Transforming Organizations

Two implicit theories and resulting strategies, Theory E and O have guided the transformation of large-scale corporations. These two change strategies are referred to as theories because underlying them are assumptions about the purpose of the corporation and the best means for accomplishing that purpose. Theory E is about economic value creation. Leaders who employ this theory, assume that the firm₂s value creation potential can be enhanced dramatically and quickly through restructuring. People are laid off, facilities closed and the portfolio of businesses is reshuffled through spin offs and acquisitions. CEOs who employ Theory O, developing organization capabilities and culture, assume that focusing on capabilities and culture will ultimately produce sustained high performance. This strategy is necessarily a longer-term one. Using two case examples and relevant research, it is argued that both E and O change strategies enhance performance, though Theory E does not produce long term sustained performance improvements.