Large-Scale Organizational Change

Christopher Laszlo, Jean Francois Laugel

• Publisher: Routledge
• Year: 2012
• Print ISBN: 9780750672306
• eBook ISBN: 9781136389252
• Topic: Business
• Subtopic: Business General
• Index: Business

Large Scale Organizational Change provides the principles by which large scale organizations reinvent themselves not once, but on an ongoing basis. Continual reinvention allows leading companies to learn, adapt, and innovate faster than competitors in complex and fast changing environments. These action principles are based on first-hand experience at the world's leading Fortune 500 companies using emergent models of living systems. The context for large scale organizations is one of information overload, complexity and constant change. This book reduces the sense of vulnerability felt by managers. It provides a guide to piloting change in ways that lead to constant renewal and a capacity to survive frequent and often brutal changes in the operating environment. It describes a leadership concerned with the capacity to learn, inflection points, emergent strategies, knowledge management, the ability to anticipate, and tapping into the distributed intelligence resident in the organization. Large Scale Organizational Change provides managers with a framework for making their organizations highly adaptive in the complex market systems in which they operate, thereby reducing or eliminating the need for periodic episodes of traumatic restructuring and sometimes fatal reengineering processes.

Chapter 1

A New Wisdom

Hardly anyone in any boardroom around the world would not agree that the speed and complexity of change have reached dizzying proportions. Words like chaotic and tumultuous have become part of the everyday business lexicon. The urgency and rapid pace of everything have caused business thinkers to wonder where, or even whether, it will all sort out. Leading commentators are calling the situation "out of control."

The challenge of big business is to take advantage of complexity and turbulence rather than be overwhelmed by them. A company that meets this challenge would be excellent at providing customer value added at the lowest cost and would be able to adapt and sustain itself at the edge of chaos.

THE SEARCH FOR WISDOM

As our world becomes more complex and information increases with seemingly endless acceleration, executives and managers are seeking as much wisdom as possible for coping with this ever-increasing scale of change. They don't need more information. There is a virtual glut of knowledge. What is needed is wisdom-or what to do with all the knowledge.

Wisdom is produced when learning occurs, and learning happens when executives are willing to look at new sources of learning. Science has traditionally been a reliable source of wisdom about how the world works. The physics of Newton and biology of Darwin played strong roles in shaping our notions of economics and business. Those early sciences were the foundations of the executive learning inspired by Frederick Taylor in the early decades of the twentieth century. Efficiencies were gained through a rigorous application of "scientific management" that fueled the mass-production techniques of Henry Ford and the large-scale organization of Alfred Sloan's General Motors.

More recent advances in the so-called new sciences represent a rich reservoir of wisdom for managers and executives charged with the responsibility of leading large-scale organizations. This new wisdom includes lessons from nature about how highly adaptive living systems can grow and thrive despite seemingly chaotic influences. There are ever-increasing parallels between the realms of living systems in nature, in which chaos and complexity are everyday occurrences, and the business world. The global enterprise is buffeted by an endless stream of instantaneous financial transactions, competitor moves, unpredictable market events, and fickle social trends that play on profitability. Commerce has become a complex adaptive system in its own right. It simply is no longer realistic to manage a global corporation as if it were a simple clock mechanism to be taken apart, cleaned, oiled, and put back together to "run on time."

Many of the best insights into how organizations adapt and survive despite seemingly chaotic influences come to us from recent scientific discoveries in the behavior of living systems-from single-cell bacteria to the Brazilian wetlands. The lessons they teach us are very different from those mastered in business, in which management traditionally relies on engineered, controllable, hierarchical, analytical approaches. The new science is rich in metaphors: a butterfly flapping its wings, the neural networks of the brain, and the flocking behavior of geese. However, as soon as these living systems are reduced to their component systems-the brain to its neurons for example-their essential properties are lost. Executives confronted with this irreducible nature of complex living systems are intrigued by the new body of knowledge but frustrated in knowing what to do about it. The challenge is to translate the insights of the new science into useful knowledge-into business wisdom for managers with day-to­ day accountabilities.

THE ARENA OF THE NEW SCIENCE

A new executive literacy is being called for in business. This new literacy requires executives to examine their primary assumptions about how things work and to adventure into new worlds of ideas, new vistas for creative leadership, new world views about reality. In response to this need, several excellent books have been written about complex living systems in a business context. Most, however, have been written from the perspective of the scientist, the theorist, and the academic. We wrote this book about the enormous value of the new sciences from the point of view of the executives, chief executive officers, strategic planners, and line managers who have responsibility for the ongoing sustainability of their companies.

