Organisational transformation: changing at the core

Those who want to change organisations profoundly first need a sound picture of what an organisation is. On the basis of modern systems theory, transformis understands organisations as complex social systems that provide solutions to problems in their environment. By drawing boundaries, they create an internal space that ensures stable output despite external influences.

This boundary has a downside. A highly selective perception emerges, and relevant changes are often not recognised early enough.

The basic element of organisations is communication. The most important communicative event is the decision. Organisations are operationally closed and self-referential. They do not see what they do not see. They cannot be changed from outside, and they have one goal: to survive.

Two tasks follow from this understanding. Adequate leadership ensures the right amount of impulses flowing into organisational decision-making processes. In this understanding, consulting is a deliberate decision to counteract the self-referentiality of organisations.

This has a practical consequence for designing transformations. The starting points are an organisation’s observation and evaluation grids and the communication routines with which it generates information and condenses it into decisions. That is where it is decided which impulses from the environment arrive at all and which remain without consequence.

Economic history knows well-known examples of organisational blindness. As a pioneer of the mobile phone, Nokia did not see that a newcomer to the industry such as Apple was not concerned with building phones at all. It did not fit the company’s view of the world that a newcomer would show the quasi-inventor of the mobile phone the way. The case is regarded as a prime example of the self-referentiality of managers and of an entire organisation.

Kodak dominated the market for films and cameras for a long time. When digitalisation began, the company reacted far too late. Its attempts to return to its former strength in the digital segment failed.

A German manufacturer of leisure products fared similarly. It had once set trends and built up great expertise in aluminium processing through garden furniture. Later it no longer managed to take up new trends in leisure mobility. It let obvious opportunities such as electric scooters pass by unused.

Why do organisations recognise changes in their relevant environments too late? An organisation is related to many environments: to customers, suppliers, competitors, banks, employees, the city and the internet. To reduce complexity and remain capable of action, it uses its observation and evaluation grids to select which environments are relevant to it.

Established routines are geared towards confirming the internal ideas about these environments and filtering out divergent impulses. An organisation sees what it sees, and as a rule it does not see that it does not see what it does not see. In this sense, blindness is not a failure of individual people. It is the consequence of a selection without which no organisation could work.

Following Wimmer, three levels of change processes can be distinguished. They describe how far a change reaches into an organisation’s routines.

First-order changes are the natural developmental movement of an organisation. It is to be understood as a continuously ongoing evolutionary process of change. Organisations are constantly in motion and take up impulses from the environment in an unsteered way in order to adapt their own routines. This form of self-adaptation requires no planned interventions. Even the rigidity that is observed and experienced in organisations is the result of constant adaptation processes. The short formula is: dynamic stability.

Second-order changes aim to cope with the respective occasion for change and then to follow newly created routines again. At this level, the organisation remains attached to the established routines of how it deals with change. Similar problems are handled with the routines that have proven themselves in the past. What worked before is applied again. The short formula is: more of the same.

In third-order changes, the organisation learns, beyond the specific occasion, to observe how it has dealt with change so far and whether these established patterns themselves need to be changed. Two questions guide this observation. What do we learn about ourselves as an organisation from the fact that we produce such problems? What do we learn about ourselves from the way we deal with these problems?

The organisation uses occasions for change to critically reflect on its previous solution patterns from the meta-position and, where necessary, to find and establish new patterns of change. The short formula is: changing change.

The three levels give rise to a map of occasions for change. The basis is the first order. Here the organisation trusts in its naturally grown capacity for adaptation and sees no further need for change.

Above this lie four starting situations. They differ according to whether a second- or third-order change is pending and whether it is time-limited or permanent.

At the second order, in the time-limited case, the task is to overcome or ward off an acute crisis. The appropriate objective is crisis management or restructuring. In the permanent case, it is about constantly exploiting the existing potential for improvement. The objective is continuously ongoing optimisation.

At the third order, the time-limited starting situation is the realisation that the existing organisational architecture will sooner or later lead to an existential threat. The objective is genotypic transformation. In the permanent case, it is about avoiding emergency operations and preparing in good time for the unexpected. The objective is foresighted self-renewal.

