Organisational Change Management Volume 1

Framework 20 Theories E and O

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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


Maximize shareholder value

Develop organisational capabilities

Explicitly embrace the paradox between economic value and organisational capabilities, ie open and trusting co-operative culture


Manage change from the top down

Encourage participation from the bottom up

Set direction from the top and engage the people below


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)


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)

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