organizations are bound to change overtime, strategic and other innovation are crucial to ensuring that the organization successfully rides the winds of change. The future of the organization is dependent on its ability to generate internal competencies that in turn give it crucial competitive advantages to survive in their respective environments, Miner (2006).
Changes in the external environment of the firm may include technology, rising competition, changes in the regulatory framework, social attitudes towards the industry (e.g. towards the offshore oil drilling), falls in demand triggered by macroeconomic conditions among others, Schein (2010). Individual organizations, industries, nations and even human must change in order to remain relevant and profitable. To this end, innovation serves as an engine of growth, which ensures that an organization moves away from the existent products and processes to create new ones. According to Andreasen & Kotler (2003), sustainable value and growth, can only be guaranteed by continued innovation, not least because all the existent products, technologies, processes, capital and many other sources of competitive advantages can be replicated by the competitors overtime, and if not, they can lose relevance to the market. Innovation leads to the creation of new organizational competencies, which meet the changing needs of the market. The ability to continually change in order to match the changes in the needs of the market, society, technology etc implies that the organization equally changes according to the changes in its environment and thus success in the management of change, Robbins (2012).
In addition, innovation increases efficiency and productivity of the organization, while at once facilitating the ability of an organization to live within the constraints provided by the environment, competition and market needs etc. According to Kritsonis (2005) innovation is a strategic asset to a company. Organizations that heavily invest in research and development (which is an indicator of innovation) have a better prospects of surviving increasing competition and changes within and outside the organization. R&D investments of companies such as Apple Inc, Google, Samsung and Barnes and Noble have helped these companies pull ahead of the larger competitors such as Yahoo, Motorola and Nokia both in the products offered, their share prices, brand values and competitiveness, Datamonitor Inc (2011). Apple, Samsung and Google posted higher R&D spending compared to their older competitors over the past decade. It is arguable that their investments have been central in them in creating the demand as well as meeting the demand caused by the smartphones, tablets and internet revolutions as well as other changes in the technology industry.
In addition, innovation bolsters company’s ability to attract investors and other sources of financing to the organization. This is not least because they have opportunities of creating shareholder value both in the short and long term, Bersin (2010). The ability to raise capital to finance strategic change strategies is also a factor that determines the ability of the organization to change. Organizations need financial capital to facilitate new product developments, marketing mergers and acquisitions/expansions etc, which are indispensable for some firms. Effectively, without an innovative record e.g. R&D investments or introduction of new products, the organizations will be incapable of attracting financing, which in turn renders them vulnerable to the changes both internally and externally, Cameron & Quinn (2011).
Changes in the regulatory environment represent a crucial element of change for the organization. This is perhaps best emphasized by the emergence of green house gasses emissions limits and trading programs, CSR requirements, ethical business practices and environmental protection needs. Without changes in the company’s key processes and products, the organization is unlikely to survive into the long term, Balthazard, Cooke, & Porter (2009). Sustainable ability to survive in the changing business environment is dependent on the capacity to adapt to the changes in the business environment, while at once remaining profitable.
Sustainability of competitive advantages is also determined by the innovativeness of the human capital within the organization. Human capital is the sole source of innovation, as well as other inimitable competitive advantages, Kritsonis (2005). The ability of human capital in effecting change is in turn dependent on the innovativeness of the organizational culture, knowledge, skills and experiences of the employees, the organizational leadership, knowledge management, effectiveness of team activities, use of technology, human resources development etc. Effective change management is heavily influenced by the interaction of these aspects, through their influence on the contribution of the employees to decision-making on change and decision implementation, freedom to share ideas and harness those ideas to foster innovation etc. These aspects lead to innovation and effectiveness of change strategy and its implementation determines the innovativeness within the organization. According to Bersin (2010), there is a cyclical relationship between change, change management and innovation, and the failure in either innovation or change management would lead to a breakdown of the cycle.
Many organizations in the modern world are dependent on knowledge and technology. Knowledge-based economies mean that organizations must align their resources in order to ensure higher and sustainable profitability, Google, Inc (2011). Given the intense competition and rapid changes in the knowledge economies, it is necessary that new product and other sources of value are continually developed to match the changes in the industry. Regular reports of the most innovative companies in the world posted profit margins of more than 3.4% over the decade reaching up to 2005. The S&P Global Index of companies on the other hand showed that the median profit margin was as low as 0.4%. The stock returns on the other hand amounted to 14.4% and 11.4% respectively. These companies also have superior profit margins compared to the FTSE 100, NASDAQ and other leading companies’ indices, Datamonitor Inc (2011). The differences between the largest companies and the most innovative companies lies in their ability to innovate.
While it is widely agreed that a critical relationship exists between innovation and change management, there is contention on the direction of causation. Balthazard, Cooke, & Porter (2009), asserts that like necessity change is the mother of innovation, and the direction of causation actually flows from changes in the business environment and other factors, which in turn result in innovation. Even prior to the establishment of businesses, entrepreneurs are driven by changes in the market, which present needs and opportunities for to be exploited.
Similar opportunities exist throughout the life of the organization, and the need for change presents opportunities for innovation. Effective management of change should result in innovation, as against innovation actually facilitating effective management of change. However, Van Fleet (2008) argues that few organizations that have foresight and lack can easily reverse the direction of causation to not only innovate internally, but also create innovations that in turn drive change within the industry. The introduction of tablets, iTunes and iPod for instance have transformed the computer technology, which have in turn caused changes in the respective organizations within the industry, Schein (2010). Regardless of the causal direction therefore, innovation has a beneficial effect on effective management of change within the organization as well as within the external environment.
Change and innovation are two sides of the same coin, and they are critical to the ultimately success of the firm. While change is inevitable, innovation stems from inside the firm, which implies that conditions within the organization are right to facilitate both. The innovation facilitates the ability to effectively handle change, while effective management of change results in innovation, Aamodt (2009). The resultant cycle is the twin force behind the rise and continued success of some of the most powerful organizations in the world, as well as the future. This is even more emphasized in knowledge-based industries, which generate competitive advantages almost solely from innovation.
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