The distinction protects against a common mistake: handling every change with the same approach. An acute crisis demands something different from a fundamental rebuild of the organisational architecture, and both differ from lasting work on one’s own capacity to learn. The two variants of third-order change management, genotypic transformation and foresighted self-renewal, are described in more detail below.

Genotypic transformation is the time-limited variant of third-order change management. A profound organisational transformation is placed in an architecture that includes a meta-reflection process. The focus is on the immediate occasion for change and at the same time on the previous practice of change: on the way such processes are designed, observed and evaluated and how lessons are learned from them. Therein lies the component of changing change.

A genotypic transformation makes sense when the company has recognised that continuing on its previous path and holding on to its existing strategic direction, together with the associated structures and processes, will sooner or later lead to an existential threat. These are restructuring processes that intervene deeply in the historically grown identity and in the underlying structures and processes of the organisation. A radical rebuild of the existing organisational architecture and the associated leadership structure is pending.

Such a rebuild triggers great uncertainty in the organisation and brings with it enormous potential for unrest, which ties up attention for weeks and months. This creates considerable time pressure. Success requires correspondingly great, genuinely comprehensible, existence-threatening pressure that makes such restructuring explicable.

Such rebuilding processes need a carefully designed dramaturgy. It must transfer the organisation’s status quo to the target state within an appropriate period without lowering existing performance in the meantime: a rebuild with the engine running. The aim must be to work specifically on the organisation’s previous experience in dealing with such challenges and to evaluate the process in such a way that the organisation learns from it sustainably.

This form of organisational change inevitably also puts the respective leadership system under pressure to change, both functionally and in terms of personnel. The required organisational change therefore presupposes a change in leadership. The change begins with the self-image of the decision-makers who are responsible for it. They must see themselves as a success-critical part of the change project.

For a genotypic transformation to succeed, four preconditions must be met. The first is the recognition that continuing on the previous path or holding on to the existing strategic direction, together with the associated structures and processes, will sooner or later lead the company into an existential threat or an undesirable imbalance.

The second precondition is the willingness to intervene in the historically grown identity of the organisation and in its underlying structures, processes and routines. The third is the will to deal with time pressure, uncertainty and potential unrest during the transformation phase, even over weeks and months.

The fourth precondition concerns management and executives. They must include themselves in the change process. A conscious role in steering it is not enough. Management and executives are part of the organisation and thus themselves the object of change.

Following Nagel and Wimmer, the dynamics of such a transformation can be described as an arc of tension between two poles. The first pole is the “away from” and provides the push. It means the shared insight into the current or future threat that makes the change necessary. The guiding question is which hardship needs to be averted. It is about facing reality.

The second pole is the “towards” and provides the pull. It arises from developing and creatively communicating an attractive perspective for the future and from broad, shared acceptance of this perspective.

The arc of tension between the two poles must be created and sustained. This happens when vertical and horizontal communication creates transparency and insights and perspectives are shared. The basis is a viable leadership constellation for building both poles.

The understanding of leadership for a genotypic transformation begins with a look back. With such far-reaching changes, a careful analysis is required of the experiences an organisation has had in the past with such “impositions”. Accompanying reflection on the process must be ensured. It is an indispensable success criterion and at the same time a steering element.

In the starting situation, the hardship that needs to be averted must be communicated so comprehensibly that the organisation accepts it and is willing to go along. The change fatigue of organisations must be overcome in the process. It is becoming increasingly difficult to convey urgency credibly, because the “sense of urgency” has often been misused in the past.

For the change initiative, a process architecture must be developed that suits the specific dramaturgy of such an initiative. Dramaturgy means that the initiative must be designed according to its inner logic in a very specific sequence of steps. These steps are not freely interchangeable and cannot be skipped.

Each step is characterised by very specific key decisions that have to be made. These decisions each require the appropriate forms of work.

Finally, a shift from certainty of outcome to certainty of process is necessary. In a genotypic transformation, management cannot guarantee the outcome in advance. Certainty comes from a reliably designed process that brings about the necessary decisions in the right order.

