Resistance to Change and the Integration of Competitive and Organizational Strategy -- Michael Jensen and Joe Fuller

Breaking the Code of Change II, Rotman School of Management, August 2-3, 2000

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi).

Michael Jensen, Harvard Business School, and Joe Fuller, Monitor Group.

Taught a class on organizational strategy, haven't bridged with Michael Porter.

Proposition: we organize everything for security.

• We have worked to organize companies to insulate them from the environment.
  • OB people hate markets: orgs should be independent of labour markets, supply markets.

Over 25 years, technological and political revolutions which make the markets much more intrusive into businesses.

• Intrusion is driving organizations, and will shrink the number and people (not necessarily revenue) of companies.

• How do we mimic markets inside enterprises, and when might we give them up as inappropriate?

Have thought about 3 limits to change:

• 1. Role of hidden commitments to a given organizational strategy.

• 2. The invisible process paradox
  • Finding in SSRN that am spending most of the time reorganizing business processes.

• 3. Neurobiological sources of resistance to change.
  • (May get short-circuited on this, as have discussed it before -- pain avoidance response).

1. Hidden commitments:

• People aren't just stuck in resistance to change, they end up with commitments to an organizational strategy that they don't even know they have.
  • e.g. trying to go dot-com, with a belief that everyone should be egalitarian, and as a result, high turnover, but still pay money into business.

• Equilibrium: almost everything that got there in the company, got there for a reason.

• Up against these organizational forces.
  • Question: Link to Kurt Lewin's dynamic equilibrium?
    • System is moving, but not dramatically.
  • These changes generate fear and anger: fight or flight response.

• People will hurt themselves and their organizations, and refuse to learn from this.

• Result: companies throwing huge amounts of money in change, that won't happen.

• Have to deal with the hidden fear.
  • Need to recognize that this is non-rational.

2. Invisible process:

• Ben Shapiro says about processes "staple yourself to an order" and go through the process.

• When organizations are small, processes are managed, because people see it, and it's right there.
  • What happens, to make those processes disappear?
  • These processes are important, or core, to the enterprise, but they're invisible.

• Baldwin and Clark's book on design: what is the nature of systems that can be modularized?

• [Long discussion on visibility and invisibility; formal and informal structures]

• Comment: Sometimes in the interest of the agent to keep the process invisible to the principal.

• Comment: Duality between the rational and emotional. Need to get to the how.

• Comment: The core of the bureaucratic organization was so people didn't need to think.

• Comment: Intrapersonal agency problem and interpersonal agency problem, plus temporal discounting.

• Comment: Can people move towards being both innovative and efficient? Self-managed teams can make the how visible, but if there's not a trusting environment, there won't be a change.
  • Example: Celestica has a socio-technical philosophy, with self-sealing behaviour.

    Celestica wanted to bring measurement, process through McKinsey. Executives said McKinsey need to work under a socio-technical philosophy, they objected; and the STS consultants objected to measurement and process. In the end, did work together, and did improve.

• Comment: Stake in the game. e.g. psychologists who don't know how to sell, until they're independent, and then they find it's important.

3. Dualistic model: people are active in one of two models at any point of time.

• Rational or pain avoidance model.

• Hung out at Harvard in the Mind-Brain initiative.
  • Amygdala: source of fight or flight response.
  • Signals from eyes to hypothesis, goes two ways: cortex, and amygdala that is close.
  • If response triggered, brain is flooded with chemicals, don't think properly: flooding or jangle effect, that takes 30 minutes to go away.
  • We systematically make mistakes, and then refuse to learn about them.
  • Can strengthen neurological muscle, but it's no pain, no gain.
    • To learn this, have to move towards the emotional pain.

• Chris Argyris: Can it be rational to be irrational?
  • Would like to call this "reasonable", which is non-rational, but explainable.

Implication: Can't always count on people acting in their own self-interest.

New respect for markets: they are a control on this type of behavior, as new entrants will come in.

Can now use group devices to help on this weak brain: religion, law

Three principles to deal with this.

• Have a never-ending search for truth.

• Take personal accountability for problems in your life (or your organization).

• Delay gratification, or accept pain earlier.

What he and Meckling didn't understand, when then did agency theory research:

• Have a self-control problem, as well as a self interest (principal-agent) problem.

• Karma: if I problems in this life, it's not because I'm a bad person, but because I have bad karma.
  • Closed loop: the only person that can change the karma is me.

Roger Martin: Why to horror movies sell so well? Training to strengthen.

Dimasios (Iowa) testing card games for money, one deck unfair and one fair.

• Galvanic response when picking from the unfair deck, even before they can say it's unfair.

• People with damaged amygdalas were random, some thought it was even fun to play from the unfair deck: