WK1D1 Change Walden
Cracking the Code of
Until now, change in business has been
an either-or proposition: either quickly
create economic value for shareholders
or patiently develop an open, trusting
corporate culture long term. But new
research indicates that combining these
"hard"and "soft"approaches can radically
transform the way businesses change.
T \ HE NEW ECONOMY has ushered in great businessopportunities -and great turmoil. Not since the IndustrialRevolution have the stakes of dealing with change heen 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, downsiz- ing, restructuring, or trying to change corporate culture-have had low success rates. The hrutal fact is that about 70% of all change initiatives fail.
In our experience, the reason for most of those failures is that in their rush to change their organizations, managers end up immersing themselves in an alphabet soup of initia- tives. They lose focus and become mesmerized by all the advice available in print and on-line about why companies should change, what they should try to accomplish, and how they should do it. This proliferation of recommendations often leads to muddle when change is attempted. The result is that most change efforts exert a heavy toll, both human and eco- nomic. To improve the odds of success, and to reduce the hu- man carnage, it is imperative that executives understand the nature and process of corporate change much hetter. But even that is not enough. Leaders need to crack the code of change.
by Michael Beer and Nit±i Nohria
HARVARD BUSINESS REVIEW May-func 2000 133
Cracking the Code of Change
For more than 40 years now, we've been studying the nature of corporate change. And although every busincss's change initiative is unique, our research suggests there are two archetypes, or theories, of change. These archetypes are based on very differ- ent and often unconscious assumptions by senior executives- and the consultants and academics who advise them- about why and how changes should be made. Theory E is change based on eco- nomic value. Theory O is change based on organi- zational capability. Both are valid models; each theory of change achieves some of management's goals, either explicitly or implicitly. But each the- ory also has its costs -often unexpected ones.
Theory E change strategies are the ones that make all the headlines. In this "hard" approach to change, shareholder value is the only legiti- mate measure of corporate success. Change usually involves heavy use of economic in- centives, drastic layoffs, downsizing, and restructuring. E change strate- gies are more common than O change strategies among companies in the
United States, where financial markets push cor- porate boards for rapid turnarounds. For instance, when William A. Anders was brought in as CEO of General Dynamics in 1991, his goal was to maxi- mize economic value-however painful the reme- dies might be. Over the next three years, Anders reduced the workforce hy 71,000 people-44,000 through the divestiture of seven husinesses and 27,000 through layoffs and attrition. Anders em- ployed common E strategies.
Managers who subscrihe to Theory O helieve that if they were to focus exclusively on the price of their stock, they might harm their organiza- tions. In this "soft" approach to change, the goal is to develop corporate culture and human capability through individual and organizational learning- the process of changing, obtaining feedback, reflect- ing, and making further changes. U.S. companies
Theory E change strategies usually involve heavy use of economic incentives, drastic layoffs, down- sizing, and restructuring. Shareholder value is the only legitinnate measure of corporate success.
that adopt O strategies, as Hewlett-Packard did when its performance flagged in the 1980s, typically have strong, long-held, com- mitment-hased psychological contracts with their employees.
Managers at these companies are likely to see the risks in breaking those contracts. Because they place a high value on employee commitment, Asian and European businesses are also more likely to adopt an O strategy to change.
Few companies subscribe to just one the- ory. Most companies we have studied have used a mix of hoth. But all too often, man- agers try to apply theories E and O in tandem without resolving the inherent tensions he- tween them. This impulse to comhinc the strategies is directionally correct, but theo- ries E and O are so different that it's hard to manage them simultaneously-employees distrust leaders who alternate hetween nur- turing and cutthroat corporate behavior. Our research suggests, however, that there is a way to resolve the tension so that husinesses can satisfy their shareholders while building viable institutions. Companies that effec- tively comhine hard and soft approaches to change can reap hig payoffs in profitahility and productivity. Those companies are more likely to achieve a sustainable competitive
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Cracking the Code of Change
advantage. They can also reduce the anxiety that grips whole societies in the face of cor- porate restructuring.