BRIDGING THE GAP BETWEEN BUSINESS AND SCIENCE

In this book, we focus on two challenges and two accompanying promises. The first challenge and promise are to prescribe a "new science" version of strategy, organization, and leadership in business. This version must enable global companies to turn chaos and turbulence from a threat to survival into an opportunity for growth and profitability. The other challenge and promise are to bridge the gap between the language of management-the pragmatic mind-set and vocabulary of the business executive-and the language of science.

PERPETUAL TRANSFORMATION

The only successful way of surviving and adapting to chaos and complexity is to strive for perpetual transformation-that is the essential premise of this book. The pages that follow describe a process of continual reinvention whereby global companies transform themselves as their environments change. The transformation makes them highly adaptive in the complex market systems in which they operate and eliminate the need for periodic episodes of traumatic reinvention or painful and sometimes fatal reengineering.

The complex adaptive systems version of strategy, organization, and leadership enables managers to do the following:

• Achieve extraordinary business results
• Shape the future of the company
• Unleash the full creative potential of employees
• Integrate unpredictable change
• Contribute to global sustainability

Leading in complex environments involves an ongoing process in which the company continually reinvents itself, seeking new hilltops in the ever-changing competitive landscape. As companies face the information-rich competitive environment of the new millennium, past rules of success become obsolete. Links to a company's historical positioning and performance are discontinuous. The new leadership is more concerned with the ability to anticipate, the capacity to learn, opportunity-driven growth, inflection points, adaptive organization, knowledge generation, and the emergence of organizational intelligence than it is with hierarchy, authority, and control.

The transformation we imply is exhaustive. It includes the strategy, the organization, and the leadership style of the company. We use the term transformation to mean a process of altering context. The alteration reinvents the company. It is like the transformation of a chrysalis into a butterfly. A butterfly is not a new and improved pupa; it has fundamentally changed its existence. Transformation alters the essential nature and context of a company. In the process it allows an organization to create something that is not possible in its present reality.

Unlike the chrysalis-to-butterfly example, when it comes to the corporate world, transformation is not determined by a genetic code. The act of management provides an element of choice. In most large organizations, however, the choice is heavily biased toward perpetuating the status quo. Individuals and organizations typically work inside existing frameworks and apply formulas that have succeeded in the past. The greater the threat of change, the harder they try to adapt the present. The problem arises when existing frameworks and formulas for winning become irrelevant to a particular business situation. If a butterfly is called for, it simply does not make sense to improve the design and function of a chrysalis. Profound problems, Albert Einstein once said, cannot be solved from the same consciousness that created them.

The essence of perpetual transformation can be easily described: it would tap into the distributed intelligence of the entire organization and allow for the emergence of new strategies, structures, processes, and practices. Actions would no longer be planned by a few executives at the top with a golden touch at predicting and controlling. Instead business solutions would emerge from organizational learning, the alignment and coordination of individual actions, and the workings of informal knowledge communities. The full passion, spirit, and commitment of the organization would be brought to bear in the process. A shared culture of reinvention would exist in which everyone actively participates in creating a new and desirable future. The visible result would be the continuously emerging organization capable of sustaining itself indefinitely.

In the chapters that follow we provide a bridge that spans the chasm that separates the worlds of business and the new science. We stand on the shoulders of the people who have advanced some of these ideas and of executives with whom we have worked and who intuitively understood what the new leadership is all about.

Combining the latest insights of the new science with more than twenty-five years of successful corporate experience in managing change, we link the two disciplines so that lessons can travel freely from one to the other. The new wisdom will be that of business leaders acting decisively in seemingly complex and chaotic environments without having to experience the feeling that things are always "out of control."

Chapter 2

Oracle and Lafarge: Perpetual Transformation in Action

Here we illustrate the kind of results that have been obtained with perpetual transformation. A key point is that in these and similar applied cases, the approach is used knowingly or unknowingly. Intuition, experience, and knowledge all come into play in shaping the strategy and tactics of large-scale organizational change. In the following illustrations, articulated knowledge of the process of transformation played an important role in the successful management of change, even if intuition, experience, and luck were present. Wise use of knowledge to augment the business's likelihood of success is the main objective of good management.

The first example-Oracle Corporation-is drawn from the fast-moving world of high technology. This is a case of profound transformation over a four-year period in an unpredictable, competitive environment in which the future almost all the time is unrelated to the past. It deals with a globally successful industry leader that has repeatedly demonstrated a capability for reinventing itself. Oracle has maintained its leadership because of profound changes it has initiated for itself and its industry, not in spite of such changes.

The second example-Lafarge S.A.-is drawn from the more conservative, capital-intensive world of heavy industry. The case concerns the redesign of the $250 million cement division of Lafarge Corporation (U.S.) which had been underperforming during a prolonged down-market. In spite of low growth, poor economic conditions, and some industry overcapacity in the region covered, Lafarge was able to implement a multiyear transformation program that yielded immediate and significant results to the bottom line.

