Rebuilding Behavioral Context: Turn Process Reengineering into People Rejuvenation

After the slash-and-burn organizational restructuring of the past decade, one thing is becoming increasingly clear to managers: if a company is to proceed beyond the shrinking spiral of downsizing and rationalization to develop the ability of continuous self-renewal, its real battle lies not in reorienting the strategy, restructuring the organization, or revamping the systems, but in changing individual organization members’ behaviors and actions. A self-renewing organization can be built only on the bedrock of people who are willing to take personal initiative and to cooperate with one another, who have self-confidence and a commitment to the company, and who are able to execute relatively routine tasks with the same proficiency as they are willing to learn new skills and ways to take the company to the next stages of its ambition. In short, the most vital requirement for revitalizing businesses is to rejuvenate people.

What is not clear to many managers is whether it is possible to stimulate such behaviors in large global firms. Based on our recent research in twenty European, U.S., and Japanese companies, we believe that the answer is an unambiguous “yes.”1 A number of companies we studied demonstrated an ability to shape and protect the required individual attitudes and actions over decades, despite their growing size and diversity. We also found several in which a determined top management was able to recreate such behaviors in stale, tired organizations in a relatively short time.

3M, for example, has overcome the constraints of its humble roots as a sandpaper manufacturer to emerge as one of the world’s most consistently innovating companies. With a long-established objective of generating 25 percent of its sales from products introduced in the most recent five-year period, the company has grown from simple industrial abrasives to a portfolio of more than 100 technologies that it has leveraged into some 60,000 products sold through more than forty divisions and national subsidiaries in fifty countries. Rather than slowing the pace of innovation and renewal, CEO Desi DeSimone has recently increased the target for his $15 billion corporation to ensure that 30 percent of future sales comes from products introduced in the previous four years.

Through a very different self-renewing approach, Intel has managed not only to survive in one of the most demanding industries, but also to emerge as its leading competitor. The company has mastered the prerequisite ability to manage extremely compressed product life cycles. At the same time, it has shown remarkable agility in navigating the semiconductor industry’s many structural discontinuities brought about by intense competitive pressure, the rapidly changing buyer structure in the computer industry, technological revolutions, and continuously shifting industry alliances and coalitions. In the process, it has evolved from a technology-driven memories developer to a technology- and manufacturing-dominated microprocessor manufacturer and now is becoming a functionally balanced systems company.

What 3M and Intel (and several other self-renewing companies we studied, such as Kao Corporation, Corning, Andersen Consulting, and IKEA) have in common is a carefully nurtured, deeply embedded corporate work ethic that triggers the individual-level behaviors of entrepreneurship, collaboration, and learning that are the foundation of organizational renewal. It is a subtle, complex characteristic that we call the behavioral context.2 Difficult to define and even more difficult to develop, it is nevertheless something easy to sense and experience: one manager described it as the “smell of the place” manifested in a thousand small details of how a company functions. It is as pervasive and influential as climate — just as one can be energized by the fresh, crisp air at a mountain resort in spring, so too can the behavioral context of a company provide people with a source of stimulation.

Unfortunately, over time, many large companies have created a context more akin to the polluted, oppressive environment of the inner city in mid-summer, sapping personal energy and creating conditions for apathy. The challenge for managers of these companies, to quote one of our interviewees, is “to throw a baseball through the window to let in the life-giving fresh air.”

Pathologies of the Inherited Context

For years, Westinghouse has been a classic example of a company in which employees were trapped in an oppressive behavioral context from which they could not escape. During the past decade or so, Westinghouse top management has declared victory in its battle for strategic and organizational renewal on at least three occasions, each time to stumble and begin the process all over again. After a massive restructuring spanning the entire second half of the 1970s, then-CEO Robert Kirby announced in 1981 an end to the company’s history of “unpleasant November and December surprises” and the beginning of an era of uninterrupted growth. By 1983, however, the company’s financial results had sharply deteriorated, leading to another round of rationalization together with many “Japanese-style initiatives” for continuous productivity improvement. By 1987, as return on equity topped 20 percent, exceeding that of arch rival General Electric, then-CEO Douglas Danforth announced Westinghouse’s entry into “the winner’s circle” — one of the few elite corporations with a reputation for consistently superior financial performance and managerial excellence.

