SUMMARY – INTERVENTION IN ORGANISATIONS
INTRODUCTION
Integrated theory or framework for understanding change does not exist
Contradictory advice: incentives or involvement/commitment
Introduced theoretical framework. Can be used for big firms but also smaller and fast-growing companies.
Theories E and O of change
2 dramatically different approaches to organizational change
Theory in use: implicit theory that one can deduce from examining strategies from change employed
Theory E:
With purpose to create economic value
Often expressed as shareholder value
Focus on formal structure and systems
Driven from top with extensive help from consultants and financial incentives
Change is planned and programmatic
Theory O:
With purpose to develop organization’s human capability to implement strategy and learn from actions
taken about effectiveness of changes mad e
Focus on development of high-commitment culture
Means consist of high involvement
Rely less on consultants and incentives to drive change
Change is emergent, less planned and programmatic
Theories are archetypes
Both theories have validity but also costs
Problem managers face is resolving tension between E and O in a way to obtain benefits of each and minimizes
negative consequences of each
Too often, these theories are mixed without resolution of inherent tension between them -> max costs and min
benefits of each theory
The 2 theories should be integrated in a way that resolves the tension between them.
Goal of book: help frame research questions in a way that will lead to integrative theory of change. Theory
would clarify trade-off between different approaches to change and would aid in defining choices and
consequences.
Theory E
Story of Scott Paper
Shareholder value is the single objective to which corporation should dedicate itself
Purpose: A singular focus on economic value
Singular focus on shareholder value
1
,Jensen + Friedman: the sole ethically justifiable contribution of corporations to society is to produce profits and
economic value.
Jensen: many top managers have destroyed wealth and in the long run the many constituencies executives care
about are disadvantaged. Its too easy for managers to be distracted for political and psychological reasons.
Defensive routines can cause managers to rationalize decisions that suboptimize economic return.
Markets will punish firms that do not appropriately consider the economic value of commitment from
employees, customers and communities. -> managers should be focused by shareholder value goals, no need
for other goals
Leadership: top-down
Leaders manage change from the top down.
Set goals based on expectations of financial markets
Do not involve management team or lower employee levels
Top down leadership makes sense when a firm is in the throes of forces that can destroy it.
Only generals have a view of the total battlefield: only CEOs can make strategic decisions on restructuring,
information technology and reengineering initiatives companies need to survive in turbulent world.
- Capital requirements are too big and implications too profound for lower-level managers
- Incremental change decisions lower-level managers can make are not enough
- Leaders do not have the time to build consensus through participation
Focus: structure and systems
Focus first on changing strategies, structures and systems (hardware)
Can readily be changed from top down to yield quick financial results
Reducing size and structure of central headquarters and selling businesses and assets
Little formal attention paid to attitudes or behavior (software)
Planning: planned and programmatic
Strategies tend to be driven by expectations of marketplace
Financial goals and programs to achieve strategies dominate agenda
Well-sequenced, carefully planned change effort facilitates internal coordination and inspires external
confidence
General fighting battle for survival is unlikely to succeed without comprehensive battle plan controlled from
the top
First step: shaking up firms portfolio of business and ensuring that each is doing what it needs to do to survive
and prosper.
Programs driven by smart staff groups and consultants should be established to equip lower-level managers
with knowledge and solutions they must have lacked
Next step: find ways of integrating high-performing individual business units. Process that requires different
set of hardware and software levers than first step
Well-choreographed plan of change is more likely to yield results than are change efforts that are more
spontaneous and emergent
Motivation: financial incentives
Financial incentives to motivate the singular focus on creating economic value.
Incentives that align interests of management and shareholders are essential for change to occur
Symbolic and motivational value
Financial incentives will ensure that decisions will not be derailed by personal and political considerations
Give top executives the sense that they are being rewarded fairly for a difficult job for which they are often
reviled by employees and larger community
Consultants: large firms with superior knowledge and solutions
2
,Hire large consulting firms to bring motivation and knowledge employees are thought to lack
Consulting firms drive change by infusing company with new ways to look at business and new methods for
managing it.
Organization can substantially improve performance only by simultaneously changing various facets of nested
social system. Strategy changes must be accompanied by changes in host of other systems, or change will fail.
Clients can benefit from substantive expertise and knowledge
1990s: theory E became dominant model is US (and Europe). They had powerful and increasingly efficient
capital markets.
In the face of pressures for short-term performance improvements, and fearing failure for which they could be
fired, CEOs are logically drawn to restructuring and layoffs. More likely CEOs implement Theory E. Managers
distance themselves from organization and people: simply too painful otherwise. Once distant, CEOs feel they
cannot rely on existing employees, whom they see as part of problem, to identify problems or propose creative
new solutions
Consulting firms enable CEOs to delegate painful and difficult change.
Financial incentives provide quick way to establish motivation and alignment among senior managers.
Discrepancy that emerges between top management’s incentives compensation and fate of lower-level
employee’s layoffs and employment further disconnects senior executives from people in organization.
Disconnection, makes easier for top management to see firm as economic institution only and ignore human
side and purpose.
