Effective Organizational Change Management - Term Paper Example

Running Head: Managing Change Managing Change [Institute’s Managing Change Introduction In the olden times, the largest unit of an organization was a village. Each village practiced good governance and equal rights. Humans later on learned the concepts on barter, exchange, loaning, and trading. Humans have continuously evolved into intellectual individuals creating concepts such as currency and money value. Villages became communities while communities moved into a larger group by cities and thus making a once divided world into one goal-oriented and united world (Luecke, pp. 40-45, 2003). With the rise of civilization, businesses rose as well; derivatives from sole, partnership and corporations to this date. With the countless number of organizations worldwide, companies continue to invest on research and development for their organizations to change their perspective and obtain their goals. It is true that the only eminent thing in this world is change. People adapt, submit or contradict with change. There are many implications that we encounter when change occurs; management must view matters seriously and make critical decisions for the organization’s sustainability. The objectives of this paper is to thoroughly look into Theory E and Theory O in terms of managing change, to provide a bird’s eye view of the differences and other key notable details that help organizations transition smoothly (Johnson, pp. 39-44, 2002). It will also discuss how Theory E and Theory O can aid top management at making critical decisions and providing a detailed analysis of these two approaches to change. The scope of this paper will be focus on the experience of organizations that fostered these two approaches, how have companies and organizations come to employ either or both theories but not only limited to these. The flow of the paper will start with a brief description of each theory including its characteristics and the key differences of both theories in the field of management. Based on a new research, Theory E and O were relatively new findings as researchers (Cummings, pp. 23-25, 2008) have observed various companies practicing either Theory E or O or both of them. There are many approaches used in managing change; however, ‘Michael Beer’ and ‘Nitin Nohria’ are two researchers who have successfully identified two types of change theories that may have geared management in change initiative (Hoelbeche, pp. 151-154, 2006). Two Approaches in Managing Change As recent studies showed, researchers have identified two types of approaches commonly used by management in initiating change. The first approach is Theory E, referred to as the hard approach and the second approach is Theory O, referred to as the soft approach (Holbeche, pp. 56-59, 2006). Below are detailed descriptions of both theories. Aside from its general description, I have discussed each theory with keynotes on its basic characteristics in terms of goal, participants, type of leadership, the need for external participants etc. Theory E Theory E concentrates on higher shareholder value in order to finance the spine of the organization. Theory E focuses its wits on finance and economies of scale, setting targets based on the financial performance of the company and bringing about change. The authors, Michael Beer and Nitin Nohria, view Theory E as the “hard approach” since this theory is brought to by top level management with the partnership of external participants who serve as economic advisers to top level management (Pietersma, pp. 59-66, 2008). Theory E usually triggers when there is a sudden downfall on the financial market. Companies start to eradicate short-term cash flows and slow down low-level employees of their benefits and bonuses. Top management takes very keen observations on the various functional areas of their company. If a department is not producing any tangible results, top management may decide to downsize those unproductive departments or reallocate the budget to a more productive unit (Harvard Business Press, pp. 26-27, 2005). Theory E, labeled as a hard approach because its ways of initiating change are ruthless. A good example would be the Great Depression in the 1990s. A good example would be the cost cut efforts made by Jack Welch during 9184 where he reduced General Electronics’ employee population by 25%. The Theory E was widespread in the US during the 1990s when the great depression forced many American companies to use drastic measures to increase the performance of their company (Kippenberger, pp 17-21, 2000). To further expound on this topic, I have identified the various characteristics of Theory E. The first characteristic I have looked into would be the purpose of Theory E. The purpose of Theory E weighs heavily on the creation of a higher shareholder value and economic value of the company (Kippenberger, pp. 17-21, 2000). Theory E envisions its functions on a long-term perspective. It believes that the business is ongoing and shall remain so for the years to come. The second characteristic is the type of leadership implemented by Theory E (Quinn, pp. 65-68, 1996). More often than not, the CEO or chief executive officer is the initiator and the authoritative figure in the change. The company denies permission to senior, middle and low level management to participate in the decision making of the transitioning. However, the CEO sometimes seeks help from external participants such as consultants that leads us to our third characteristic. The level of participation involved by internal members of the organization is zero but external participants are welcome upon the discretion of the CEO or head of the transitioning process. The company hires external participants such as business consultants, legal counselors, economic advisers, and accountants to aid him in making the proper transition. There is a need to hire external participants because the CEO may want to get the perspective of someone outside the company who can give a better view of the company’s standing impartially. Sometimes, external participants possess more experience knowledge and resources making them viable to hire. Another characteristic is the project plan of the CEO for its company’s shareholders. Changing the practices of the company will be a big step and investor will be scared to invest on the company or the decrease of its share price, therefore, the CEO must give assurance by formulating a project proposal to ensure that the interest of the shareholders is at the top of their priority list. Theory E is famous as the hard approach because there are only a few leaders who are not afraid to step up and lead the change (Jumara, pp. 98-99, 2005). Lastly, Theory E changes not only its intangible assets but also its tangible assets such as Raw materials, office equipment, learning tools and stagnant files. Theory E wants to eradicate traces of the old unproductive system and replace it with the new proposed system. Theory O The soft approach and counterpart of Theory E is Theory O. Theory O aims to increase company performance by motivating employees and providing incentives. Theory O’s primary concern is to pursue organizational development. Companies that employ Theory O as its change strategy have experienced that boosting employee loyalty and culture are key determinants in increasing their company performance (Kippenberger, pp. 17-21, 2000). Unlike Theory E, Theory O’s reach is not as