In this article^ we will explore how one company successfully resolved the tensions hetween E and O strategies. But before we do that, we need to look at just how different the two theories are.
A Tale of Two Theories To understand how sharply theories E and O differ, we can compare them along several key dimensions of corporate change: goals, leadership, focus, process, reward system, and use of consultants. (For a side-by-side comparison, see the exhibit "Comparing Theories of Change.") We'll look at two com- panies in similar businesses that adopted almost pure forms of each archetype. Scott Paper successfully used Theory E to en- hance shareholder value, while Champion International used Theory O to achieve a complete cultural transformation that in- creased its productivity and employee com- mitment. But as we will soon observe, both paper producers also discovered the limi- tations of sticking with only one theory of change. Let's compare the two companies' initiatives.
Theory O change strategies are geared toward building up the corporate culture: employee behaviors, attitudes.
champion's reform effort couldn't have been more dif-
capabilities, and commitment.The organization's ability ferem. CEO Andrew sigler ac- to learn from its experiences is a legitimate yardstick of knowiedged that enhanced eco- corporate success.
Goals. When Al Dunlap assumed leadership of Scott Paper in May 1994, he immediately fired 11,000 employees and sold off several businesses. His determination to restructure the heleaguered company was almost monomaniacal. As he said in one of his speeches: "Shareholders are the num- ber one constituency. Show me an annual report that lists six or seven constituencies, and I'll show you a mismanaged company." From a shareholder's perspective, the results of Dunlap's actions were stunning. In just 20 months, he managed to triple shareholder returns as Scott Paper's market value rose from about $3 biUion in 1994 to about $9 bil- lion by the end of 1995. The fmancial community applauded his efforts and hailed Scott Paper's ap- proach to change as a model for improving share- holder returns.
nomic value was an appropriate target for management, but he
believed that goal would be best achieved hy trans- forming the behaviors of management, unions, and workers alike. In 1981, Sigler and other managers launched a long-term effort to restructure corporate culture around a new vision called the Champion
Michael Beer is the Cahners-Robb Professor of Business Administration at Harvard Business School in Boston. He can be reached at mbeer@hbs.edu. Nitin Nohria is the Richard P. Chapman Professor of Business Admin- istration at Harvard Business School and chairs the school's Organizational Behavior Unit. He can be reached at nnohria@hbs.edu. The authors' book Breaking the Code of Change will be published by Harvard Business School Press in October 2000.
To discuss this article, join HBR's authors and readers in the HBR Forum at www.hhr.org/forum.
HARVARD BUSINESS REVIEW May-June 2000 135
Cracking the Code of Change
Way, a set of values and principles designed to build up the competencies of the workforce. By improv- ing the organization's capabilities in areas such as teamwork and communication, Sigler believed he could hest increase employee productivity and thereby improve the bottom line.
Leadership. Leaders who subscribe to Theory E manage change the old-fashioned way: from the top down. They set goals with little involvement from their management teams and certainly without in- put from lower levels or unions. Dunlap was clearly the commander in chief at Scott Paper. The execu- tives who survived his purges, for example, had to agree with his philosophy that shareholder value was now the company's primary objective. Nothing made clear Dunlap's leadership style better than the nickname he gloried in: "Chainsaw Al."
By contrast, participation (a Theory O trait) was the hallmark of change at Champion. Every effort was made to get all its employees emotionally committed to improving the company's perfor- mance. Teams drafted value statements, and even the industry's unions were hrought into the dia- logue. Employees were encouraged to identify and solve prohlems themselves. Change at Champion sprouted from the bottom up.