CEOs attracted to E role probably tend not to be individuals with values or skills to lead a change from theory O
perspective
= once a CEO defines singular purpose of change as increasing economic value, a series of forces are typically
unleashed that lead CEO to choose the cluster of strategies we are calling theory E.
Later will argue this choice will not be inevitable: not be optimum approach
3
, Theory O
Sigler of Champion International
1981
Alter fundamentally the culture and behavior of management, unions and workers
The Champion Way: vision and values for company and how it would relate to stakeholders
Key values: involvement of all employees in improving, fair treatment of workers, support for community
around its plants, and openness and truthfulness in company
High-involvement method called socio-technical redesign to change approach to organizing and managing
people in all of its plants
Cooperative mechanisms.
Function matrix structure intended to focus on customers
Compensation systems aligned with cultural change objectives
Skill-based pay system to encourage employees to learn multiple skills
Corporationwide gains-sharing plan to mold union workers and management into common community of
purpose
No layoffs, although managers at plant and corporate level were replaced if style did not fit philosophy
Problem 1997: shareholders had not seen a significant increase in economic value of firm
Return on assets, return on equity, return on sales, and sales per employee were all below comparison
companies
Purpose: developing organizational capabilities
Develop organizational capabilities, particularly capabilities of employees to become involved in identifying
and solving work-related problems. Objective is to create work system in which employees become
emotionally committed to improving performance of firm.
Peter Senge: making economic value the singular objective function in managing change is mistaken even
though the objective itself is right and appropriate.
By setting economic goals at the top, management may actually prevent company from discovering factors that
may be critical to its economic health.
Healthy learning organization is best way to meet shareholder interests in the long run
Managers avoid radical restructuring and layoffs to maintain social and psychological contracts
Leadership: participative
High levels of involvement and collaboration
Top teams are jointly involved in drafting value statements
Bennis: involvement is essential for building partnership, trust and commitment thought to be vital for long-
term performance improvements
Participation, rather than top-down change, is key if one assumes that most information is widely held in
organization
Top management is farthest away from customers and operations
Information about barriers to achieving top managements goals are not likely to be communicated upward in
firm managed strictly from top down
Focus: culture
Focus on values and behavior
Emphasis on values is intended to create emotional attachment
Emotional attachment is thought to be critical to commitment
With commitment, hierarchical control will be unnecessary
Corporate decisions about structure and systems for local units are unlikely to take into account employee’s
tacit knowledge about problems in enacting strategy at local level
Change problem is changing culture. Requires management to engage people emotionally in examining why the
existing structure and systems are not meeting new challenges confronting the organization
4
INTRODUCTION
Integrated theory or framework for understanding change does not exist
Contradictory advice: incentives or involvement/commitment
Introduced theoretical framework. Can be used for big firms but also smaller and fast-growing companies.
Theories E and O of change
2 dramatically different approaches to organizational change
Theory in use: implicit theory that one can deduce from examining strategies from change employed
Theory E:
With purpose to create economic value
Often expressed as shareholder value
Focus on formal structure and systems
Driven from top with extensive help from consultants and financial incentives
Change is planned and programmatic
Theory O:
With purpose to develop organization’s human capability to implement strategy and learn from actions
taken about effectiveness of changes mad e
Focus on development of high-commitment culture
Means consist of high involvement
Rely less on consultants and incentives to drive change
Change is emergent, less planned and programmatic
Theories are archetypes
Both theories have validity but also costs
Problem managers face is resolving tension between E and O in a way to obtain benefits of each and minimizes
negative consequences of each
Too often, these theories are mixed without resolution of inherent tension between them -> max costs and min
benefits of each theory
The 2 theories should be integrated in a way that resolves the tension between them.
Goal of book: help frame research questions in a way that will lead to integrative theory of change. Theory
would clarify trade-off between different approaches to change and would aid in defining choices and
consequences.
Theory E
Story of Scott Paper
Shareholder value is the single objective to which corporation should dedicate itself
Purpose: A singular focus on economic value
Singular focus on shareholder value
1
,Jensen + Friedman: the sole ethically justifiable contribution of corporations to society is to produce profits and
economic value.
Jensen: many top managers have destroyed wealth and in the long run the many constituencies executives care
about are disadvantaged. Its too easy for managers to be distracted for political and psychological reasons.
Defensive routines can cause managers to rationalize decisions that suboptimize economic return.
Markets will punish firms that do not appropriately consider the economic value of commitment from
employees, customers and communities. -> managers should be focused by shareholder value goals, no need
for other goals
Leadership: top-down
Leaders manage change from the top down.
Set goals based on expectations of financial markets
Do not involve management team or lower employee levels
Top down leadership makes sense when a firm is in the throes of forces that can destroy it.
Only generals have a view of the total battlefield: only CEOs can make strategic decisions on restructuring,
information technology and reengineering initiatives companies need to survive in turbulent world.