Foresighted self-renewal is the permanent form of third-order change management. It enables an organisation to pick up weak signals and random impulses from its relevant environments and to use them deliberately to develop its own performance potential. It thus aims at systematically increasing its own capacity to learn as an organisation.

The ability to balance skilfully between learning and not learning generally makes it possible to avoid emergency operations and the management of self-inflicted crises. The core of self-renewal is this: organisations need routines for changing change.

It is about increasing the capacity to learn in the sense of foresighted, strategy-oriented self-renewal. The aim is to expand the organisation’s own potential for self-change. The organisation’s learning itself becomes the object of learning and thus of change.

Foresighted self-renewal means initiating the necessary changes early enough that sufficient time is available for their successful implementation. The foresighted element and the orientation towards the future create a time budget that makes the need for radical transformation less likely.

This targeted intervention in an organisation’s capacity for self-adaptation secures the resilience known as organisational resilience. It ensures that organisations work successfully even under very unfavourable environmental conditions.

What matters here is to expand one’s own points of connection with the environment and to create internal structures that can pick up and process impulses and opportunities from the environment. These additional “sources of irritation” increase the ability to register weak signals from markets, competitors or suppliers in a targeted way, to make their significance assessable and to initiate the necessary innovations.

Opportunities often arise where one would not have expected them. Additional points of contact with people outside the organisation help to recognise and reduce blind spots.

For foresighted self-renewal, the organisation needs a pronounced sensitivity to the unusual and to unexpectedly emerging opportunities. It also needs a leadership system capable of making decisions, which picks up these impulses promptly, checks their relevance, sets the necessary renewals in motion and drives implementation forward.

Such processes require careful further development of the entire HR management. The organisation must be supplied with high performers who can realise this innovative strength. This starts with the recruiting process, extends through people development and ends with incentives. A good mix of talented newcomers from outside and the targeted development of talented home-grown staff is needed.

The capacity for self-renewal is built on a culture with four characteristics. It stimulates and motivates employees to contribute their own divergent observations and opinions. This makes a joint struggle for appropriate assessments of reality possible.

In such a culture, mistakes and unusual deviations are regarded as welcome prompts for learning and are not immediately sanctioned, because something new can emerge from contradiction. In addition, resources are provided for innovation and experiments. The technical term for this is paradoxical resource allocation.

Finally, existing structures and processes are repeatedly examined and adapted for their functionality and effectiveness in the sense of creative destruction. New employees, with their fresh perspective, are a great opportunity to recognise the need for change in the organisation.

An organisation’s capacity to learn is the skilful balancing of change and continuity. The self-renewal process relies on three basic mechanisms for this. Variation means expanding the sources of irritation and thus increasing the chances of learning prompts. Selection means increasing the organisation’s internal capacity to process impulses for renewal. Re-stabilisation is the ability to turn the selected innovations back into usable routines.

These mechanisms give rise to the requirements for management. With regard to variation, it is necessary to look very closely at whether the relevant environments are present in the organisation. Only then will developments in these environmental segments be registered early and used as impulses for change.

Examples include specific forms of cooperation with key customers, development partnerships with suppliers or cooperation with research and training institutions. It is about constantly fine-tuning sensitivity to the environment.

With regard to selection, regular occasions must be created in which the impressions from these different environments are evaluated for their strategic relevance and conclusions are drawn. Existing evaluation structures must be questioned regularly. Evaluation routines must be established at all levels of the hierarchy so that the organisation recognises what is essential and ignores what is not.

With regard to re-stabilisation, it is important to give this phase the attention it needs and to consistently replace old routines with new ones.

Above all three mechanisms stands a dual requirement. Management must rise to the challenge of working well in the here and now while at the same time being open to suggestions, new opportunities and occasions.

The goals of a radical organisational transformation cannot be achieved by force, that is, not from within the hierarchy. Transformation demands sacrifice, commitment and creativity. None of this can be forced.

First, it must be soberly acknowledged that the existing energy of an organisation is directed at maintaining the status quo and the established routines. The existing goals and the personal interests of the actors linked to them ensure that this energy remains directed at preserving what exists.

