In college, business students learn about organizational change. Their courses tend to focus on cookie cutter approaches fixed in time, fixed in an industry and fixed in a corporate culture. As if that weren’t narrow enough, these classes almost exclusively focus on the bottom line. They learn about best practices that may not apply to their industry, their employees’ wellbeing or their own strengths and weaknesses. They learn financial, structural and procedural tangibles well, but lack training in the intangible variables that make us human. However, basic psychological principles that drive management, employees and customers are the key to successful organizational change.
Organizational Change: The Common Mistake
Organizational change refers to the actions in which a company or business alters a major component of its organization, such as its culture, the underlying technologies or infrastructure it uses to operate or its internal processes 1. Many businesses are getting this wrong, and as a result, they fail.
While organizational change is common (70% experiencing more than four changes at the divisional level in the last five years 2), it is also often not successful, with more than 70% not meeting their goals 3, and 15% indicating they have little to no success 2.
The average organizational lifespan is only 18 years, and more than half of Fortune 500 companies have disappeared from the list in the last 15 years 4. In order to successfully implement long-term transformational organizational change, and for organizations to survive, the mindset of employees must also be changed 5.
Traditional Models of Organizational Change
There are many standard models of organizational change. Each has its strengths and weaknesses and research supporting its effectiveness. For example, the Influence Model developed by McKinsey in 2003 5 has four components: fostering understanding, reinforcing change, developing talent and role modeling. Studies have found that organizations were eight times more likely to succeed in their organizational change if their strategies used all four of these components rather than just one 6.
But there are a myriad of other models. They include (among others) Lewin’s Change Management Model, the Kubler-Ross Change Curve, McGregor’s Theory X and Theory Y, Herzberg’s Hygiene Factors, the McKinsey 7-S Model, Kotter’s Theory, Nudge Theory, ADKAR, and Bridges’ Transition Model 7 8. Each has its advocates and each has evidence both for and against its use. Even those who have formal education in organizational change don’t know which one to model their behavior after – so of course neither do managers without extensive training.
Many classic models are based on an approach to psychology from the early- to mid-20th century that assumes the primary motivation of an employee is either money or advancement. These models of organizational change are outdated and built on a concept that people are negative, scared and resistant to change 8. Modern psychology and neuroscience, however, find that most employees are interested in a good working environment and a fulfilling relationship with their boss and colleagues 9. To those ends, we are not actually resistant to change. In fact, most people seek out self-initiated change in the form of vacations, changes in fashion or remodeling their homes.
These standard models inadequately encompass modern inclusive wellbeing strategies and often fail because they do not acknowledge the reality that organizational change cannot happen without changing individual people 9. Managers unwittingly continue to use these models, however, and while they have financial expertise 10 and speak to the financial, structural and procedural tangibles well, they may mishandle or skip the human related intangibles 5.
Psychological Science of Organizational Change
We find instead that the basis of successful organizational change is found in core principles of psychology. Rather than attempt to implement rigid and outdated models, it is more productive to learn these core principles and apply them to your unique situation in a flexible way.
Rewarding the Wrong Behaviors
Managers should use reinforcement consistent with the behaviors desired 11, but many reinforcement systems reward the wrong behaviors. For example, professors are rewarded for research productivity rather than teaching. Realtors are rewarded for fast sales rather than looking out for the best interests of their clients. Many more examples are spelled out in the popular book Freakonomics 12. When reinforcement is used to change employee behavior, incentives in addition to money should be considered. After $75,000 in income there are diminishing returns in terms of happiness and other things people value 13. Likewise, small monetary rewards like gift cards are used by employees on daily expenses giving them little impact 14. Larger more impactful incentives (like vacations) and intermittent (rather than predictable like annual bonuses) reinforcement are more effective.
Giving your employees a purpose to believe in is a common component of standard organizational change models. This is based on the principle of Cognitive Dissonance 15, which states that we want our behaviors and our beliefs to be consistent, and when they are not, we will change to remove the state of dissonance. This principle leads us to the conclusion that, if employees believe in what their company stands for, they will modify their behaviors to be in line with those standards.
You can also use cognitive dissonance to your advantage by including resisters in the decision-making process. Once they have been involved in making a decision, they are more likely to bring their behaviors in line with that decision.
Training and Role Models
Psychology shows us that large-scale change happens best in smaller steps with people directly involved in learning through experience 16. This Experiential Learning Cycle of test, experience, reflect and conceptualize is most effective at solving complex problems. In addition, there must be short-term goals and ‘wins’ in order to create a sense of urgency and visible progress even in long-term projects. Using SMART (Specific, Measurable, Achievable, Realistic, Timely) goals is a good way to do this 17.
