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Abstract—Organizational transformation is an interesting topic
in theory and practice. Achieving organizational transformation is
seen as a huge challenge for managers as there are many aspects
that the organization needs to deal with. During the COVID-19
lockdown, organizations faced an urgent need to radically
transform in order to survive. Moreover, the economic and social
context of the Mexican economy makes it even more important to
understand how organizations can radically transform as, in
theory, such a context seems to be detrimental for organizational
transformation. This study analyzed 21 organizations based in
Mexico and pays special attention to 5 organizations that achieved
radical organizational transformation. The main takeaway point
from this study is that the five organizations that achieved radical
transformation had at least four things in common. Firstly, senior
managers were strongly convinced that without radical
transformation the firm would perish before the end of the year.
Secondly, these five organizations quickly reshaped their
management control systems. Thirdly, the five organizations that
achieved a radical change hired specialized consultants to achieve
the transformation. Finally, these organizations also outsourced to
external firms to complete processes where they themselves did not
have any previous experience. This paper contributes to a better
understanding of organizational transformation.
Index Terms—Organizational transformation, COVID-19,
management.
I. INTRODUCTION
RGANIZATIONAL transformation is a widely discussed
topic in business literature and practice. On the one hand,
achieving transformation at the organizational level is
perceived as a necessity due to dynamic markets. On the other
hand, achieving transformation in practice is seen as probably
the most difficult challenge faced by any organization. Thus,
achieving organizational transformation is seen as an
interesting subject of study.
The recent COVID-19 lockdown has forced organizations all
around the world to drastically change how they operate. Every
industry has faced challenges; from the tourism industry which
has faced a decrease in its revenue by more than 90% [1], to the
retail conglomerates who have experienced a sudden increase
in demand for their products [2]. These contrasting forces have
caused managers to have to reinvent their organizations in
record time. Thus, the question arises: How could these
organizations transform so quickly during the COVID-19
lockdown?
While organizations around the world are experiencing a
similar situation due to the world-wide effect of the COVID-19
lockdown, the Mexican context provides interesting
Submission date: 15th June 2020.
characteristics worthy of study. Firstly, Mexican organizations
face high financing costs compared to developed economies.
The loan rate in Mexico is on average 10% more expensive than
in Europe or the USA [3]. This adds extra pressure on managers
who are thinking about the financing of organizational
transformation. Secondly, during the COVID-19 lockdown, the
Mexican government did not allocate resources to aid local
firms. This is also different from the American or European
context, where governments dedicated 1 to 3% of the GDP for
financial aid [4]. Thirdly, the restrictions of the Mexican
lockdown are also different from most of the developed
economies. To some extent, the lockdown in Mexico was
relatively more relaxed. For instance, people could walk in
parks, and it was possible to travel by car even between cities.
Finally, the current security crisis in Mexico raises another
critical issue that developed economies do not face. Even
during the lockdown, Mexico registered more than 3,000
murders in March 2020 [5]. Additionally, kidnaps in the same
month increased by 5% compared to the same period from
2019. In theory, these unique characteristics appear to increase
the difficulties for the transformation of an organization. Thus,
it is even more interesting to study how organizations can
transform so quickly even under such detrimental
circumstances.
II. METHODOLOGY
This study analyzed 21 organizations based in Mexico. The
data collected included public and private documents collected
during the COVID-19 lockdown. Moreover, 63 interviews were
conducted with senior managers of these organizations. The
organizations studied were taken from various industries,
including software development, biotech, retail, tourism,
restaurants, marketing, construction, and fashion. The firms
were also different in size and revenue; the smallest
organization had 10 employees while the largest had 250
employees. The sample of organizations studied were selected
so that they were heterogeneous, with the purpose of not
limiting the analysis to a particular industry or company size.
Additionally, six government officers were interviewed to
understand the context in which the organizations experienced
the phenomenon.
From the 21 organizations studied, 5 of them were
categorized as the ones who could transform radically. Such
transformation involved the production and commercialization
of entirely new products and reshaping the organizational
structure. 10 of these firms were cataloged as organizations that
achieved a medium degree of transformation. These firms were
Gil, M. Tecnologico de Monterrey
Organizational Transformation during COVID-
19
O
This is the author's version of an article that has been published in this journal. Changes were made to this version by the publisher prior to publication.
The final version of record is available at http://dx.doi.org/10.1109/EMR.2020.3014280
Copyright (c) 2020 IEEE. Personal use is permitted. For any other purposes, permission must be obtained from the IEEE by emailing pubs-permissions@ieee.org.
2
able to reinvent their production processes or incorporate a new
product or service to their catalog. Finally, 6 firms were
identified as organizations that experienced no change in the
way they operate.
