During the past decade, scandals at Enron, Tyco, WorldCom, and others brought into sharp relief difficulties in governing organizations in a world fraught with unbounded greed and abundant opportunity to satisfy it. Driven by technological innovation, new industries sprouted with few rules or norms to guide the behavior of their leaders. As we face the next decade, organizations will become even more global, with flatter hierarchies, faster information flows, and increased interdependence. New competitors from exploding economies such as China and India will change the economic landscape, causing some U.S. industries to fight for their lives while others face limitless opportunity.

What might organizations do differently to respond more quickly and effectively to this increasingly chaotic environment? What might leaders do differently to build their organizations for change?

I will explore two themes as the basis for dealing with these questions. First, leaders must understand their organization’s values, and work to shape them in such a way that those values guide and sustain needed changes rather than undermine them. Second, leaders must architect their organizations to embrace rather than resist change. In Built to Last, Jim Collins and I found that the enduringly great (visionary) companies we studied held a small set—between three and five—of values so fundamental and long-lasting that they could be thought of as core. These core values helped to guide behavior in the company over the very long term and kept it from engaging in practices detrimental to its essence. As such, core values can play a positive role in change by defining what’s “in play” and what’s not, that is, change everything in the organization except the core values. Ed Lawler and Chris Worley agree, and use the concept of identity to recognize the importance of stability.

The notion of values is a tricky one, especially when we think about the ways values become imbedded in an organization or, more important, changed. Increasingly, leaders attempt to define new values for their organizations and then go about “selling” them to employees, only to find out that the selling doesn’t always work as well as expected. Often, the breakdown occurs when leaders attempt to convince their employees to accept and internalize the new values as core. I don’t think anyone can convince adults to adopt a core value not previously held. Core values exist deep in a person’s belief system and generally develop as a result of early childhood experiences and learning. Once embraced, changing them just doesn’t happen. Here, too, Lawler and Worley agree, and build their changeable organization approach around the idea of stability.

So, what are leaders to do? Well, first and most obvious, leaders must seek to discover those values truly core for the organization. Unfortunately, in my experience, few organizations succeed in this search because the vast majority of them don’t have core values. For a value to be core it must pass three tests: it should (1) have existed in the organization since its earliest days; (2) still be around 100 years from now; and (3) have evidence of events in which the organization lived the value and paid some cost or suffered in some meaningful way for doing so. Most organizational values come and go as CEOs change or strategies change, or fall by the wayside when a significant benefit can be gained by ignoring them. Bottom line, all organizations have values, but few have any that meet the core standard.

So, if no core values exist for the organization, an alternative for a leader is to identify a set of values that the organization aspires to make core. (Important to note: when communicated, these values must be clearly labeled as aspirational. Failing to refer to them as such risks cynical reactions from organization members who may well possess numerous examples of their leaders not living them.) As aspirational, these values provide a future to strive for, and hopefully, in ten to twenty years, the organization can provide concrete evidence of actually having lived them. People won’t follow leaders who espouse core values but don’t live them. More likely, they will follow leaders who aspire to live a new set of values they wish to make core and who want to be held accountable when they don’t.

Once identified, core or aspirational core values must guide hiring and firing decisions (“If you fit, join us!” “If you don’t fit, leave.”), reward and promotion decisions, and generally the architecture of the organization. I’ll speak more about this point later, but for now, let’s turn to a second recommendation on how leaders can use values to enhance the organization’s ability to effectively change.

Leaders must understand the difference between core values and all the other values floating around in an organization. Not all organizational values are core or aspirationally core, and those that aren’t can be thought of as “strategic,” that is, values that the organization adopts to help it successfully implement a specific strategy developed for a specific external environment. Not deeply anchored in the belief system of either the individual or the organization (that is, not core), these values can and should change—should change because, if they don’t, they inhibit the implementation of any new strategy. Often strategic values that played a significant role in making execution of the previous strategy successful simply don’t fit a new strategy. Helping organizational members see and accept the difference between core and strategic values makes change in the latter easier.

Finally, some values promote change while others inhibit it. Inculcating core values such as customer focus, risk taking, innovation, open communication, collaboration, or participation can help an organization to continually change. Other values such as loyalty, consistency, individuality, profit maximization, or engineering excellence may—especially when taken to their extreme—block or inhibit effective change. The lesson here points to the necessity of being careful about the core values a leader wishes to instill in his or her organization. Built to Last taught us that enduringly great companies have a passion for change, and the core values guiding these organizations support their ability to do that.

