3 Kinds of Organizational Change

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Three Kinds of Change
Taken from the work of Ralph D Stacey (2011)

Management is fundamentally about handling change. How managers do this has to depend upon the principal characteristics of that change, if their actions are to be effective. What, then, are the principal characteristics or kind of change generated by dynamic system?

The current state of a dynamic system is a record everything that has happened to it and everything that the actors or components within it have done in the past. When the system is far from equilibrium, its history is important and will have major effects on what happen to the system in the future. Managers and consultants alike recognize that they cannot understand what to do next until they have established some understanding of what has happened. For this reason, board and top executive meeting are often dominated by accounts of what has happened.

Closed Change

When we look back at the history of a business, some sequences of events can be recounted clearly, in the manner that commands the widespread agreement of all the managers involved. Everyone agrees on what happened, why it happened, what the consequences were, and how such sequence of events and actions are likely to affects the future course of the business. We can call these situations of closed change.
The principal features of closed change are that the consequences of events are clearly understandable in their past form and the accurately predictable in the future form. This feature applies because the events and actions generating consequences have already occurred and causality is clear cut. Such situations predominate in the normal, continuing operation of an existing business. For example, consider a business the supplies popular records and tapes to the teenage market. Managers in that business are able to say with some precision how the number of customers in that market has changed over the past. They can also say how the number will change for the next fifteen years or so, since those customers already exist; statistics on the number of births in each of the past fifteen years are available. Furthermore, the managers can establish fairly clear-cut relationships between the number of customers and the number of record and tapes they have bought. This will help to indicate how many they will buy.

Contained change

Other sequences of events and actions flowing from the past are less clear cut. Here we find that we are able to say only what probably happened, why it probably happened, and what its probable consequences were. The impact of such a sequence of event upon the future must similarly be qualified by probability statement. For example, the supplier of records and tapes will find it harder to explain why particular kind of record and tapes sold better than others or to forecast what kinds of tapes and records will sell better in the future. Still, market research, life-style studies and the statistical projections will allow reasonably helpful forecast to be made for at least the short term. Causality in these situations is approximate or statistical; it takes the form of probability statements. We can call this kind of change contained.

Open – ended Change

There are yet other sequences of events and actions arising from the past and continuing to affect the future for which no explanation commands anything like widespread acceptance by those involved. The company supplying records and tapes may have decided in the past to diversity into video film distributing by acquiring another company already in that business, but it now finds that this acquisition unprofitable. The managers involved could well subscribe to conflicting explanations of way this is so. For example some may claim that the market for video film too competitive, others that the diversification was a wrong move because it meant operating in a different market with which they were not sufficiently familiar, and still other that the unprofitability is due to a temporary decline in demand and that the market will pick up in the future. Others explanations may ascribe the problem to poor management of the acquisition, to a failure to integrate it properly in to the business or to clash of cultures between of two businesses. What that team managers do next to deal with this present situation obviously depend upon the explanation of past failure they eventually agree on – if they do.
The change in this kind of situation may be called open ended. Here we do not know with any clarity what caused the change or what all its consequences were or will be.

Change and the Future

As they stand in the here and now, managers face three kinds of changing situation arising from sequences of events and actions that have already occurred. There are also sequences of events and actions that are starting up now, in the present. Some of these will be situation of closed change, such as an existing customer placing a much larger order for an existing product line. Some sequences of events and actions will be situations of contained change, such as a new customer placing orders for a modified range of products. And others will be situation of opened-ended change, such as setting up a new company branch in Poland.
Yet other sequences of events and actions will be initiated at future points. These sequences also will be either closed, contained, or opened ended. At each point, that spectrum stretches from predictable closed change, through statistically predictable contained change, into unknowable opened-ended change. The past and the short-term future are dominated by closed and contained change, but the long term future is opened change.

This pattern of change situations is a consequence of the dynamic of the business system. When dynamics are chaotic, small changes escalate and self-reinforcing circles develop, making it totally impossible to predict the specific long-term future consequences of sequences of events and actions. In this sense the long-term future of the system is inherently unknowable. But because it takes time for escalation to occur. It is possible to fore cast the short term future of the system. Thus, as we stand in the present we face a short term future that we can largely foresee and long term future that we can know nothing specific about. Of course, when we reach that long term point, we will find it to be a mixture of consequences that we can then understand and consequences that we cannot. But in the meantime, in the present, we have to decide and act knowing absolutely nothing in specific terms about those long term consequences.
Closed and contained change relate to developments that have short term consequences. To the extent that short term consequences are more or less repetitions of what has happened before, it is practically useful to apply probability concepts and statistical techniques to specify their consequences. Open-ended change, however, is unique and has never happened in that specific form before. Measures of probability therefore have no practical use in making decisions about opened-ended changes. Simulating the future of the business, or building scenarios of its possible futures, will not provide forecast of the likely range of outcomes pf such changes; these exercises can provide only learning or practice to get a feel for the kinds of future patterns that may develop.
Manager cannot choose o focus on one kind of change or another if they wish to survive. A business must simultaneously deal with all three forms. Because open-ended change is qualitatively different from closed and contained change, however, it will have to be dealt with in a completely different way.

Change and Behavior

Because reasonably clear-cut links can be established between causes and effects in situations involving closed or contained change, such situations have consequences that can be forecast to reasonably useful degree of accuracy. This means that the problem and opportunities facing managers in these situations are also reasonably clear. Any difficulties lie in finding answers, not in identifying the questions to ask. Such situations are not characterized by ambiguity, and competent managers conflict in such a situation, they probably can settle the conflict by rational argument. Failing that, the application of power as authority derived from the clear rules and structures of the organization can be applied to settle differences, or bargains of one sort or another can be used to resolve the conflict. People by and large know what they are doing in closed and contained situations. Indeed, they usually have largely decided what to do before such a change occurs. The behavior of groups of people and the shared models they use to design their actions therefore are all understandable and reasonably predictable in these kinds of situations.
When managers confront open-ended change, however, the situation is completely different in every respect. They are now faced with actions and events (past, present, or future) that have unknowable—not merely currently unknown—consequences. Links between cause and effect are lost in the detail of those events because small changed escalate and self-reinforcing circles appear. The key difficulty becomes that of identifying what the problems and opportunities are, deciding what questions to ask, rather than finding answers. The situation is ambiguous, and the responses of managers to it are equivocal. In these uniquely new situations, old shared mental models showing how to design actions do not work; new mental models have to be developed and shared before anything can happen. Conflict about how to interpret what is going on and how to design actions to deal with it becomes commonplace and inevitable. Indeed, it is a vital part of developing new mental models. Predetermined rules and authority structures become useless as effective means of settling the conflicts because these things presuppose that someone has made up his or her mind and know what to do.
The unpredictability of specific events within fuzzy categories, which is the hallmark of open-ended change, leads to ambiguity and confusion. Although human minds are well equipped to deal with such situations, the situations remain difficult because they require developing new mental models through analogical reasoning. That difficulty is magnified many times when a new mental model must come to be shared by a number of people in the management team before they can take joint action. The manner in which the team members interact with each other ten becomes a vital part of the decision-making process they employ. We cannot understand what they decide to do without understanding the impact of their personalities and the impact of group dynamics. In this kind of situation, people typically feel insecure and become anxious, with the result that their group dynamics become much more complex and may often become bizarre. There is a strong tendency to apply inappropriate mental models to the learning process.

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