III. CASE STUDIES
The five organizations that achieved a radical transformation
had some characteristics in common. Firstly, senior managers
were strongly convinced that without radical transformation the
firm would perish before the end of the year. Secondly, these
five organizations quickly reshaped their management control
systems. One of the first steps that these organizations took was
to abandon the budget that they had and instead, to focus on a
more investment-oriented vision rather than cost-control.
Thirdly, the five organizations that achieved a radical change
hired specialized consultants to achieve the transformation.
Finally, these organizations also outsourced to external firms to
complete processes where they themselves did not have any
previous experience. In the following paragraphs, each
organization will be analyzed in detail to understand what they
did well to achieve organizational transformation.
The first organization to be analyzed is a biotech company
established in the city of Zapopan. The company was founded
in 2012 and its main objective is to develop new materials that
can be used in digestive medicines. Once the company produces
a patent they sell it to a major pharmaceutical company.
During the COVID-19 lockdown, the firm faced important
concerns from the beginning, as Chinese suppliers stopped
international operations in early January 2020. By March 2020,
the company did not have any materials to continue their R&D
activities. At that time, senior managers were worried about the
situation. The CEO explained during an interview:
“We did not know what to do. We could not find suppliers
with the materials that we needed in Mexico or the USA; our
whole plan was at risk of failure. At the same time, we had to
pay the salaries of 20 employees. We only had enough money
to pay salaries until April 2020, we had to do something
different”.
In the case of the biotech firm, the CFO and COO agreed
with the CEO. They also believed that they could not continue
operating in the way that they were doing before, so they had to
do something different. Their idea was to switch the objective
of the company and to produce something that was required
during the COVID-19 lockdown; they agreed on selling
medical supplies to the local healthcare system. The CFO
explained:
“We were not able to continue our R&D cycle, so we focused
on a very urgent matter, which was the lack of medical supplies.
We focused on masks, medical costumes, and cleaning clothes”.
As senior managers agreed on the plan, they communicated
their idea to project leaders and lab employees. The firm rented
tailoring machines from other local tailors who had to close due
to the COVID-19 lockdown and hired an experienced tailor to
teach lab employees to produce the medical supplies.
By May 2020 the firm generated more revenue from selling
medical supplies than from what they were doing before the
lockdown. The firm is currently selling medical supplies to
clients in Guatemala and Costa Rica. The CEO argued that their
success was due to all senior managers agreeing on the
necessity to transform the organization, and the urgency of the
situation pushed the whole organization to transform.
Another example of radical transformation occurred in a
small hotel based in the city of Guadalajara. The hotel is
established in the city center of Guadalajara and most of their
clients are local and foreign tourists who travel for vacations.
The hotel struggled since March 2020 when the government
closed all establishments related to tourism, including hotels.
The owner of the hotel mentioned that he was very worried
about the situation because the hotel had 50 employees with at
least 4 dependents each, so at least 200 people would struggle
to survive if the hotel just closed. The owner explained that he
talked with the head of operations of the hotel and both agreed
that they could transform the hotel into a kitchen to prepare
meals for delivery. The owner explained:
“We realized that selling food was a good idea because even
during the lockdown people were using food delivery apps. We
decided to cook very traditional Mexican dishes because the
competitors were mainly pizzas, burgers, and sushi. It was a
huge challenge because, although we had a small kitchen in the
hotel, we wanted to do this on a big scale”.
However, the accountant of the hotel explained that at first,
the new business was a complete failure. During the first weeks,
the organization was losing money and it was not clear why.
The accountant then explained that before the lockdown the
hotel had a very detailed budget and management system. He
argued that senior managers would know even the amount of
money spent on shampoos, so they focused on efficiency to
maximize profits. The accountant explained that when they
tried to use such a system with the new business idea, it was a
disaster because the demand for their products varied a lot. The
accountant explained:
“It was very difficult to prepare a budget because we were
not sure about how many dishes, we would sell on one day.
Also, on some days, all of our clients lived in the north, so we
did not require that many deliver guys, but the next day we had
clients from all around the city, so we did not have enough
personnel”.
By the end of that week senior managers met and agreed that
it was impossible to manage the new business in the same
fashion as the hotel. Thus, they decided to stop using a weekly
budget and instead they focused on the lean production of food.
Senior managers created flexible routes for delivery drivers,
they also signed deals with suppliers who would deliver food
twice per day to keep inventory levels low. The new
management system focused on day-to-day control and
flexibility. This is consistent with the suggestions from
Bedford, Bisbe, and Sweeney (2019) who studied 90 innovative
Irish firms. The authors found that the organizations that
achieved radical innovation had to drastically change, or in
some cases abandon their management controls, such as the
budget and cost controls [6].
By the end of May 2020, the organization had a major profit
rate with the new business, better than with the hotel. The
company did not have to fire anyone and they even had to hire
new delivery drivers. Senior managers argued that their success
was based on the change in the way they managed the business.
