Built to Change

THE AUTHORS Edward E. Lawler III is distinguished professor at the University of Southern California (USC) Marshall School of Business and founder and director of USC's Center for Effective Organizations. He is the author of Treat People Right! and a leading consultant to major corporations. Christopher G. Worley is a research scientist at USC's Center for Effective Organizations and the former director of the Master of Science in Organization Development (MSOD) program at Pepperdine University. He is the author of Integrated Strategic Change.

• Foreword by Jerry Porras vPreface xiiiChapter 1 Why Build Organizations to Change 1Chapter 2 A Dynamic View of Organizational Effectiveness 23Chapter 3 Strategizing 54Chapter 4 Structuring for Effectiveness and Change 88Chapter 5 Developing the Right Information, Measurement, and Decision-Making Processes 118Chapter 6 Acquiring the Right Talent 153Chapter 7 Managing Human Capital 179Chapter 8 Meeting the Leadership Challenge 213Chapter 9 Designing Reward Systems 236Chapter 10 Rewarding Performance and Change 256Chapter 11 Creating a Built-to-Change Organization 283Notes 313Acknowledgments 319About the Authors 321Index 323

Back in the good old days, when news travelled at the speed of telex and the world seemed big, change was something that happened to companies once every few years.Chief executives would initiate "change programmes" to rid their organisations of old habits and inculcate new ones. Strategy would be re-examined, priorities reset, jobs redesigned and reporting lines redrawn.To be sure, these initiatives came with a variety of labels attached. In the 1970s, diversification and job enrichment were the watchwords. The 1980s belonged to strategic focus and quality. The 1990s gave us business process re-engineering and e-commerce. But the underlying assumption was always the same: change was periodic, planned and uncomfortable, given that the natural state of organisations was reckoned to be equilibrium.The snag is that these days news travels so fast - and competitive advantage is so fleeting - that the planned approach has proved woefully inadequate. Change programmes come and go so quickly that managers and employees can barely keep up. The result is dysfunctional organisations with low morale and poor customer service. Yet chief executives who decide to slow the pace of change risk being overtaken by competitors.If you think this is an exaggeration, take a look at Built to Change, a splendid new book by Ed Lawler and Chris Worley, both of the University of Southern California's Centre for Effective Organisations. As the authors note: "An analysis of Fortune 1000 corporations shows that between 1973 and 1983, 35 per cent of companies in the top 20 were new. The number of new companies rises to 45 per cent when the comparison is between 1983 and 1993. It increases even further, to 60 per cent, when the comparison is between 1993 and 2003. Any bets to where it will be between 2003 and 2013?"Yes, a handful of companies do seem to be able to hang in there. The management practices of this select few were examined in Built to Last, by Jerry Porras and Jim Collins, published in 1994. But surviving is hardly the same as thriving. About half of the companies featured in Built to Last have fallen from grace since the book appeared. The same fate befell many of the companies featured in 1982's In Search of Excellence. The disquieting truth is that very, very few companies (including Procter & Gamble, Johnson & Johnson, Toyota and a handful of others) manage to sustain high performance over long periods.The problem, argue Profs Lawler and Worley, is that we continue to design organisations with stability in mind. Executives need to think about building companies not only to last but also to change, in the sense of responding to the competitive environment without going through the trauma of planned change.The message is not entirely new. Management writers such as Tom Peters and Rosabeth Moss Kanter first took issue with the planned change paradigm more than 20 years ago. They argued instead for corporate cultures that rewarded innovation and let change bubble up from below. More recently, managers have been urged to draw inspiration from complex adaptive systems found in nature by creating organisations that operate "on the edge of chaos". Alternatively, they have been told to make their bureaucracies more like markets by introducing internal competition for ideas, capital and labour. Enron, the energy trader, you may recall, was a standard-bearer for many of these trendy ideas before it became a byword for malfeasance.What makes Built to Change worth reading is its careful attention to the unglamorous stuff of management - organisational design, decision-making processes, measurement and reward systems, recruitment criteria and so on. Yes, corporate culture is important. Yes, internal market mechanisms may work sometimes. But of more immediate concern are the policies and processes that underpin day-to-day work.If we want our company to be more responsive to changing circumstances, how should we organise ourselves? (Answer: in self-managing teams and small close-to-the-customer business units.) What kind of people should we hire? (Normal folk will do just fine.) How should we appraise individual performance? (Do not exempt top management, measure outcomes as well as behaviour, avoid forced ranking.)The ultimate Built to Change company? Profs Lawler and Worley offer nothing so gauche as a league table. My vote goes to Toyota, which has over the years shifted its source of competitive advantage from low price to high quality to sharp market segmentation and eco-friendly technology.All in all, this is classic Ed Lawler. A serious student of organisations before many of today's chief executives were born, he has collected more detailed data about the management practices of more companies over a longer period than almost any other researcher. His writing is research-based, relevant, long on insight and short on extravagant claims. For the record, Built to Change is his 38th book.My only quibble is with the notion that the average person will always embrace change if the organisational context is correct. Personal experience tells me that change - even voluntary change - always involves fear, uncertainty and elements of loss. I will devote next week's column, my last after 15 years as an Financial Times journalist, to this piquant topic. (The Financial Times Limited, 22 February 2006) "...bold, fascinating..." (getAbstract, August 2006)