The Idea in Brief
Here’s the brutal fact: 70% of all change initiatives fail. Why? Managers flounder in an alphabet soup of change methods, drowning in conflicting advice. Change efforts exact a heavy toll—human and economic—as companies flail from one change method to another.
To effect successful change, first grasp the two basic theories of change:
1) Theory E change emphasizes economic value—as measured only by shareholder returns. This “hard” approach boosts returns through economic incentives, drastic layoffs, and restructuring. “Chainsaw Al” Dunlop’s firing 11,000 Scott Paper employees and selling several businesses—tripling shareholder value to $9 billion—is a stunning example.
2) Theory O change—a “softer” approach—focuses on developing corporate culture and human capability, patiently building trust and emotional commitment to the company through teamwork and communication.
Then, carefully and simultaneously balance these very different approaches. It’s not easy. Employees distrust leaders who alternate between nurturing and cutthroat behavior. But, done well, you’ll boost profits and productivity, and achieve sustainable competitive advantage.
The Idea in Practice
The UK grocery chain, ASDA, teetered on bankruptcy in 1991. Here’s how CEO Archie Norman combined change Theories E and O with spectacular results: a culture of trust and openness—and an eightfold increase in shareholder value.
The new economy has ushered in great business opportunities—and great turmoil. Not since the Industrial Revolution have the stakes of dealing with change been so high. Most traditional organizations have accepted, in theory at least, that they must either change or die. And even Internet companies such as eBay, Amazon.com, and America Online recognize that they need to manage the changes associated with rapid entrepreneurial growth. Despite some individual successes, however, change remains difficult to pull off, and few companies manage the process as well as they would like. Most of their initiatives—installing new technology, downsizing, restructuring, or trying to change corporate culture—have had low success rates. The brutal fact is that about 70% of all change initiatives fail.