Focus. In E-type change, leaders typically focus immediately on streamlining the "hardware" of the organization-the structures and systems. These are the elements that can most easily be changed from the top down, yielding swift financial results. For instance, Dunlap quickly decided to outsource many of Scott Paper's corporate functions - hene- fits and payroll administration, almost all of its man- agement information systems, some of its tech- nology research, medical services, telemarketing, and security functions. An executive manager of a
Scott Paper's CEO trebled shareholder returns but failed to build the capabilities
needed for sustained competitive advantage -commitment, coordination,
communication, and creativity.
glohal merger explained the E rationale: "I have a [profit] goal of $176 million this year, and there's no time to involve others or develop organizational capability."
By contrast. Theory O's initial focus is on huild- ing up the "software" of an organization-the cul- ture, behavior, and attitudes of employees. Through- out a decade of reforms, no employees were laid off at Champion. Rather, managers and employees
Comparing Theories of Change
Our research has shown that all corporate transformations can be compared along the six dimensions shown here. The table outlines the differences between the E and 0 archetypes and illustrates what an integrated approach might look like.
were encouraged to col- lectively reexamine their work practices and be- haviors with a goal of in- creasing productivity and quality. Managers were replaced if they did not conform to the new phi- losophy, but the overall firing freeze helped to cre- ate a culture of trust and commitment. Structural change followed once the culture changed. Indeed, hy the mid-1990s. Cham- pion had completely reor- ganized all its corporate functions. Once a hierar- chical, functionally orga- nized company. Cham- pion adopted a matrix structure that empow- ered employee teams to focus more on customers.
Process. Theory E is ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ predicated on the view that no battle can be won without a clear, compre- hensive, common plan of action that encourages in- ternal coordination and inspires confidence among customers, suppliers, and investors. The plan lets leaders quickly motivate and mohiiize their busi- nesses,- it compels them to take tough, decisive ac- tions they presumahly haven't taken in the past. The changes at Scott Paper unfolded like a military battle plan. Managers were instructed to achieve specific targets by specific dates. If they didn't ad- here to Dunlap's tightly choreographed marching orders, they risked being fired.
Meanwhile, the changes at Champion were more evolutionary and emergent than planned and pro- grammatic. When the company's decade-long re- form hegan in 1981, there was no master blueprint. The idea was that iimovative work processes, val- ues, and culture changes in one plant would he adapted and used hy other plants on their way through the corporate system. No single person, not even Sigler, was seen as the driver of change. In- stead, local leaders took responsibility. Top man- agement simply encouraged experimentation from the ground up, spread new ideas to other workers, and transferred managers of innovative units to lag- ging ones.
Reward System. The rewards for managers in E-type change programs are primarily financial. Em- ployee compensation, for example, is linked with
136 HARVARD BUSINESS REVIEW May-June 2000
Cracking the Code of Change
Dimensions of Change
Goals
Leadership
Focus
Process
Reward System
Use of Consuitants
Theory E
maximize shareholder vaiue
manage change from the top down
emphasize structure and systems
pian and establish programs
motivate through financial incentives
consultants analyze problems and shape solutions
Theory 0
develop organizational capabilities
encourage participation from the bottom up
buiid up corporate culture: employees' behavior and attitudes
experiment and evolve
motivate through commitment-use pay as fair exchange
consultants support management in shaping their own solutions
Theories E and 0 Combined
explicitly embrace the paradox between economic value and organizational capability
set direction from the top and engage the people below
focus simultaneously on the hard (structures and systems) and the soft (corporate culture)
pian for spontaneity
use incentives to reinforce change but not to drive it
consultants are expert resources who empower empioyees
financial mcentives, mainly stock options. Dun- lap's own compensation package-which ultimately netted him more than $ioo million-was tightly linked to shareholders' interests. Proponents of this system argue that financial incentives guarantee that employees' interests match stockholders' in- terests. Financial rewards also help top executives feel compensated for a difficult job-one in which they are often reviled hy their onetime colleagues and the larger community.
