Causes and Types of Change

Change is inevitable in business. Organisations that fail to anticipate and respond to change risk losing competitive advantage, market share, and ultimately their survival. This lesson examines the pressures that drive change and the different forms it can take.

Why Do Businesses Change?

Every business operates within a dynamic environment. The forces that create pressure for change can be broadly divided into internal and external categories.

Internal Pressures for Change

These originate from within the organisation:

Internal Pressure	Explanation	Example
Poor financial performance	Declining profits or cash-flow problems force a rethink of strategy	A retailer with falling margins restructures its store portfolio
Organisational restructuring	New leadership or ownership brings different priorities	A private equity buyout leading to cost-cutting programmes
Desire to improve efficiency	Lean thinking or new technology adoption	Automating warehouse operations to reduce unit costs
Employee dissatisfaction	High staff turnover or low morale signals the need for cultural change	Introducing flexible working after an engagement survey
Innovation	New product development or process improvement	A pharmaceutical company pivoting resources to a new drug pipeline

External Pressures for Change

These originate from the external environment and are often analysed using PESTLE:

External Pressure	Explanation	Example
Political / Legal	New legislation or regulation	Introduction of the National Living Wage increasing labour costs
Economic	Recession, exchange-rate movements, interest rates	A weaker pound raising import costs for UK manufacturers
Social	Changing consumer tastes, demographics	Growing demand for plant-based food products
Technological	Disruptive innovation, digital transformation	The shift from physical retail to e-commerce
Environmental	Sustainability expectations, climate policy	Carbon-reduction targets forcing energy companies to invest in renewables
Competitive	New market entrants, globalisation	Aldi and Lidl disrupting UK grocery market share

Types of Change

Incremental Change

Incremental change involves small, continuous improvements over time. It is evolutionary rather than revolutionary. Businesses making incremental changes build on existing processes, products, and structures.

Characteristics:

Gradual and planned
Low risk and relatively easy to manage
Builds on existing competences
Employees find it easier to accept

Example: A car manufacturer introducing a facelift model with updated headlights, infotainment, and minor engine improvements — rather than designing an entirely new vehicle platform.

Disruptive Change

Disruptive change is radical, sudden, and transformational. It often overturns existing business models, technologies, or market structures and can render established competitors obsolete.

Characteristics:

Rapid and often unplanned (from the perspective of incumbents)
High risk but potentially high reward
Requires new competences and capabilities
Can provoke significant resistance

Example: The arrival of streaming services such as Netflix and Spotify disrupted the DVD rental and physical music industries respectively. Blockbuster, which failed to adapt, went bankrupt.

Comparing Incremental and Disruptive Change

Feature	Incremental Change	Disruptive Change
Pace	Slow, continuous	Fast, sudden
Scope	Narrow — specific processes or products	Broad — entire business model or industry
Risk	Low	High
Employee reaction	Generally accepting	Often resistant
Resource requirement	Moderate	Significant
Examples	Kaizen, TQM improvements	Digital transformation, market disruption

Step Change vs Continuous Change

Another useful distinction:

Step change — a one-off, significant shift (e.g., relocating headquarters, entering a new overseas market). There is a clear 'before' and 'after'.
Continuous change — ongoing adaptation built into organisational culture (e.g., agile development processes, regular customer-feedback loops).

Most successful businesses combine both: they foster a culture of continuous improvement while remaining willing to make bold step changes when the environment demands it.

The Pace of Change

The pace at which change must be implemented depends on several factors:

Urgency — a financial crisis demands rapid change; a gradual demographic shift allows a longer transition
Organisational culture — entrepreneurial cultures adapt faster; bureaucratic organisations may resist
Resources available — change requires investment in training, technology, and communication
Stakeholder expectations — shareholders may demand quick returns; employees may need time to adjust

Exam Tip

When asked to evaluate whether a business should pursue incremental or disruptive change, always consider the context. A business in crisis may have no choice but to pursue rapid, disruptive change. A market leader with strong cash flow might prefer a programme of incremental improvement. Use the factors above — urgency, culture, resources, stakeholder expectations — to build a justified argument.

Summary

Change is driven by a combination of internal and external pressures. It can be incremental (gradual, low-risk) or disruptive (radical, high-risk), and businesses must judge the appropriate pace and scale of change based on their specific circumstances. Understanding the causes and types of change is the foundation for the rest of this topic on managing strategic change.