Out of sync

Companies that tend to hold on to their past successes, assumptions and theories for too long find it difficult to change, says a new book

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What to change usually (but not always) begins when the organization's leaders are confronted with some event or shift in the organization's external environment. Examples are an economic downturn, the bursting forth of a new technology (e.g., from analog to digital), an announcement of a merger between two competitor organizations, the passage of new legislation, or some new mandate by a political leader, as in the case of Prime Minister Thatcher's decision to change British Airways from a government-owned airline to a public-owned corporation. Such modifications in the organization's external environment then cause senior executives and their constituents to consider what to change about their organization to meet the new challenges and to survive as an organization. This may mean a change as significant as changing the organization's mission, purpose, and raison d'etre or as straightforward and less complicated as discontinuing certain products or services without changing the overall mission and purpose.

A useful perspective on what to change comes from the management guru and business and organizational observer and philosopher Peter Drucker. In his 31st article written for the Harvard Business Review, Drucker (1994) argued that highly successful companies that do the right things often end up doing them "fruitlessly," and decline ensues. This "paradox," as Drucker called it, set the stage for his articulation of what he labelled "the theory of the business." This theory is a set of assumptions about how a given business can succeed in a particular environment and marketplace. According to Drucker, these assumptions "shape any organization's behavior, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results". Notice that in this quotation, he used the word what three times. In times of trouble for a business, Drucker was arguing that what to change is the theory of the business - the fundamental beliefs and assumptions about what causes what and how success is defined. Companies therefore get into trouble when "the assumptions on which the organization has been built and is being run no longer fit reality" (Drucker, 1994, p. 95). Drucker cited IBM, General Motors, and Deutsche Bank as examples.

According to Drucker (1994), a theory of the business has three parts:

1. Assumptions about the external environment of the organization, such as society and its structure, the market, the customer, and technology.

2. Assumptions about the organization's mission, purpose, and raison d'etre.

3. Assumptions about the organization's core competencies, that is, the skills and abilities required to accomplish the mission.

Drucker (1994) followed with his four specifications of, or criteria for, a valid theory of the business:

1. The three assumptions must fit reality.

2. All three assumptions must fit or be congruent with one another.

3. The theory of the business must be known and understood by all organizational members.

4.The theory needs to be tested constantly.

Although Drucker (1994) did not label his ideas as such, it should be clear that he was addressing transformational or discontinuous change. His argument was that tinkering with the organization when its theory of the business is out of sync with what is going on in the external environment will inevitably lead to business failure. Also implied in Drucker's thesis is that organizations that have experienced considerable success in the past (his examples of IBM and General Motors) tend to hold on to their assumptions and theory entirely too long, that is, persisting when reality has already changed.

A study by Audia, Locke, and Smith (2000) supports this implication quite dramatically. Moreover, the title of their article is "The Paradox of Success." Their research consisted of two studies. One was archival, based on data from the airline and trucking industries over a 10-year period, and the other was a laboratory experiment. Their studies showed that greater past success led to greater strategic persistence after a radical environmental change, and such persistence induced performance declines. The laboratory study also demonstrated that dysfunctional persistence is due to greater satisfaction with past performance, more confidence in the correctness of current strategies, higher goals and self-efficacy, and less seeking of information from critics, (p. 837)

In summary, the content of organization change can vary. It can be mission and strategy, culture, structure, or systems. We can apply the discontinuous-continuous change distinction to the content. With discontinuous change, our content concerns more transformational factors, such as the external environment, mission, purpose, and strategy-or, in Drucker's (1994) language, the fundamental assumptions or theory of the business.

ORGANIZATION CHANGE: THEORY AND PRACTICE
AUTHOR: W Warner Burke
PUBLISHER: SAGE Publications
PRICE Rs 395
ISBN: 9788132110149

Reprinted by permission of the publisher. Excerpted from Organization Change: Theory and practice. Copyright Sage. All rights reserved.