The O-style compensation systems at Champion reinforced the goals of culture change, hut they didn't drive those goals. A skills-hased pay system and a corporatewide gains-sharing plan were in- stalled to draw union workers and management into a community of purpose. Financial incentives were used only as a supplement to those systems and not to push particular reforms. While Champion did offer a companywide bonus to achieve husiness goals in two separate years, this came late in the change process and played a minor role in actually fulfilling those goals.
Use of Consultants. Theory E change strategies often rely heavily on external consultants. A SWAT team of Ivy League-educated MBAs, armed with an arsenal of state-of-the-art ideas, is brought in to find new ways to look at the business and manage it. The consultants can help CEOs get a fix on urgent issues and priorities. They also offer much-needed
political and psychological support for CEOs who are under fire from financial markets. At Scott Pa- per, Dunlap engaged consultants to identify many of the painful cost-savings initiatives that he subse- quently implemented.
Theory O change programs rely far less on con- sultants. The handful of consultants who were in- troduced at Champion helped managers and work- ers make their own husiness analyses and craft their own solutions. And while the consultants had their own ideas, they did not recommend any cor- porate program, dictate any solutions, or whip any- one into line. They simply led a process of discov- ery and learning that was intended to change the corporate culture in a way that could not be fore- seen at the outset.
In their purest forms, hoth change theories clearly have their limitations. CEOs who must make diffi- cult E-style choices understandably distance them- selves from their employees to ease their own pain and guilt. Once removed from their people, these CEOs begin to sec their employees as part of the problem. As time goes on, these leaders become less and less inclined to adopt O-style change strategies. They fail to invest in building the com- pany's human resources, which inevitably hollows out the company and saps its capacity for sustained performance. At Scott Paper, for example, Dunlap trebled shareholder returns but failed to build the
HARVARD BUSINESS REVIEW May-June 2000 137
Cracking the Code of Change
capabilities needed for sustained competitive ad- vantage-commitment, coordination, communica- tion, and creativity. In 1995, Dunlap sold Scott Pa- per to its longtime competitor Kimberly-Clark.
CEOs who embrace Theory O find that their loyalty and commitment to their employees can prevent them from making tough decisions. The temptation is to postpone the bitter medicine in the hopes that rising productivity will improve the business situation. But productivity gains aren't enough when fundamental structural change is re- quired. That reality is underscored by today's global financial system, which makes corporate perfor- mance instantly transparent to large institutional
CEOs who embrace Theory O find that their loyalty and commitment
to their employees can prevent them from making tough decisions.
shareholders whose fund managers are under enor- mous pressure to show good results. Consider Champion. By 1997, it had become one of the lead- ers in its industry based on most performance mea- sures. Still, newly instated CEO Richard Olsen was forced to admit a tough reality: Champion share- holders had not seen a significant increase in the economic value of the company in more than a decade. Indeed, when Champion was sold recently to Finland-based UPM-Kymmene, it was acquired for a mere 1.5 times its original share value.
Managing the Contradictions clearly, if the objective is to build a company that can adapt, survive, and prosper over the years. The- ory E strategies must somehow be combined with Theory O strategies. But unless they're carefully handled, melding E and O is likely to bring the worst of both theories and the benefits of neither. Indeed, the corporate changes we've studied that arbitrarily and haphazardly mixed E and O tech- niques proved destabilizing to the organizations in which they were imposed. Managers in those com- panies would certainly have been better off to pick either pure E or pure O strategies - with all their costs. At least one set of stakeholders would have benefited.