According to them, the budget and cost-reduction worked fine
in the hotel, but the new business required a lot of flexibility.
This is the author's version of an article that has been published in this journal. Changes were made to this version by the publisher prior to publication.
The final version of record is available at http://dx.doi.org/10.1109/EMR.2020.3014280
Copyright (c) 2020 IEEE. Personal use is permitted. For any other purposes, permission must be obtained from the IEEE by emailing pubs-permissions@ieee.org.
3
One more organization that achieved a radical organizational
transformation is a social media firm based in Monterrey. The
organization focused on social media campaigns for local small
businesses. The idea was that larger organizations in Monterrey
usually hire international social media companies, or
sometimes they have their own departments. However, smaller
organizations were almost new to social media campaigns.
Nevertheless, during the COVID-19 lockdown, almost all the
small businesses had to close. Thus, one of the first things that
these companies did was to cancel their social media
campaigns. The CEO of the social media organization
explained that although a contract existed, it was impossible to
force their clients to pay. Some of the clients had already gone
into bankruptcy. The CEO of the social media firm was under a
lot of pressure because they had to pay their employees and
suppliers. By April 2020, the CFO urged the CEO to do
something because they could only survive until June 2020.
Senior managers held an urgent meeting and discussed how
the firm could radically transform. While some of the managers
claimed that social media was still important even during the
lockdown, other managers mentioned that there would be lots
of competitors in the market. After some more discussion, the
CEO explained that he had a friend who had contacts in the
USA and China who would sell medical supplies. As previously
stated, medical supplies were scarce in Mexico during the
lockdown, so it became an attractive opportunity.
After some discussion, the senior manager agreed to
transform the organization to take advantage of the opportunity.
However, they all agreed that it was important to learn how to
do that business because the company had no experience in
importing goods from China or the USA. The CEO explained:
“We knew that we had to learn a lot. However, we had to stop
doing social media because we were only having 5% of the
revenue that we normally had. So, the first step was to hire
consultants who taught us how to complete the process. We also
hired two lawyers who oversaw the strategy; they had some
contacts in customs, which helped with the import process”.
The CFO argued that the process to import the medical
supplies took one month from the USA and two months from
China. So, the firm had some time to prepare to sell the products
before these arrived in Mexico. The CFO then explained that
the firm used that time to make use of their social media skills
to promote the products. Due to the shortages previously
mentioned, as soon as the products arrived in Mexico, they were
all sold out by the first week. The CFO explained in detail:
“We did a very good job of importing the goods but also at
marketing them. By the end of the month, we already had a new
name, logo, and webpage. Even the organization’s colors
changed. It was a huge change. I strongly believe that our
success was because we hired the correct people to teach us
how to do the business and then we mixed that with our ability
to sell”.
The company changed its corporate image and now they
intend to stay as importers of medical supplies. Senior
managers argue that they are all now well-positioned and it is
thanks to the quickness in their reaction. Although there are new
competitors, they were able to be known as the first local firm
to import medical supplies during the lockdown. Senior
managers also state that their success was achieved in record
time thanks to hiring external consultants in the key processes
of the new business model.
Another interesting case to analyze is a real estate agency
based in Cancun. The firm focused on selling and renting luxury
properties, mostly to European, Asian, and North American
clients. The firm was established in 2016 and grew at a fast
pace. By 2020 the company had 20 employees and clients from
50 different countries.
The COVID-19 lockdown had its negative effects on the
company since early 2020 when Asian tourists stopped visiting
Cancun. As time passed by, first Europeans began to be rarely
seen, and later, Americans. At some point in February 2020,
even Mexican tourists were scarce. Things turned even worse
when the government closed all tourist attractions in March
2020. At this point, the company was not receiving a single e-
mail from possible clients.
The CEO of the firm talked with other businesspeople in the
city, but all of them were facing a similar situation. While most
of these businesspeople focused on reducing cost and firing
personnel, the CEO of the real state agency decided to
drastically change their operations. The CEO explained that a
friend of his recently had a birthday and due to the virus it was
very difficult to send him a gift. Thus, the CEO conceived a
new business idea. He proposed to use all the real estate agents
to deliver gifts, flowers or letters for special occasions. The
CEO explained:
“The idea was to not only deliver a present but make it very
special. We would add a special touch, thus charging a higher
fee. It was a challenge because we were new to this business,
so we had to hire other companies to help us with almost
everything. For instance, we have a flower supplier and we also
have a decorative specialist; we became more like supervisors,
and of course, the realtors were the couriers”.
The new business idea was very innovative in the area as
there were practically no competitors. The Riviera Maya tourist
area is composed not only of Cancun but also of other small
cities, such as Playa del Carmen, Cozumel, and Cancun.
