Business Case Studies, Executive Interviews, Michael Beer on Change Management

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Executive Interviews: Interview with Michael Beer on Change Management
June 2007 - By Dr. Nagendra V Chowdary

Michael Beer
Cahners-Rabb Professor of Business Administration,
Emeritus at the Harvard Business School,
Chairman and co-founder of TruePoint a research based consultancy.

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    In the field of change, we have not learned to handicap change efforts. We do not rate them in terms of difficulty. Consider the stunning success of Archie Norman at Asda in transforming this UK grocery chain as compared to the abject failure of John Scully in transforming Apple Computer into a major player in the computer market in the early 1990s. Norman's challenge was less difficult because he was repositioning Asda as a low-cost value grocer that it had been. His predecessors had decided to make it a high-end grocery chain. None of the stores nor the culture and skills needed for a high-end grocery chain was aligned with their new strategy.

    At the same time, Norman was very skilful and selected good change strategies (no top-down programs, a focus on unit-by-unit change and an integration of E and O). On the other hand, John Scully's efforts to make Apple Computer a major in the growing computer business of the 1990s required major changes in strategy, culture, skills, organizational structure and management processes for which there was no experience and history. Apple had an innovative structure unsuited to becoming a mass market producer of business computers. Scully also failed because, unlike Norman, he employed a poor change strategy (focus on financial control and structure, and little focus on learning and change process that would create fundamental change in the culture).

  • What is Code of Change all about? What does it take to crack the code of change?
    The "Code of Change" was a convenient phrase for framing a challenge that transformation leaders faced; that challenge of integrating two equally necessary and paradoxical change strategies. It seemed to us there were two fundamental codes of change, each with different basic underlying assumptions about change. Many failures to develop sustained improvements in performance and commitment were due to failures to manage this paradox. E-driven changes achieve early financial returns but do not build an organization capable of sustained performance. O-strategies build an organization and a strong culture, but unless financial returns meet the expectations of investors, the leader will be unable to show short-term financial results needed to allow the Many failures to develop sustained improvements in performance and commitment were due to failures to manage this paradox. E-driven changes achieve early financial returns but do not build INTERVIEW 6 time to build sustained high commitment and performance.

  • In "Cracking the Code of Change", you have outlined two theories, Theory E ("the hard approach") and Theory O ("the soft approach"). What do these two theories stand for? What are their implications for organizations? What do the letters 'E' and 'O' signify?
    Theory E strategies for change focus on improving the economic performance of the firm. This involves portfolio management buying and selling businesses based on their prospects and right-sizing the business through layoffs and outsourcing etc. Theory O strategies focus on building a strong and effective organization and culture, one that is aligned with strategy, has high levels of commitment and is adaptive all necessary for short and long term success. While you refer to theory O as the soft approach, I am not sure that fully captures the difficult and hard things that must be done to accomplish organizational change these involve structural changes, fundamental change in standards of behavior that require confronting people who do not align their behavior with the new direction.

  • What are the circumstances in which 'Theory E' has more relevance? When would 'Theory O' make more sense?
    Theory E is necessary if the firm has over time, grown fat or added unrelated businesses that are not synergistic. An E strategy typically is the first step that a new CEO must take to be responsive to pressures from capital markets. Theory O strategies are aimed at creating a great organization with the capacity for sustained performance, commitment and ongoing learning and change. E strategies are easy, says Norman at Asda, because they are obvious. In a turnaround, both E and O are needed. A firm that has ok performance, but not great performance, requires more O than E, though a mix of both may always be necessary.

1. Change Management Case Studies
2. ICMR Case Collection
3. Case Study Volumes

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