TEORI E TEORI O

Cracking the Code of Change
Why & How Changes are to be Made:
Theory E: Based on Economic value
Theory O: Based on Organizational capability

Theory E
Main focus is on shareholder value involves:-
Economic incentives
Drastic layoffs, Downsizing, Restructuring
Theory O
Develop corporate culture & human capability through individual & organizational learning
Process of changing, obtaining feedback, reflecting & making further changes
Typically have strong, long-held, commitment-based contracts with their employees
Combining E & O
To build a company that can adapt, survive & prosper over the years, both E & O strategies must be combined
CAUTION: Mixing E & O techniques can destabilize the company E.g. FEW exceptions like Jack Welsh, GE’s CEO by imposing E-type restructuring demanding all GE businesses be 1st or 2nd in their industry, else sold off
After laying off > 100k employees, switch to O strategy by initiative to change GE culture to be boundary-less with open feedback & communication
Note: Also very difficult to implement O before E as employees will distrust the company
Strategies for Combining E & O

Focus on both Hard (Economic value) + Soft (Transforming culture) – E.g. Freeze pay-rises; Less hierarchy & more transparency

Plan for Spontaneity to allow real experimentation without penalizing for failures – E.g. Actively promote new ideas/testing to drive innovation

Incentive to reinforce but NOT drive change: To apply Theory E incentives in an O way – E.g. Pay to reward commitment (stock options) & employees pay based on corporate & personal performance

Consultants as Expert Resources to Empower: To provide specialized knowledge & technical skills company lacking especially in early stages of change