ORACLE: MANAGING HIGH-PERFORMANCE GROWTH

September 1998. A new organization is announced at Oracle. For the first time in the history of the database company, the organization acknowledges new sources of revenue for the firm outside database and development tools. The new structure lines up two completely separate lines of business: the emerging software application business, which had grown from scratch to become the number two competitor worldwide, and a parallel business unit covering the original database system products and tools. This new structure has its dedicated sales and consulting forces. The old revenue structure and the corresponding organization no longer exist.

Easy to do? Easy to say definitely, but consider that the outcome resulted from a change process implemented over four years in a forty-thousand-employee company growing at forty percent per year. Four years were necessary to make it happen after two aborted initiatives. Difficult to accept internally? Certainly! In the weeks that followed the announcement, key executives of the original Oracle submitted their resignations. Since then, however, the stock has continued its upward flight.

The Oracle story is hardly over. A culture of perpetual transformation, as is the case with many leading high-tech companies, from Intel to Lucent Technologies and Microsoft, is firmly in place. This slice of history is a particularly vivid illustration of corporate reinvention. Here is how it all happened.

With more than $8 billion in sales and nearly forty thousand employees, Oracle remains the global leader in database management systems and one of the world's largest software producers. Market valuation of close to $50 billion recently placed Oracle second among information technology stocks. As a company, Oracle is known primarily for its innovative database management software products, which range from third-generation development tools to application add-ons. Oracle also is regularly recognized by the national and international news media for its trend-setting industry leadership, particularly since 1996, when founder and chief executive officer Larry Ellison began his crusade for networking computers as a way to rival Bill Gates at Microsoft. Oracle achieved early success by positioning itself in the management of information and UNIX technology.

In recent years, companies in a broad range of industries have fought their rivals and won in terms of electronic information management. The discovery of new consumer needs based on data management has spanned the gamut from production systems to consumer services. These needs have required, from a technical point of view, new tools for data storage, classification, referencing, and retrieval. Such tools are generally known as relational database management systems (RDBMS). As the needs of industry in this area exploded, the global market for RDBMS grew exponentially.

Meanwhile, UNIX technology quickly overtook the dominant computer architecture that existed at the time, that of very large-scale centralized systems. Developed initially in the research laboratories of AT&T, UNIX provided an architecture that was better distributed between servers and between client workstations and servers. It allowed more flexible distribution of roles and tended to privilege the user in the process of accessing and analyzing information. The UNIX approach was popularized with the term client-server.

The explosive growth in its markets generated spectacular year-on-year earnings performance for Oracle. As the years passed, the range of products broadened while remaining highly technical in nature: information warehouses, database bridging software, development software, and general application software. A service offer was quickly added to this range of products: technical support for the installation of the software and adaptation to the specific needs of the client, which eventually involved fifteen thousand workers at Oracle, training on Oracle products, and a maintenance department.

The industrial expansion and financial performance of Oracle were sustained, except for a brief lag in 1991. That year a combination of macroeconomic recession and poor management led to a growing impasse, which the shareholders resolved with a change of leadership. Ray Lane was promoted to work at Larry Ellison's side, and a rebound began.

Ray Lane began by reorganizing the sales force, implem...

Table of contents

• Front Cover
• Title
• Copyright
• Dedication
• Contents
• Preface
• Acknowlegments
• Chapter 1 A New Wisdom
• Chapter 2 Oracle and Lafarge: Perpetual Transformation in Action
• Chapter 3 Chaos Dynamics: Lessons from the New Sciences
• Chapter 4 The Ten Principles
• Chapter 5 Principle I. Create Adaptive Strategies
• Chapter 6 Principle II. Maintain Long-term Identity while Repositioning
• Chapter 7 Principle III. Compete for Industry Sustainability
• Chapter 8 Principle IV. Use Strategic Inflection Points
• Chapter 9 Principle V. Link Transformation to Shareholder Value Creation
• Chapter 10 Principle VI. Develop Ambitions Greater than Means
• Chapter 11 Principle VII. Design Decisionmaking Systems for Selforganization
• Chapter 12 Principle VIII. Fluidify the Organizational Structure
• Chapter 13 Principle IX. Use Organizational Instability to Catalyze Learning
• Chapter 14 Principle X. Reenvision Leading: From Command and Control to R(E)volutionary Influence
• Chapter 15 Managing Information: A Key to Successful Implementation
• Chapter 16 Environmental Sustainability: An Extension of the Ten Principles
• Chapter 17 Conclusion
• Appendix 1 The New Corporate Reality
• Appendix 2 Chaos Models in Business: Notes for the Technically Minded
• Notes
• Index