16 Nov 1999  Executive Education

Leading Change and Organizational Renewal

A critical question confronting organizations today is not whether to change in response to their swiftly changing environment, but precisely how to manage that change. In this interview, HBS Professors Michael Tushman and Charles O'Reilly, developers of the Executive Education program Leading Change and Organizational Renewal, describe their thinking about the impact of rapid-fire change on contemporary organizations, and what managers must do to effectively lead the change process.

 

Editor's Note— A member of the Executive Education staff spoke recently with HBS Professors Michael Tushman and Charles O'Reilly, developers of the program Leading Change and Organizational Renewal. In that discussion they describe their thinking about the impact of rapid-fire change on contemporary organizations, and what managers must do to effectively lead the change process. Tushman and O'Reilly are the coauthors of Winning Through Innovation: A Practical Guide to Leading Organizational Change and Renewal, Harvard Business School Press, 1997.

As Professors Tushman and O'Reilly point out, leading an organization in an ongoing process of change and revitalization is necessarily complex. Pitfalls lie waiting where least expected. To avoid the cyclical trap of success-failure-rebirth, firms need to develop competency in simultaneously sustaining a dual management focus; one that concentrates on meeting the challenges of today's marketplace, another with its eye firmly set on a very different world that lies beyond the bend. Leading Change and Organizational Renewal will help senior managers and executives to better comprehend the forces of change, and demonstrate how to better manage their own organizations for long-term viability and success.

What does "organizational renewal" mean as used in the program?

Tushman: A successful company could be said to have a kind of franchise, that is, a niche in the marketplace within which it has demonstrated its ability to overcome challenges and operate profitably. But, far too often, that success breeds inertia. As customers and markets change, organizations must continually sow fresh seeds if they are to remain a viable force in tomorrow's markets. In this program, we demonstrate how firms can either build on or cannibalize their existing franchises to build those required for tomorrow's success. The goal for managers, then, is to sustain current success while simultaneously building new products, services, or processes for the future. To do this, organizations must learn to be ambidextrous. When firms lack such ability, they will rise to some level of success, only to fail and, perhaps, later recreate themselves under crisis conditions.

O'Reilly: Here's an example. If you asked someone thirty years ago what business Hewlett Packard is in, they would likely have said testing and measurement. Fifteen years ago, the reply would probably have been mini-computers. Today, their response would be printers and personal computers. An HP spin-off, Agilent is actually in HP's original business space. Ask what business they think the company will be in ten years from now, and you're likely to hear 'e-commerce.' A fundamental managerial challenge is how to design agile organizations able to leap from strength to strength to strength.

How is evolution in the global economy affecting managerial roles and responsibilities?

Tushman: Not only has the pace of change quickened, but as organizations become more global, their ability to exert leverage on suppliers is growing. Consider one firm we've worked with, an international consortium of independent gas companies. Recently, one of their valued global customers told them that dealing separately with their member companies in seventeen countries had become a burden, so they were calling for a single integrated solution. If organizations are to survive long-term, managers must learn how to create organizational architectures that can be, at once, centralized and decentralized, small and large, local and global-in other words, ambidextrous organizations.

O'Reilly: From another viewpoint, sustainable competitive advantage is diminishing because, increasingly, firms can locate plants anywhere, and call on human, financial, and other resources without regard for locale.

How is organizational design adapting to such evolutionary change?

Tushman: First, let's define what we call 'organizational architecture.' From the perspective of managing change, it encompasses not only organizational structure, but perhaps more importantly, core competencies, processes, and organizational culture. It is the firm's hardware and software that must be integrated to swiftly execute evolving business strategies. In successful firms, we find all of these elements changing simultaneously. Naturally, it becomes a very complex management task.

What do you see as being the greatest barriers to organizational change?

O'Reilly: I think that unquestionably it's the tendency for many companies to develop a strong comfort level based on current success. They often become complacent, almost arrogant, about their success. They focus solely on doing what they now do better, rather than building the foundations for what they'll need to be doing when the world around them has substantially changed.

Tushman: In Leading Change and Organizational Renewal, we begin by helping managers to recognize inertia within their own organizations, and to understand its root causes. But, we don't stop there. We also give them a set of pragmatic tools and skills for managing change and creating the sort of ambidextrous organizations we described earlier.

How is the program structured to facilitate learning and the acquisition of new skills?

Tushman: We employ a combination of approaches throughout the program to maximize learning outcomes. Each day is built around a carefully planned series of class discussions, lectures, and case analyses. A selection of written and video cases provides participants an opportunity to confront real-life situations in the safety of a classroom environment. Evening sessions are devoted to integrating the day's learning and applying it to participants' respective organizational situations. We also organize attendees into work groups for both case analyses and the evening integration sessions. This offers a different opportunity for interactive learning.

O'Reilly: The program is designed to both engage attendees and to prepare them to implement that learning when they return to their organizations.

Who is likely to benefit most from the program, and should companies enroll more than one manager?

O'Reilly: Leading Change and Organizational Renewal has been developed primarily for those in general management, from the divisional level manager to the corporate officer who might manage a portfolio of businesses. However, it is also appropriate for the functional manager who clearly is on a general management track.

Tushman: Companies do gain by having multiple enrollments in a given session. This expedites learning by enabling individuals from a company to work together in problem solving and in applying newfound skills to the unique challenges facing their respective organizations. Consequently, firms may want to enroll several individuals, ideally from divergent backgrounds. The interaction that then develops is enriched by a broad range of perspectives. Let me also add that smaller corporations stand to benefit as much or more than their larger counterparts who likely have had some experience in managing change and organizational renewal. Finally, we have also developed our senior teams version of LCOR. In this intensive workshop, senior leadership teams explore innovation and change issues specific to their organizations, and focus on a strategic issue or change initiative of their own choosing. The program combines classroom learning and facilitated small group exchange, as well as cross-group learning. Teams work directly with the faculty and a dedicated facilitator to address their organizational performance gaps around the issues they have identified, analyze the root causes of those gaps, and develop targeted action plans for implementing needed change.

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