The obvious way to combine E and O is to se- quence them. Some companies, notably General Electric, have done this quite successfully. At GE, CEO Jack Welch began his sequenced change by imposing an E-type restructuring. He demanded
that all GE businesses be first or second in their in- dustries. Any unit that failed that test would be fixed, sold off, or closed. Welch followed that up with a massive downsizing of the GE bureaucracy. Between 1981 and 1985, total employment at the corporation dropped from 412,000 to 299,000. Sixty percent of the corporate staff, mostly in planning and finance, was laid off. In this phase, GE people began to call Welch "Neutron Jack," after the fa- bled bomb that was designed to destroy people but leave buildings intact. Once he had wrung out the redundancies, however, Welch adopted an O strat- egy. In 1985, he started a series of organizational initiatives to change GE culture. He declared that the company had to become "boundaryless," and unit leaders across the corporation had to submit to being challenged by their subordinates in open fo- rum. Feedback and open communication eventually eroded the hierarchy. Soon Welch applied the new order to GE's global businesses.
Unfortunately for companies like Champion, sequenced change is far easier if you begin, as Welch did, with Theory E. Indeed, it is highly unlikely that E would successfully follow O be- cause of the sense of betrayal that would involve. It is hard to imagine how a draconian program of layoffs and downsizing can leave intact the psy- chological contract and culture a company has so patiently built up over the years. But whatever the order, one sure problem with sequencing is that it can take a very long time; at GE it has taken almost two decades. A sequenced change may also require two CEOs, carefully chosen for their con- trasting styles and philosophies, which may create its own set of problems. Most turnaround man- agers don't survive restructuring-partly because of their own inflexibility and partly because they can't live down the distrust that their ruthlessness has earned them. In most cases, even the best- intentioned effort to rebuild trust and commitment rarely overcomes a bloody past. Welch is tbe excep- tion that proves the rule.
So what should you do? How can you achieve rapid improvements in economic value while si- multaneously developing an open, trusting corpo- rate culture? Paradoxical as those goals may appear, our research shows that it is possible to apply theo- ries E and O together. It requires great will, s k i l l - and wisdom. But precisely because it is more diffi- cult than mere sequencing, the simultaneous use of O and E strategies is more likely to be a source of sustainable competitive advantage.
One company that exemplifies the reconciliation of the hard and soft approaches is ASDA, the UK grocery chain that CEO Archie Norman took over
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Cracking the Code of Change
in December 1991, when the retailer was nearly bankrupt. Norman laid off employees, flattened the organization, and sold off losing businesses-acts that usually spawn distrust among employees and distance executives from their people. Yet during Norman's eight-year tenure as CEO, ASDA also became famous for its atmosphere of trust and openness. It has been described by executives at Wal-Mart-itself famous for its corporate culture-as being "more ^ ^ ^ ^ ^ H like Wal-Mart than we are." Let's look at how ASDA resolved the conflicts of E and O along the six main dimensions of change.
Explicitly confront the tension between E and O goals. With his opening speech to ASDA's execu- tive team - none of whom he had met-Norman indicated clearly that he intended to apply both E and O strategies in his change ef- fort. It is doubtful that any of his listeners fully understood him at the time, but it was important that he had no conflicts about recog- nizing the paradox between the two strategies for change. He said as much in his maiden speech: "Our number one objective is to secure value for our shareholders and secure the trading future of the business. I am not coming in with any magical solutions. I intend to spend the next few weeks listen- ing and forming ideas for our pre- cise direction.... We need a culture huilt around common ideas and goals that include listening, learn- ing, and speed of response, from the stores upwards. iBut] there will be management reorganization. My objective is to establish a clear focus on the stores, shorten lines of communication, and build one team." If there is a contradiction between building a high-involve- ment organization and restructur- ing to enhance shareholder value, Norman embraced it.
Set direction from the top and engage people below. From day one, Norman set strategy without expecting any participation from below. He said ASDA would adopt an everyday-low-pricing strategy,
and Norman unilaterally determined that change would begin by having two experimental store formats up and running within six months. He de- cided to shift power from the headquarters to the stores, declaring: "I want everyone to be close to the stores. We must love the stores to death; that is our business." But even from the start, there was an O quality to Norman's leadership style. As
Change Theories in the New Economy Historically, the study of
change has been restricted
to mature, large companies that needed to reverse their competitive
declines. But the arguments we have advanced in this article also apply
to entrepreneurial companies that need to manage rapid growth. Here,
too, we believe that the most successful strategy for change will be one
that combines theories E and O.