Earlier I surfaced the idea of organizational architecture. Let me now be more specific about what I mean. Architecting an organization for change means designing its key work-setting components such that they promote change while at the same time are themselves readily changeable. In agreement with the main theme of this book, the Built to Last findings showed that for an organization to be enduringly great it must be incredibly skilled at changing itself. And, in these companies, organizational change began with change in their senior leaders.

Since the top leader must change first before change in others can be expected, leaders must develop their ability to change themselves before they attempt to change the organizations they manage. Yet, it has been my experience that most leaders do not possess the skills to change themselves. They focus so much on managing others and getting others to do their bidding that self-awareness tends to fall by the wayside. Increased coaching and exposure to group process skills training will go a long way toward developing this skill.

Leaders also must begin to see themselves as organizational architects instead of rock star, charismatic, visionary types. They must see themselves as builders of their organization rather than as traditional leaders. They must understand the key principles of organizational architecture before they can begin to design work settings that promote change. They must value the role of architect and have as their passion building an enduringly great organization rather than striving to have their picture on the cover of Fortune or Business Week.

When something is built it must have architecture—architecture guided by a set of principles that provide the basis for design. In the case of organizations, the design principles would need to explain how and why people change their behaviors and the role the work setting plays in precipitating desired change. I’d like to focus on the work setting because I adhere to the body of psychological theory that emphasizes the role of environment in precipitating individual behavior change. In the case of organizations, the relevant environment for individuals is the work setting.

Let’s turn then to some examples of work-setting dimensions to consider when thinking about how to design organizations for change.

Audacious goals—bold, exciting, compelling, highly stretching, deadline based—drive change in the organization. When setting truly audacious goals leaders don’t know exactly how to achieve them. They have confidence that they will figure out what it will take, but at this point in the process they aren’t sure of the exact steps. New capabilities must be developed, new skills evolved—the organization and its people must change.

Highly audacious goals also drive change because employees who must execute on the goals can’t achieve them by just working harder, faster, or longer hours. They must, in addition, do new and different things. Without change in the organization and the behavior of its people, this type of goal can’t be attained. Our research showed that when organizations set and truly committed themselves to highly audacious goals, they changed their ways of operating and, almost all of the time, successfully achieved them.

Not so surprisingly, organizations that achieve truly audacious goals also perform at a superior level while doing so—witness NASA when it pursued the audacious goal of getting a man on the moon and back by the end of the decade.

Cultural norms that support rather than resist change also play a key role in how well an organization alters its functioning. Charles O’Reilly identifies social control as the most powerful type of control in organizations. Guided by norms, people pressure each other to adhere to them or risk negative reactions from their colleagues. Since norms can either block or encourage change, organizational architects must support norms that promote behaviors facilitative of change.

Evaluation and reward systems that measure and reward needed changes in behavior provide an obvious work-setting dimension to design appropriately. Often organizations talk change but, in fact, don’t measure or reward it—then they wonder why people resist so much. Clearly many reasons exist for individual resistance, but the evaluation and reward system—perhaps the most easily accessible change lever—should be pulled first and often.

Another important change lever—control and information systems—presents a significant opportunity for designing change friendly work settings. The more expensive a system design and implementation, the less inclined leaders will be to subsequently change it. Designing systems with an eye toward their future change makes the expense of subsequent alterations much lower and their change more likely.

Job design also plays a key role in the group of work-setting dimensions that either facilitate or block change. Jobs can be rigid or flexible, tightly controlled or autonomous, highly specified or end-results focused, and on and on. Jobs that sit more at one end of these continua than the other facilitate change. Designing changeability into the way work gets done either helps needed future change or blocks it.

Typically, physical settings impede change rather than assist it. Office walls can’t be removed or moved easily. Expanding to adequate office space costs more than the company wants to spend. Moving people’s offices to match new organizational structures seems too expensive. Yet, all of these physical setting issues impact changes in other organizational dimensions and often make needed behavior change quite difficult. Designing facilities to support existing organizational configurations and work processes—and then to be easily changeable—provides advantages for any organization attempting to change itself.

These are but a few examples of architecting an organization for change. Many more exist, and leaders must continually experiment with different forms to discover the ones that most facilitate change in their own companies. Built to Change is about just such an architecture; it describes ways to think about strategizing, creating value, and designing organizations that are changing all the time. Organizations differ, and architectures must also differ to fit specific needs. However, in any case, great companies that endure need to be guided by meaningful, unchanging core values while at the same time be architected to change. This paradox of no change and change helps leaders create superior organizations that last.

Palo Alto, California
November 2005

Jerry Porras