The Challenge of Organizational Change - Hardcover

Chapter 1

The "Big Three" Model of Change

The approach of the year 2000, with its millennial label and transformational implications, suggests the possibility of an equally profound change in our economic life and the institutions -- primarily business firms -- that populate it. In fact, even though the number has a highly spurious precision, its symbolism is appropriate. The world is undergoing many major transitions, some of which involve the meaning of business and the character and shape of the organizations that carry it out.

Most striking is the strong convergence of streams of thought and experience alike coming from academic theorists and practicing managers, from avowed free-market partisans and committed social democrats, from regulators and those regulated, from countries as diverse as Singapore and South Africa, the U.S.A. and the former U.S.S.R., Vietnam and Venezuela. This trend -- or more accurately, this tidal wave -- is becoming a universal model for organizations, especially large ones.

This model describes more flexible organizations, adaptable to change, with relatively few levels of formal hierarchy and loose boundaries among functions and units, sensitive and responsive to the environment; concerned with stakeholders of all sorts -- employees, communities, customers, suppliers, and shareholders. These organizations empower people to take action and be entrepreneurial, reward them for contributions and help them gain in skill and "employability." Overall, these are global organizations characterized by internal and external relationships, including joint ventures, alliances, consortia, and partnerships.

There are, of course, differences in detail. Professional firms, service businesses, and manufacturing organizations do not look identical. Japanese keiretsu are not identical with their American industry and market counterparts. Decentralizing the National Health Service in Britain is not the same task as privatizing British Telecom or breaking up AT&T. Nevertheless, much of this is cosmetic; the management principles, operating values, and critical features defining the day-to-day behavior in those organizations are strikingly similar, and even the differences in detail are disappearing over time as global competition intensifies, confronting firms with a close look at others and forcing the routine and continuing transfer of practices from one to another.

Under these circumstances, the question most appropriate for the 1990s is not what the competitive world organization should look like but how to become one. Advice on change methodology is itself a flourishing business. Many people tell managers how to achieve competitiveness, though the recipes, the prescriptions, and, above all, the jargon are different. Some offer technologies for implementing a particular concept, such as total quality control. Others tinker with this organizational feature, fix that one, and educate people, the reward being the promised land of organizational transformation.

This sort of"revitalization" is only one route to corporate transformation. There are also "revolutionaries" who are impatient with the slow pace of reformist change or who distrust the managers guiding it. Throw out the whole thing and start over again, they urge. Overthrow management, change control, shuffle the assets, and the organization can be recreated. But these revolutions and battles for control, however effective in one sense, remain costly and unproven in others. In practice, these notions have also led to some prominent media events, such as Italy's Carlo de Benedetti's battle for Société Générale in Belgium, Sir James Goldsmith's takeover of Crown Zellerbach, or KKR's buyout of RJR Nabisco.

Indeed, corporate takeover specialists present themselves as the shock troops of capitalism, preaching the virtues of their approach. T. Boone Pickens, the erstwhile U.S. raider from Mesa Petroleum, became a brief star on the intellectual lecture circuit, founded The Association for Shareholder Rights, and testified before American Congressional committees. Asher Edelman, another American investor, in spare moments between his attacks on undervalued and underprotected companies, taught a class (called "The Art of War") on corporate finance and control at Columbia Business School; he offered to "make it real" for the students by offering an incentive of $100,000 to anyone who identified a suitable candidate, payable if and when he actually took it over. The school asked him to withdraw the incentive. And a third well-known American raider, Carl Icahn, evidently got tired of being seen "only" as a buyer and seller of companies and, upon acquiring TWA, decided to run it personally. (As it turned out, TWA entered bankruptcy in 1992; he might better have stuck with the paper chase.)

There are many views in between the extremes of reform and revolution, of course. And there are times when each is appropriate. But the danger lurking in many discussions of organizational change is that the whole thing starts to sound much simpler than it is. Too much credit is given to leaders when things go well, and too much blame when they go poorly. Yet, despite decades of very good advice to organizations about change, we are struck by how many failures there are and how much can go wrong. Even though both the reformers and the revolutionaries are, in their own ways, utopians, believing in organizational perfectibility, the sad fact is that, almost universally, organizations change as little as they must, rather than as much as they should.

But perfectibility is, in the final analysis, not an accurate picture, and not simply because our reach exceeds our grasp. It is impossible because of the very nature of organizations, in which successes in one realm inevitably produce problems in another. Organizations, whatever their specific purposes, are also institutions facilitating the production of dilemmas. And that, ultimately, is the best reason to suppose that there will always be a need for management, if not managers.

Organizations present not just one-time problems to be solved, and their problems are certainly not solved once and for all. Permanent success -- a single formula that works forever -- is impossible. After every revolution, even the most successful, the revolutionaries have to address continuing internal issues and the new tasks and problems created by the revolution. In short, even revolutionaries have to understand and accept reform. If these tasks are not addressed effectively, they can even destroy the revolution itself and create counterrevolutions.

The recent astonishing transformations which broke up the Soviet Union and its former East European satellites are a striking case in point. Even though we should be extremely cautious about equating countries and whole social systems with organizations, those events suggest an important lesson for organizational change in general. Changes and their effects are distributed throughout organizations. Some of them are visible, some not. Some are captured in the systems and structures of the organization, others in the minds of members, and still others in external adjustments. Some take effect or cause ripples soon, others need to ripen before they can flower. Thus, our ability to recognize changes may be largely limited to the immediately obvious and therefore superficial ones, while ultimately more powerful factors are hidden from our view. As Chapter 2 makes clear, we may be misled by too narrow or short-term perspectives, or by our personal favorite frame of reference, ignoring long-term forces more slowly transforming an organization, and overlooking counterforces and opposing tendencies.

Roadblocks to Progress: The Change Problem

A new ideal of a focused, innovative, and flexible organization