Just as there are two ways of changing, so there are two kinds of
entrepreneurs. One group subscribes to an ideology akin to Theory E.
Their primary goal is to prepare for a cash-out, such as an IPO or an
acquisition by an established player. Maximizing market value before
the cash-out is their sole and abiding purpose.These entrepreneurs
emphasize shaping the firm's strategy, structure, and systems to build
a quick, strong market presence. Mercurial leaders who drive the
company using a strong top-down style are typically at the helm
of such companies.They lure others to join them using high-powered
incentives such as stock options.The goal is to get rich quick,
Other entrepreneurs, however, are driven by an ideology more akin
toTheoryO-the building of an institution. Accumulating wealth
is important, but it is secondary to creating a company that is based
on a deeply held set of values and that has a strong culture. These
entrepreneurs are likely to subscribe to an egalitarian style that invites
everyone's participation. They look to attract others who share their
passion about the cause-though they certainty provide generous
stock options as well.The goal in this case is to make a difference,
not just to make money.
Many peopie fault entrepreneurs who are driven by a Theory E view
of the world. But we can think of other entrepreneurs who have
destroyed businesses because they were overly wrapped up in the
Theory O pursuit of a higher ideal and didn't pay attention to the
pragmatics of the market. Steve Jobs's venture. Next, comes to mind.
Both types of entrepreneurs have to find some way of tapping the
qualities of theories E and Cjust as large companies do.
HARVARD BUSINESS REVIEW May-June 2000 139
Cracking the Code of Change
he put it in his first speech: "First, I am forthright, and I like to argue. Second, I want to discuss issues as
intelligence and business acumen. Leighton, who is warmer and more people oriented, worked on em- ployees' emotions with the power of his person- ality. As one employee told us, "People respect Archie, but they love Al- lan." Norman was the first to credit Leighton with having helped to create emotional com- mitment to the new ASDA. While it might be possible for a single in- dividual to embrace op- posite leadership styles, accepting an equal part- ner with a very different personality makes it eas- ier to capitalize on those styles. Leighton certainly helped Norman reach out to the organization. Together they held quar- terly meetings with store managers to hear their ideas, and they supple- mented those meetings with impromptu talks.
Focus simultaneously on the hard and soft .sides of the organization. Nor- man's immediate actions
To thrive and adapt in the new economy, companies must simultaneously build up their corporate cultures and enhance shareholder value; the O and E theories
colleagues I am looking for your of business change must be in perfect step. advice and your disagreement." Norman encouraged dialogue with employees and customers through colleague and customer circles. He set up a "Tell Archie" program so that people could voice their concerns and ideas.
Making way for opposite leadership styles was also an essential ingredient to Norman's-and ASDA's-success. This was most clear in Norman's willingness to hire Allan Leighton shortly after he took over. Leighton eventually hecame deputy chief executive. Norman and Leighton shared the same E and O values, but they had completely different personalities and styles. Norman, cool and reserved, impressed people with the power of his mind-his
followed both the H goal of increasing economic value and the O goal of transforming culture. On the E side, Norman focused on structure. He re- moved layers of hierarchy at the top of the organiza- tion, fired the financial officer who had been part of ASDA's disastrous policies, and decreed a wage freeze for everyone - management and workers alike. But from the start, the O strategy was an equal part of Norman's plan. He hought time for all this change by warning the markets that financial recovery would take three years. Norman later said that he spent 75% of his early months at ASDA as the company's human resource director, mak-
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Cracking the Code of Change
ing the organization less hierarchical, more egali- tarian, and more transparent. Both Norman and Leighton were keenly aware that they had to win hearts and minds. As Norman put it to workers: "We need to make ASDA a great place for everyone to work."