widespread as Theory E’s. According to research, Europe and Japan are two of the largest countries that employ Theory O change strategy. In these countries, employees feel a great sense of commitment with their work. The employees established a great working relationship with each other. Most of the companies that employ Theory O attempt to revitalize their company’s poor performance and create a gateway for learning and providing an area for personal development (Paris, pp. 20-29, 2001). As beautiful as it may sound, Theory O requires a lot of hard work needing high employee participation, new research on up to date techniques used in this theory. Let us look at the various characteristics found in Theory O. The first characteristic of Theory O is its purpose. The purpose of Theory O is to create an organizational culture that provides learning and foster a wide range database of employees. As mentioned earlier, only a few countries want to try out this soft approach since it requires heavy investment of resources and research (Young, pp. 33-38, 1997). However, many companies, such as Hewlett-Packard have employed this theory and have harvested great rewards from it. The second characteristic of Theory O is its level of participation. Theory O requires almost the entire population of the company or managers to fully implement the change strategy without major problems. Another characteristic is the leadership used in this approach. Theory O uses participative leadership. “Participative leadership, in my point of view, is the involvement of senior, middle, low-level management and rank-and-file employees to the decision making process depending on the discretion of the initiator” (Ferozsons, pp. 38-39, 2006). One characteristic also is the motivation provided by the approach. Companies employing this type of approach make use of financial incentives per individual performance basis. This type of motivation boosted up teamwork and company performance. Some companies also offered non-cash benefits such as food allowance, transportation allowance, medical allowance and free health check-ups. Theory O also utilizes external participants (Burnes, pp. 67-78, 2009). According to Kippenberger (pp. 17-21, 2000), the company hires external participants as consultants only and do not participate in the planning and decision making process. Another characteristic of Theory O is its nonsystematic manner. Theory O does not provide managers with a proposed plan of action. Managers view it as something that evolves day by day as the company moves forward. Comparison between Theory E and Theory O Both theories differ from each other. Let me begin by explaining the similarities of the theories. First, the goal of these two theories is to boost company performance. Both theories want what is best for the company. Another similarity is their option of seeking external help from consultants. Although these two theories possess these similarities, they both differ in the way they obtain their goals. For the theory differences, there are more to mention. First, Theory E employs a dictatorship type of leadership wherein the CEO is the primary key person. Theory O believes in participative leadership. Theory O believes that every member of the organization is a vital key player in this strategy for change. Second, both theories differ from the level of participation needed by the company. Theory E does not require any participation from its managers while Theory O may require some of its management team members to be immersed in the planning and decision making process (Leban, pp. 58-62, 2007). This second difference is the result of the type of leadership also employed by the theory. Since Theory E runs with authoritarian style of leadership, only the primary controller shall make decisions. Theory O runs on participative leadership that is why managers are more involved in the planning stage. Another difference would be the focus on organizational development. Theory E does not give chance to the company’s organizational design. Theory E takes out the entire system and implements a new one in its place. Theory O believes in the phase-by-phase reconstruction of the organizational structure. One of the differences is financial incentive. Theory E does not give out incentives because its primary purpose is to cut down on unnecessary expenses and short-term cash flows (Carnall, pp. 39-57, 2007). Again, Theory E wants to increase shareholder value and eliminating non-productive cash flows. On the other hand, Theory O gives out incentives to its employees to promote a sense of team and family into each employee. Although financial incentive may be costly, it is worth the expenditure since employees give the extra stretch to reach the company’s goals. Another difference is the hiring of external participants. In theory E, external participants become controllers and drivers for change. The controllers along with the CEO are deeply involved in the decision making process. For theory O, external participants like consultants only provide advice to the decision making team. The consultants do not make any decisions in implementing changes in the company. One of the minor differences would also be the duration of the theories. Theory E believes in increasing shareholder value but only for a limited period while Theory O envisions the company more on the long-term goal. These various differences provide us of a glimpse as to why these two theories vary greatly from each other. Although there is more approaches that can help companies manage change successfully, almost all managers prefer these two evident theories. Kippenberger argues that there is a possibility that these two theories can provide managers with a better change strategic plan. What do we get if we integrate theory E and theory O? By employing theory E first followed by theory O, a company can reach its maximum potential. Just like what Jack Welch did for General Electronics’ company. If we employ these two theories, companies can increase shareholder value and create a functioning workplace worth working in. Therefore, my recommended plan of action for companies would be to employ the integration of these two theories. As people always say, “two heads are better than one” (Kippenberger, pp. 17-21, 2000). References Beer, M. & Nohria, N. (2000). Breaking the Code of Change. Springer. Burnes, Bernard. (2009). Managing Change. Prentice Hall. Carnall, Colin A. (2007). Managing Change in Organizations. Prentice Hall. Cummings, Thomas G. (2008). Organization Development & Change. Cengage Learning. Ferozsons. (2006). Managing Change in Different Organizations. Ferozsons. Harvard Business School Press. (2005). Managing Change to Reduce Resistance. Harvard School Business Press. Harvard Business School Press. (2005). The Essentials of Managing Change and Transition. Harvard Business Press. Holbeche, L. (2006). Understanding Change: Theory, Implementation and Success. Butterworth-Heinemann. Holbeche, Linda. (2006). Understanding Change. Butterworth-Heinemann. Johnson, Gerry. (2002). Exploring Corporate Strategy. Prentice Hall. Jumara, John J. (2005). A case study of the Influence of Organization Theory on Organizational Change. University of Missouri-Kansas City Press. Kippenberger, T. (2000). “Two Contrasting Theories of Change: Theory E and Theory O. The Antidote. Volume 5, pp. 17-21 Leban, Bill. (2007). Managing Organizational Change. 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