Theory E and Theory O

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What are Theory E and Theory O?

Theory E and Theory O are two different approaches to deal with organizational change. According to M. Beer and N. Nohria they should be combined.

In their article "Cracking the Code of Change" (Harvard Business Review, May-June 2000: 133-141), the authors describe two theories:

• Theory E: Theory E change strategies are aimed at realizing Economic value. Hence the E. In this “Hard” approach to change, Shareholder Value is the only legitimate concern. Change usually involves heavy use of economic incentives, drastic layoffs, Downsizing, and Restructuring.

• Theory O: Theory O change strategies are aimed at improving the Organization. Hence the O. Managers using Theory O believe if they focus exclusively on the price of their stock, they might harm their organizations. In this “Soft” approach to change, the goal is to develop Corporate Culture and human capability through individual and Organizational Learning. This theory is the process of changing, obtaining feedback, reflecting, and making further changes. Companies that follow this approach have a strong, long-held, commitment-based psychological contract with their employees.

The key differences between Theory E and Theory O are:
 

Instead of using only one theory or sequencing both theories, a company should implement both Theory E and Theory O at the same time. The simultaneous use of both theories is more likely to be the source of Sustainable Competitive Advantage. The company should explicitly confront the tension between E and O goals and embrace the paradox between the two theories. This should become a balancing act between initiating actions that follow one theory and then contradict that theory.

The company should be lead by a leader at the top who clearly sets and organizes company changes. At the same time, this leader should listen and look for input from the lower levels of the company by shifting power from the company’s headquarters to where the company does business.

Forum Forum about Theory E and Theory O. 🔥 Theory E in Extreme Hurts the Human Capital In a mid-sized organization (450 employees) where I worked earlier for 7 years, the management staff are "penny pinchers" especially in building human capital. The staff turnover is about 40% per annu... 4   1 comments Examples of Current Theory E Companies Who can suggest companies that still practice Theory E in today's economy? How do they do it?... 4   Start a new topic about Theory E and Theory O Sign up for free

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Information Sources Various sources of information regarding Theory E and Theory O. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Theory E and O Holding Hands Combined Economic and Organizational Strategy Picture from Beer and Nohria in which Theory O and E are joined. Note that the O really likes the 'marriage', while the ...

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