Related to the Experiential Learning Cycle is the theory of Double-Loop Learning, which posits that people learn best by teaching others 18. Training programs should take this into account and should incorporate peer learning opportunities.
Successful change also requires effective role models. Classic research in psychology has shown that we model our behavior after those around us 19. Therefore, strong role models in working groups will help the whole group perform better. Organizations effective at managing change have cultures that have changed from bureaucracies to a federation of entrepreneurial managers serving as role models for effective change 4.
There are a number of cognitive biases that also impact change management. The False Consensus Effect, for example, is a cognitive bias in which we overestimate the degree to which others share our beliefs and attitudes 20. Thus, clear communication of those beliefs and attitudes is necessary in order to ensure everyone really is on the same page.
The Curse of Knowledge (or Curse of Expertise) is a cognitive bias that occurs when an individual, communicating with other individuals, unknowingly assumes that the others have the background to understand 21. This is so prevalent that there can be as much as a 45% difference in rated agreement 22, yet managers continue to assume that those affected by change have the same set of facts as they do 23. And only 40% of first-line supervisors say their management does a good job of explaining major decisions 5. So do not assume the why of what you are asking is clear to the broader organization 6. Real transformation happens only when holistic change is embraced. The focus must not be on individual initiatives – rather on changes to the business itself 2. One way to overcome these and other cognitive biases is to use technology to track and manage change in real time 7 and use robust tracking systems so you are not relying on memory, instinct or other biased sources of information 2.
Personality and Positive Psychology
There are also personality factors that contribute to acceptance of change, and different employees will need to be brought on board with the change in different ways 24. Some are resistant to change simply out of fear that they will not be able to learn the new skills required of them 23. Remember that psychologists define stress as change 25.
People also tend to avoid risk, but successful organizational change often occurs when the very highest levels of management are the ones willing to accept the risk of potential failure and when failure does not trickle down to have consequences for subordinates. Some of the most successful organizational changes occurred when the CEOs of Google and Microsoft put everything on the line.
Modern positive-psychology-based approaches focus on talent and fulfillment rather than barriers and negative emotions 26. This approach has seen businesses focus on the psychological and emotional wellbeing of their employees (human capital) – not just the financial bottom line 27.
Positive emotions also increase our ability to integrate new material and form strong cognitive schemas and organizational structures 28. They make people more tenacious, self-confident and willing to be versatile 8.
Ambiguity and Uncertainty
Change requires some level of ambiguity. Research shows that positive emotions are associated with the ability to accept uncertainty 29. Negative emotions restrict our creativity and ability to deal with the unknown – putting us in a ‘fight or flight’ mode not appropriate for our everyday behavior 30. Worse than that, once the threat is perceived to have diminished, employees return to their former behaviors, which leads to organizational habits of continually finding new threats and employees who learn to stay out of the way rather than working toward a common goal 8.
Good health and wellbeing can be core enablers of employee engagement and organizational performance 31. In fact, inclusive workplaces are six times more likely to be innovative and twice as likely to meet financial goals. Employees in these workplaces are even less likely to leave for another position 32. Here it can be useful for the manager to utilize a coaching mindset when dealing with the employee – helping them recognize and assess their natural talents and helping them execute the ‘play’ you call.
Know the Landscape
Know your brand. If you stray too far from your customer base, your change will not be successful. Efforts by Wal-Mart in the 2010s to move away from their bargain image did not work. Likewise, efforts by JCPenney and Oldsmobile to move away from sales, coupons and negotiated pricing did not work. You must know your customers. And don’t be too late in initiating your change. Barnes and Noble has survived while other bookstores did not because those others were too late to both the e-reader and e-commerce arenas.
Of course, there are many more psychological phenomena that can be used to effectively manage change in organizations. This rather lengthy list of examples makes the point that there is an abundance of psychological science (classic and modern) that should be considered beyond just financial and structural information. Your company is unique, and you should approach managing organizational change as a buffet of tools you can use rather than a Prix Fixe menu. Behind each of your decisions should be sound psychological science and a dedication to valuing the wellbeing of your employees. These efforts require large amounts of positive affect and social bonding – things like hope, excitement, inspiration, caring, camaraderie and sense of urgent purpose 8. This approach will be more successful than classic cookie cutter models.
Dr. Brian Cronk
Dr. Brian Cronk is the inaugural Dean of the School of Arts and Sciences at SUNY Buffalo State where he has been charged with combining the School of Arts and Humanities with the School of Natural and Social Sciences. Prior to joining SUNY Buffalo State, he served as a Board of Governors Distinguished Professor at Missouri Western State University. He is the author of a best-selling textbook on using IBM's SPSS statistical analysis software for data analysis and interpretation.
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