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In the forty years after the Second World War, Spain underwent important changes in business, political and social environments. These changes were instrumental in helping both public and private organisations make the transition from the authoritarian/bureaucratic style of organisational control to being dynamic and outward looking. However, this organisational change was not able to keep up with the pace of change in the external environment, and Spain still lagged behind her European partners in many areas, having a negative effect on the competitiveness of Spanish businesses.

Traditionally the culture that has predominated has been characterised by the size and importance of the state sector under the aegis of the Instituto Nacional de Industria (INI), and a rigid monolithic state bureaucracy which offered civil servants at all grades a job for life; a large number of small and medium-sized firms, many with strong family links that led to a static hierarchical organisational structure; a pool of cheap and compliant labour which removed the impetus to invest in and develop new technologies; and an inward-looking productive structure, which was highly protected and therefore denied the challenge of competition. The stability provided by the authoritarian regime of General Franco before 1975, and the cosy relationship between business, banks and government, allowed business organisations and government agencies to forgo long-term planning. Spanish firms thus failed to identify long-term strategic objectives and short-termism, insularity, and quick profit became the norm.

One significant event which helped force organisations in Spain to change in the second half of 20th century was the abandonment of the policy of autarky in the late 1950s, which led to a partial lifting of government controls on the location and expansions of business and fewer restrictions on foreign investment in Spain. The post-war economic prosperity in Western Europe provided Spain with an influx of tourists and an outlet for workers looking for better pay and conditions abroad. Income from tourism, emigrant remittances and foreign investment led to an economic boom in the country, which led to a proliferation of new private business organisations and a more pragmatic approach to the control of the political economy. However the influence of these factors only laid the groundwork for future changes. Foreign investment led to 'a modern, dynamic component of large firms grafted on to the pre-existing world of predominantly small companies' (Shubert, 1990), while new ideas on forms of social interaction brought in by tourists and returning emigrants were repressed or rejected by the narrow, authoritarian, blinkered view of the administration and many managers. On the surface at least, there was little movement from the mechanistic organisation and its rigid structures to the organic organisation, more appropriate in a changing environment, identified by Burns and Stalker (see pp. 571-3).

Even after the collapse of the authoritarian regime in Spain in the mid-1970s, the political and economic turmoil was not conducive to the introduction of innovative management structures. While the emphasis was on political change, the machinery of state administration changed very little and another layer of bureaucracy was added with the creation of seventeen autonomous communities each with their own regional parliaments and their own administrative structure. The oil crisis of 1974 and 1979 left Spanish companies reeling, unable to come to terms with the speed and scope of the changes taking place in the external environment, and unwilling to risk significant changes in internal management structures. This period of crisis led to even greater government intervention in private companies, with the state taking over companies that were in danger of collapse in order to save jobs. This corporatist and paternalistic response from a weak government was allied to a general disenchantment in the business community, which was compounded by the election victory of the Spanish socialist party in the 1982 general elections. There were fears that the government would initiate a policy of nationalisation, support union wages claims and adopt a model of central planning for the economy. In fact these fears were unfounded. When the socialists came to power 'The Spanish economy was based on an inefficient, backward productive structure. Industry was biased towards consumer goods and traditional sectors were labour intensive, used outdated technology, and had low levels of production and competitiveness' (Ferner and Hyman, 1994).

In order to tackle these problems, the government adopted a tight monetarist approach and applied market principles to cut inflation, reduce the balance of payments deficit and promote greater flexibility in business. Another of the commitments of the government was to reduce bureaucracy and initiate a policy of privatisation through a policy of industrial reconversion, that is, restructuring the state sector enterprises to make them more efficient and responsive to market forces.

Not all the government's measures were successful. Public administration fell prey to the party machine and management was hooked on short-term objectives, government more by sectoral interests than market principles. On the other hand, the adoption of a free market philosophy revitalised the faith in private enterprise as a motor for growth and prosperity and started a shift of young professionals away from the public to the private sector.

These measures that the government took were also aimed at bringing the Spanish economy in line with other Western European countries in the E.U. By 1985, the economic indicators had begun to show a recovery but it was Spain's accession to the EU in 1986, which was the primary impulse for change. Membership of the EU was widely seen as a positive move, which would lead to a process of modernisation and to Spain gaining her rightful place in the Western world. However, there were problems. Membership subjected Spanish companies and industries to a level and intensity of competition that was unheard of, and these changes in the external environment forced organisations in Spain to review the technological, structural, personnel and management systems with which they worked. Some feared that Spain's accession to the EU and the corresponding loss of the protection of tariff barriers would lead to Spain's industries being overwhelmed, while others accepted that the internationalisation of the Spanish economy would provide the stimulus that business people needed to change attitudes, renovate the industrial base, and learn to compete in foreign markets. Initially,