- Capital requirements are too big and implications too profound for lower-level managers
- Incremental change decisions lower-level managers can make are not enough
- Leaders do not have the time to build consensus through participation
Focus: structure and systems
Focus first on changing strategies, structures and systems (hardware)
Can readily be changed from top down to yield quick financial results
Reducing size and structure of central headquarters and selling businesses and assets
Little formal attention paid to attitudes or behavior (software)
Planning: planned and programmatic
Strategies tend to be driven by expectations of marketplace
Financial goals and programs to achieve strategies dominate agenda
Well-sequenced, carefully planned change effort facilitates internal coordination and inspires external
confidence
General fighting battle for survival is unlikely to succeed without comprehensive battle plan controlled from
the top
First step: shaking up firms portfolio of business and ensuring that each is doing what it needs to do to survive
and prosper.
Programs driven by smart staff groups and consultants should be established to equip lower-level managers
with knowledge and solutions they must have lacked
Next step: find ways of integrating high-performing individual business units. Process that requires different
set of hardware and software levers than first step
Well-choreographed plan of change is more likely to yield results than are change efforts that are more
spontaneous and emergent
Motivation: financial incentives
Financial incentives to motivate the singular focus on creating economic value.
Incentives that align interests of management and shareholders are essential for change to occur
Symbolic and motivational value
Financial incentives will ensure that decisions will not be derailed by personal and political considerations
Give top executives the sense that they are being rewarded fairly for a difficult job for which they are often
reviled by employees and larger community
Consultants: large firms with superior knowledge and solutions
2
,Hire large consulting firms to bring motivation and knowledge employees are thought to lack
Consulting firms drive change by infusing company with new ways to look at business and new methods for
managing it.
Organization can substantially improve performance only by simultaneously changing various facets of nested
social system. Strategy changes must be accompanied by changes in host of other systems, or change will fail.
Clients can benefit from substantive expertise and knowledge
1990s: theory E became dominant model is US (and Europe). They had powerful and increasingly efficient
capital markets.
In the face of pressures for short-term performance improvements, and fearing failure for which they could be
fired, CEOs are logically drawn to restructuring and layoffs. More likely CEOs implement Theory E. Managers
distance themselves from organization and people: simply too painful otherwise. Once distant, CEOs feel they
cannot rely on existing employees, whom they see as part of problem, to identify problems or propose creative
new solutions
Consulting firms enable CEOs to delegate painful and difficult change.
Financial incentives provide quick way to establish motivation and alignment among senior managers.
Discrepancy that emerges between top management’s incentives compensation and fate of lower-level
employee’s layoffs and employment further disconnects senior executives from people in organization.
Disconnection, makes easier for top management to see firm as economic institution only and ignore human
side and purpose.
CEOs attracted to E role probably tend not to be individuals with values or skills to lead a change from theory O
perspective
= once a CEO defines singular purpose of change as increasing economic value, a series of forces are typically
unleashed that lead CEO to choose the cluster of strategies we are calling theory E.
Later will argue this choice will not be inevitable: not be optimum approach
3
, Theory O
Sigler of Champion International
1981
Alter fundamentally the culture and behavior of management, unions and workers
The Champion Way: vision and values for company and how it would relate to stakeholders
Key values: involvement of all employees in improving, fair treatment of workers, support for community
around its plants, and openness and truthfulness in company
High-involvement method called socio-technical redesign to change approach to organizing and managing
people in all of its plants
Cooperative mechanisms.
Function matrix structure intended to focus on customers
Compensation systems aligned with cultural change objectives
Skill-based pay system to encourage employees to learn multiple skills
Corporationwide gains-sharing plan to mold union workers and management into common community of
purpose
No layoffs, although managers at plant and corporate level were replaced if style did not fit philosophy
Problem 1997: shareholders had not seen a significant increase in economic value of firm
Return on assets, return on equity, return on sales, and sales per employee were all below comparison
companies
Purpose: developing organizational capabilities
Develop organizational capabilities, particularly capabilities of employees to become involved in identifying
and solving work-related problems. Objective is to create work system in which employees become
emotionally committed to improving performance of firm.
Peter Senge: making economic value the singular objective function in managing change is mistaken even
though the objective itself is right and appropriate.
By setting economic goals at the top, management may actually prevent company from discovering factors that
may be critical to its economic health.
Healthy learning organization is best way to meet shareholder interests in the long run
Managers avoid radical restructuring and layoffs to maintain social and psychological contracts
Leadership: participative
High levels of involvement and collaboration
Top teams are jointly involved in drafting value statements
Bennis: involvement is essential for building partnership, trust and commitment thought to be vital for long-
term performance improvements
Participation, rather than top-down change, is key if one assumes that most information is widely held in
organization
Top management is farthest away from customers and operations
Information about barriers to achieving top managements goals are not likely to be communicated upward in
firm managed strictly from top down
Focus: culture
Focus on values and behavior
Emphasis on values is intended to create emotional attachment
Emotional attachment is thought to be critical to commitment
With commitment, hierarchical control will be unnecessary
Corporate decisions about structure and systems for local units are unlikely to take into account employee’s
tacit knowledge about problems in enacting strategy at local level
Change problem is changing culture. Requires management to engage people emotionally in examining why the
existing structure and systems are not meeting new challenges confronting the organization
4
