6th in a Series on Change: Economic vs. Organizational Approaches to Change by Beer & Nohria

Continuing my exploration of HBR’s Change Management Must Reads, I relished the taoistic a-ha of Beer & Nohria’s article, Cracking the Code of Change which introduces this idea of Theory (E)conomic and (O)rganizational approaches to change and a discussion of how to best manage this tension. 

Theory E change is hard approach driven by shareholder returns and characterized by economic incentives and organizational restructuring. 

Theory O change is a soft approach driven by cultural & capability development through learning, teamwork and communication. When this approach is used it is usually out of a long held commitment to employees. 

The US favors E while the EU and Asia tend to favor O, or so generalizes the authors. 

In the case of entrepreneurs, the authors suggest that entrepreneurs can be classified as driven by cash out (E) or culture building (O). 

You see the taoistic interplay of opposing forces here already, yes? You also discern the tension between the needs to be loyal to shareholders and employees.

In reality, all companies must use a mix of these approaches. The trick is to balance these to fit the context leadership teams finds themselves in, and to do so avoiding the confusing perception of being "nurturing cutthroats”. 

The authors suggests two approaches to E/O execution, sequencing and simultaneous. 

Sequencing is an approach for mixing these approaches over time, and with requisite storytelling to assure that all affected are aware of where in the E/O cycle the organizational culture is operating towards a longer term change objective. It seems that such sequencing would allow a critical mass of focus on one approach to another at any given time with out sacrificing the benefits of either approach over time. The authors suggest that E be sequenced before O as the reverse carries too great a price of employee disaffection. This said, sequencing has the disadvantages of taking a long time and possibly across multiple leadership regimes.

Given these disadvantages of sequencing, the authors offer a faster but riskier and potentially more successful, approach of simultaneous E/O action which requires:

1. embracing this paradox in goal setting
2. setting direction from above while engaging from below so that command and control play well with the grassroots. (Sounds like a Battle of the Bands.)
3. focusing simultaneously on the hard and soft elements of change though in proper sequence
4. allowing & rewarding experimentation & evolution
5. rewarding people to reinforce, not drive, change

These simultaneous dynamics, managed well, result in an environment of candor, listening, debating and learning which has a better chance of building trust & commitment to change. 

This article so resonated with me as it described this tension of opposites, and management of a middle way, which has often been hidden in plain sight throughout my career as a change leader. It provides an orderly paradigm to so many seemingly chaotic regimes I have witnessed and been a part of. Fortunately, such blindness has not killed all success and leave me looking forward to even more success in the future now I am educated. 

As an after note, I see how these approaches are applicable not only to organizations but also to individuals having applications for my leadership development as well as that of my leadership coaching. 

I hope this "taoistic" a-ha is as helpful to you and your ongoing change activities as it was for me.