Clearly, the question is no longer: “Do we need to change?” It is: “How do we know when we need to change?” As challenging as it is to wrap our minds around all the moving parts of the market, technology and the economy, the hardest part is to decide when to make dramatic changes to the business. Unfortunately, far too often, businesses succumb to either overreacting or underreacting.

Some Companies Change Too Often

Many organizations I work with have a history of frequent change. Typically, this happens most often in companies that don’t have a strong strategic rudder. They are not guided by an overarching strategic concept that serves as a guide for decision making, but rather they annually develop lists of projects or initiatives that improve operational performance. It is sort of the old “throw it against the wall and see what sticks” approach. There is a bit of everything on the list to make each functional manager happy; there is little consideration to resource impact and whether the bodies or dollars are available to implement effectively, or even if some of the projects will actually compete for resources as you get deeper into the implementation.

Companies that change too often do so because they don’t know where they are trying to go, or they can’t make things on the current list work, so they change it. They tend not to stick with anything very long and are attracted to the next new thing. I most commonly hear this revolving-door complaint when: a) companies are led by an entrepreneur who is great with ideation but not necessarily implementation, or b) companies are approaching a mature market and can’t figure out why they keep running into a wall of declining performance.

Have you ever worked in an organization where leadership seems to juke and weave through a long list of growth opportunities, terrorizing the workforce with yet another corporate initiative doomed to fail? It stems from a lack of understanding of what is causing the fundamental problem and a lack of commitment to the degree of change required to fix it.

Some Companies Don’t Change Often Enough

The other option is no change at all. It can be hard to walk away from what has been successful. What leader in her right mind, promoted for her ability to develop best-selling greeting cards, or supersized gas-guzzling cars, wants to lead the charge to develop a financially viable model for e-greetings or lead innovation with alternative-fuel car development? That is not her strength or comfort level.

So what happens? Competitors enter the market and seize the opportunity to provide to customers what the established company doesn’t. As a result, past industry legends find themselves out of the loop and struggling to regain ground.

The Best Companies Change to Align Themselves with the Changing Market

Neither frequent change nor lack of change is financially viable for long. Organizations that are in tune with the marketplace study changes, anticipate implications and prepare for a constant evolution of products and services that take advantage of new developments. Companies must not be overly invested in what they make or do, but rather, why they make it—the need they are trying to meet—and evolve process, capability, format and delivery to stay in touch with the demands of the market, which are constantly changing due to technology, the economy, value shifts and competition.

Looking ahead, tracking and anticipating change is the solution. Moving forward with a clear rudder and set of operational mandates is required. The best companies set up trigger points or milestones that, when reached, signal it is time to take a hard look at current practices, product portfolios and markets served.

When was the last time you asked yourself, “How do we know when we need to change?”