Framework 20 Theories E and O
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Introduction
Most of the failures in organisational transitions happen because, in the rush to change organisations, managers become immersed in an alphabetical soup of initiatives. They lose focus and become mesmerised by this proliferation of recommendations. To improve the chance of success and to reduce the human carnage, it is imperative that executives understand the nature and process of corporate change much better.
Theory E
Theory E Change Strategies, or the hard approach, usually involve the heavy use of economic incentives, drastic layoffs, downsizing, and restructuring. Shareholder value is the only legitimate measure of corporate success. In general, employees distrust organisations that use this theory of change. Thus it is hard for management associated with Theory E to credibly change to applying Theory O.
Theory O
Theory O Change Strategies, or the soft approach, are geared toward building up the corporate culture and human capability through individual and organisational learning - the process of changing, obtaining feedback, reflecting, and making further changes. This involves elements such as employee behaviours, attitudes, capabilities, commitment, trust, co-ordination, communications and creativity. The organisation's ability to learn from its experiences is a legitimate yardstick of corporate success. On the other hand, management using this theory can find it hard to make the tough decisions needed for fundamental structural changes
Combining Theory O & E
The art is to combine the 2 and handle the tension between the 2 by sequencing them. Jack Welsh in GE did this by initially "getting rid" of units and massively downsizing, ie Theory E. This was followed by organisational initiatives to change GE's culture, ie boundary-less with feedback and open communications, ie Theory O. Sequencing change can take time, eg 2 decades for GE, and could require 2 contrasting styles of CEOs. Many turn-around managers do not survive restructuring as they are often inflexible and are distrusted because of earlier Theory E ruthlessness.
This table summarises theories E and O, and a combination (simultaneous use) of the 2 (not sequencing):
|
Dimensions of change |
Theory E |
Theory O |
Theory E & O combined |
|
Goals |
Maximize shareholder value |
Develop organisational capabilities |
Explicitly embrace the paradox between economic value and organisational capabilities, ie open and trusting co-operative culture |
|
Leadership |
Manage change from the top down |
Encourage participation from the bottom up |
Set direction from the top and engage the people below |
|
Focus |
Emphasize structure and systems |
Build-up corporate culture: employees' behavior and attitudes. Structure changes follow culture changes |
Focus simultaneously on the hard (structures and systems) and the soft (corporate culture) |
|
Process |
Plan and establish programs. Revolution. One change leader |
Experiment, innovate and evolve. Many change leaders |
Plan for spontaneity |
|
Reward system |
Motivate through financial incentives like stock options |
Motivate through commitment - use pay as fair exchange and to supplement, ie skill-based pay system & corporate-wide gain-sharing |
Use incentives to reinforce change but not to drive it |
|
Use of consultants |
Consultants analyse problems and shape solutions |
Consultants support management in shaping its own solutions |
Consultants are expert resources who empower employees |
(source: Michael Beer, 2000)