There is also a question of resources. The more optimisation and rationalisation there has been in the past, the fewer “free-floating” resources are available for the transformation process. An organisation that has condensed its processes over years must first create the scope for transformation.

It follows that differentiated answers to different challenges are needed. There are very different occasions that make change necessary. Accordingly, tailor-made approaches are needed that fit the respective change requirements.

Change management is therefore not always the same change management. An approach that overcomes an acute crisis is not suitable for restructuring the organisational architecture. What serves ongoing optimisation does not replace work on the capacity to learn. Every transformation therefore begins by clarifying what kind of change is involved.

To shape a company’s transformation successfully, the triad of strategy, organisation and people is essential. The three fields are interdependent and form a triad that needs to be managed. In addition to orchestrating this triad, leadership and culture play a decisive role. Third-order change is used as the approach in change management.

Strategy means finding answers to tomorrow’s questions. The business environment is marked by enormous dynamics of change and massive upheavals. Anyone who wants to act with foresight in the market and shape the future confidently must address strategic questions. A viable strategy makes it possible to meet market requirements, give employees orientation and secure the company’s success in the long term. Areas of work are strategy development, market positioning and customer segmentation.

Organisations develop blind spots when observing their environment. To keep them as small as possible and remain equal to the changing challenges of the market, cross-departmental cooperation on an equal footing is required. A suitable organisational structure is essential to establish, promote and shape this cooperation. In addition to networking the departments, an organisation needs diverse competences to develop effective solutions from the information gained. Areas of work are organisational design and the learning organisation.

People is about the path from bottleneck to competitive advantage. Qualified and motivated specialists and executives are a bottleneck in many industries. The people factor therefore determines a company’s success more than ever. With the right solutions in HR management, functions and positions can be filled appropriately and the dynamics of the markets can be used to one’s own advantage. HR management becomes the performance engine of the organisation. Areas of work are HR strategy, recruitment, people in change and people development.

Corporate leadership is the key to organisational capacity for change. Executives are key figures in change processes, but face increasingly diverse and demanding tasks and are exposed to internal and external interactions. They must be enabled to master these challenges confidently: in decision-making despite uncertainty, in taking interactions into account and in their role model function within the organisation. Areas of work are management coaching, leadership development and Next Generation Leadership.

A company’s lived culture is like its DNA and contributes significantly to the organisation’s success. Restructuring and strategy processes can only be implemented successfully if corporate culture is taken into account, because only then will the entire workforce support the change. This requires knowing one’s own corporate culture.

Changing culture is a major challenge. However, it can become necessary if the existing corporate culture limits organisational performance. Areas of work are culture development and the Systemic Culture Compass.

transformis’s consulting approach is based on the findings of systemic organisational theory. According to this understanding, the essential starting points for observations and interventions are not primarily the people in an organisation. The starting points are the organisation’s established grids for observation and evaluation and the characteristic communication routines with which information is generated and condensed into decisions.

The third mode of consulting differs fundamentally from classic expert consulting. In addition to the substantive dimension, the social dimension and the time dimension are given equal consideration in the architecture from the outset, synchronised and integrated.

In the substantive dimension, a task-related problem of the organisation is worked on in order to secure or further develop organisational performance. The social dimension is about the indirect further development of the quality of cooperation and decision-making capability of the team and of other communication in the organisation.

The time dimension comprises observing and shaping over time. This includes avoiding tendencies towards over- or under-steering and balancing acceleration and deceleration in the decision-making process.

The approach takes into account the high dynamics and self-referentiality of organisations. It takes up the resistance that change meets and recognises that actors in organisations do not only pursue organisational goals.

In this understanding, independence from specific industries has a function. It is meant to prevent the blind spots of focused industry experts from entering the work and allows perspectives and experiences from other industries to be brought in.

Cooperation also follows fixed rules. All working sessions are moderated and all results documented. Every working session ends with minutes accepted by everyone present. Every session is reflected on and evaluated, and the evaluation feeds into the preparation of the next one.