Plan iot spontaneity. Training programs, total- quality programs, and top-driven culture change programs played little part in ASDA's transforma- tion. From the start, the ASDA change effort was set up to encourage experimentation and evolution. To promote learning, for example, ASDA set up an experimental store that was later expanded to three stores. It was declared a risk-free zone, meaning there would be no penalties for failure. A cross- functional task force "renewed/' or redesigned, ASDA's entire retail proposition, its organization, and its managerial structure. Store managers were encouraged to experiment with store layout, em- ployee roles, ranges of products offered, and so on. The experiments produced significant innovations in all aspects of store operations. ASDA's managers learned, for example, that they couldn't renew a store unless that store's management team was ready for new ideas. This led to an innovation called the Driving Test, which assessed whether store managers' skills in leading the change process were aligned with the intended changes. The test perfectly illustrates how E and O can come together: it hubhled up O-style from the bottom of the com- pany, yet it bound managers in an E-type contract. Managers who failed the test were replaced.
Let incentives reinforce change,, not drive it. Any synthesis of E and O must recognize that compen- sation is a double-edged sword. Money can focus and motivate managers, but it can also hamper teamwork, commitment, and learning. The way to resolve this dilemma is to apply Theory E incen- tives in an O way. Employees' high involvement is encouraged to develop their commitment to change, and variable pay is used to reward that commitment. ASDA's senior executives were com- pensated with stock options that were tied to the company's value. These helped attract key execu- tives to ASDA. Unlike most E-strategy companies, however, ASDA had a stock-ownership plan for all employees. In addition, store-level employees got variable pay based on both corporate performance and their stores' records. In the end, compensation represented a fair exchange of value between the company and its individual employees. But Nor- man believed that compensation had not played a major role in motivating change at the company.
Use consultants as expert resources who empower employees. Consultants can provide specialized
knowledge and technical skills that the company doesn't have, particularly in the early stages of orga- nizational change. Management's task is figuring out how to use those resources without abdicating leadership of the change effort. ASDA followed the middle ground between Theory E and Theory O. It made limited use of four consulting firms in the early stages of its transformation. The consulting firms always worked alongside management and supported its leadership of change. However, their engagement was intentionally cut short by Nor- man to prevent ASDA and its managers from be- coming dependent on the consultants. For example, an expert in store organization was hired to support the task force assigned to renew ASDA's first few experimental stores, but later stores were renewed without his involvement.
By embracing the paradox inherent in simultane- ously employing E and O change theories, Norman and Leighton transformed ASDA to the advantage of its shareholders and employees. The organiza- tion went through personnel changes, unit sell-offs, and hierarchical upheaval. Yet these potentially de- structive actions did not prevent ASDA's employ- ees from committing to change and the new corpo- rate culture because Norman and Leighton had won employees' trust by constantly listening, de- bating, and being willing to learn. Candid about their intentions from the outset, they balanced the tension between the two change theories.
By 1999/ the company had multiplied shareholder value eightfold. The organizational capabilities built by Norman and Leighton also gave ASDA the sustainable competitive advantage that Dunlap had been unable to build at Scott Paper and that Sigler had been unable to build at Champion. While Dun- lap was forced to sell a demoralized and ineffective organization to Kimberly-Clark, and while a lan- guishing Champion was sold to UPM-Kymmene, Norman and Leighton in June 1999 found a friendly and culturally compatible suitor in Wal-Mart, which was willing to pay a substantial premium for the organizational capabilities that ASDA had so painstakingly developed.
In the end, the integration of theories E and O cre- ated major change-and major payoffs-for ASDA. Such payoffs are possible for other organizations that want to develop a sustained advantage in to- day's economy. But that advantage can come only from a constant willingness and ability to develop organizations for the long term combined with a constant monitoring of shareholder value-E danc- ing with O, in an unending minuet. 9
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HARVARD BUSINESS REVIEW May-lunc 2000 141
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