Delivering between these cities had also a positive effect on the
business. One of the real estate agents argued that part of the
success was not trying to do everything by themselves but
relying on external firms instead. According to him, this
allowed the organization’s members to focus on the marketing
and the operation. The realtor explained in detail:
“We relied on other firms and that was a huge relief. Of
course, we even had to hire insurance and security from an
external firm. Two of our colleagues were robbed during the
first week and our offices, which we turned into a warehouse,
also suffered an attempted robbery. The COVID-19 lockdown
turned the city into a dangerous zone, which in part boosted the
demand for deliveries”.
By June 2020, the firm was renting an additional warehouse
since they require more space to pack and store the goods.
Senior managers continue to rely on external firms to do
specific jobs so they can keep their focus on the operations of
the organization. The empirical findings from analyzing this
case are congruent with the findings of Dekker, Kawai, and
Sakaguchi (2018) who analyzed outsourcing contracts of two
organizations in Japan and the Netherlands. The authors
concluded that outsourcing plays a key role in the rapid process
of organizational transformation [7].
This is the author's version of an article that has been published in this journal. Changes were made to this version by the publisher prior to publication.
The final version of record is available at http://dx.doi.org/10.1109/EMR.2020.3014280
Copyright (c) 2020 IEEE. Personal use is permitted. For any other purposes, permission must be obtained from the IEEE by emailing pubs-permissions@ieee.org.
4
Although the previous analysis are examples of firms that
were able to complete organizational transformation, some
important aspects can be learned from the organizations that
transformed partially, or from the ones who could not reinvent
themselves. By analyzing the organizations with partial
transformations, it was common to find that these firms
believed that the lockdown would end soon and that they would
go back to normal. The CEO of a swimsuit manufacturer
explained:
“We knew these are difficult times, but things will go back to
normal, people will go back to the beach and they will buy suits.
We need to be there for when that happens”.
Additionally, firms who remained with practically no change
focused intensively on cost reduction. The argument behind the
rationale is that as revenue decreased, costs should decrease too.
The CFO of a tourist agency who had practically no
transformation explained:
“If revenues drop, you need to spend less; it is a natural law.
Our strategy is to reduce costs because we do not have revenue.
We will invest when we have more revenue”.
IV. DISCUSSION
From the analysis of the previous cases, there are at least five
takeaway points that can be learned.
It is key that senior managers agree on the necessity to
complete the organizational transformation. Without full
support from senior management it seems like an impossible
task to complete. Moreover, it can be the case that an
organization is not ready to transform. In such a case, senior
managers would be able to recognise that.
Using traditional management control will harm
organizational transformation. As the organization transforms
it is necessary to use management control in a way that will
foster change. The use of strict budgets and tight controls would
not allow an organization’s members to produce new ideas,
which can be detrimental to organizational transformation.
Hiring external consultants seems to be a common practice
when organizations transform rapidly. In most of the cases
transformation puts the organization’s members in places where
they have never been. Thus, external consultants play a key role
in performing activities that the organization itself did not have
any previous experience.
In parallel to the previous points, outsourcing activities to
external partners is also a good idea in order to break the
limitations which a firm has because they do not usually
perform these activities. Key partners are essential during the
transformation as their expertise can become a huge relief in the
pressure caused by the change. It is also important to notice that
there needs to be synergy with such partners, otherwise the
stress and tension might only increase.
Finally, a cost-reduction strategy is usually contrary to
organizational transformation. When a firm focuses on
reducing costs it is very unlikely that the organization will
achieve a radical transformation. This is because transformation
requires investment and most of the time it reflects on an
increase in costs. Thus, when organizations intend to achieve a
radical transformation it is necessary to reduce the urge to
minimize costs.
V. CONCLUSION
The topic of organizational transformation will always be
interesting to study. Even in the best possible context,
organizational transformation is a huge challenge for senior
management. Thus, the more that is known about organizations
and how they achieve transformations, the better managers can
prepare themselves for change. The findings from this research
provide a better understanding of how organizations transform,
especially during a very complicated context such as the
COVID-19 lockdown. The five takeaway points from this paper
should be considered by managers and consultants aiming to
achieve organizational transformation successfully.
ACKNOWLEDGMENT
Special acknowledgment to Dr. Cesar Zapata, Dr. Miguel
Montoya, Dr. David Rebollo, Miss Marta Serafin, and Mr
Christian Villalba for their valuable feedback on this paper.
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This is the author's version of an article that has been published in this journal. Changes were made to this version by the publisher prior to publication.
The final version of record is available at http://dx.doi.org/10.1109/EMR.2020.3014280
Copyright (c) 2020 IEEE. Personal use is permitted. For any other purposes, permission must be obtained from the IEEE by emailing pubs-permissions@ieee.org.
