Crack the Code Written by Beer and Nohria

“Crack the code” of change written by Beer and Nohria. Both authors are professors at the Harvard Business School in Boston. This article appeared in the Harvard Business School Press in October of 2000. In our constantly changing world, organizations know they must adapt or they will die. Many companies attempt to change in various ways, which include downsizing, restructuring and changing the corporate culture, but they aren’t successful. According to research included in the article, seventy percent of all change initiatives will fail. Why is that? This article suggests leaders must not only understand the process of change, they must “crack the code” of change. Initially, two theories have emerged on corporate change which are Theory E and Theory Theory E, a hard approach, is based on economic value and usually results in economic incentives, layoffs, downsizing and restructuring. Theory O, a soft approach, is based on organizational capability and focuses on developing corporate culture and human capability through individual and organizational learning. This article explores each theory and how it has been implemented on its own. Beer and Nohria then demonstrate how the theories can be combined to create successful, lasting change.

In order to examine the two theories of change, Beer and Nohria first needed to research each theory on its own. They studied two companies, both in paper production, and looked at how each executive approached change. Scott Paper’s goal was to restructure the organization in order to improve shareholder return. Scott Paper took a Theory E approach to achieve its goal. Champion International focused on changing its corporate culture to improve teamwork, communication and employee productivity, which was a Theory O approach. Next, they studied a grocery store chain in the United Kingdom called ASDA. ASDA was able to utilize both Theory E and Theory O in its change initiative. 

To show the differences between these hard and soft approaches, Beer and Nohria came up with a system to compare the three companies. They accomplished this by compiling a list of key dimensions of change. By looking at different dimensions of each company, like its goals, leadership and focus, Beer and Nohria were able to outline key differences between each theory on its own and identify what would happen when the theories were used together.  From studying each theory on its own, they were able to come up with a hypothesis for what a combination of Theories E and O would look like. The authors suggest that if an organization can integrate Theories E and O together, they will be able to successfully make lasting changes to the business

Furthermore, understanding the differences between theories is essential to the successful combination of the two. The article contains a similar table, which helps illustrate the key differences between each theory. The goal of Theory E is to increase shareholder value, while the goal of Theory O is to develop organizational capabilities. The Theory E leadership approach is from the top down with little involvement or input from lower levels. Theory O leadership is much different, as employees are encouraged to participate and help create change. In Theory E, a leader’s focus is changing structures and systems, which can easily be accomplished with the top down approach and financial incentives for the employees. Theory O’s focus is around changing the company’s culture and the behaviour and attitudes of its employees, and it requires a deep-rooted commitment from its employees in order to create change. It is important to understand companies often rush into change, which is one reason why change initiatives fail. Leaders get lost in the plethora of change initiatives and lose focus on the main goal. Trying to find the balance between both theories will allow a company to attain the short-term results from a Theory E approach while reaping the long-term benefits of the Theory O approach.

For instance, ASDA company which

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