After another setback in 1988, new CEO John Marous announced his vision of elevating Westinghouse “from the good corporation it is today to a great corporation,” triggering a fresh round of radical change. By 1989, with double-digit sales growth and a net profit of nearly a billion dollars, Marous’s vision appeared close at hand amid external acclaim that the company had achieved “respect, at last.” By 1991, however, soon after incoming CEO Paul Lego took over, an embarrassing mess at Westinghouse Credit plunged the company into a 1992 loss position of $1.7 billion and marked its stock down to half the level of two years earlier. Unable to ride out the storm of criticism, in mid-1993, Lego was replaced by Michael Jordan who once again announced “a new beginning.”3

Westinghouse is not an isolated example. After an orgy of “transformation programs” in the 1980s, many large corporations are waking up in the 1990s with little to show for it except a massive hangover. In the United States, companies like Digital Equipment Corporation, Sears, and Eastman Kodak have struggled for years to reverse their fortunes despite their inspiring visions, dramatic restructuring, and leveraged incentives. In Europe, once revered names like Daimler-Benz, Bull, and Olivetti have made headlines as examples of problems rather than role models. Even much admired Japanese companies like Mazda, Yamaha, and Matsushita have attracted similar unwelcome notoriety in their highly publicized but apparently ineffective efforts to renew themselves.

The roots of such corporate sclerosis lies in the behavioral context these companies have institutionalized in their organizations. Nurtured by the postwar environment of seemingly boundless opportunities, companies pursued aggressive diversification strategies, supporting them with increasingly elaborate divisionalized organization structures. But initially successful strategies became embedded in policies that tended to refine and defend existing positions rather than exploit new ones, and once facilitating organizations became increasingly bureaucratic and compartmentalized, inhibiting both individual initiative and cross-unit learning.

Time and again, once great companies found themselves caught in a spiral in which yesterday’s winning formula evolved into today’s conventional wisdom and risked being ossified as tomorrow’s sacred cow. Like Westing-house, they found they had gradually developed a context that, while superficially benign, had a corrosive effect on its members’ behavior. Only by explicitly recognizing the central characteristics of this inherited context, and understanding how it affects management perceptions and actions, can those who want to revitalize their organization replace its most pernicious qualities with others more conducive to genuine, durable growth and renewal (see Figure 1).

Compliance

The first element of the traditional company’s managerial context is what we term compliance — an important, even vital, characteristic in the postwar years when many companies diversified their activities into scores of inviting opportunities. As they began their rapid expansion into a diverse range of new businesses and markets, most found an urgent need to have widely dispersed employees complying with common policies and uniform practices in order to prevent powerful centrifugal forces from pulling their organizations apart. The classic military model of line authority that dominated the formal relationships between managers ensured that those deep in the organization would follow the leaders’ direction.

But while this widespread contextual norm ensured unity of action at a time when the key management challenge was to choose among competing opportunities, in its pathological form, it developed inflexible procedures and authoritarian intolerance of dissent that inhibited challenge of outmoded policies and shut down meaningful debate on top-down directives.

Ultimately, it was not the policies themselves but the effects they had on people’s day-to-day behaviors that made it so difficult for these companies to sense early warning signals and correct problems before they became disasters. One of the most damning public charges leveled against Westinghouse CEO Paul Lego was that “there was no one to challenge him.” Although, for years, many in the company apparently could see the impending collapse at Westinghouse Credit (“Even the guys in the mail-room were asking when there would be a write-off,” said one former executive), Lego apparently remained unaware of the severity of the mounting problems. In a culture in which authority and order quashed dissent, top management was completely isolated from day-to-day operations. This tradition, built into the behavioral context of the 1970s, continued into the 1990s with massive unexpected losses in financial services followed by major unforecasted problems in environmental services.

Control

The second common characteristic of the managerial context in large modern corporations is control — again, an organizational characteristic that allowed companies to expand operations rapidly yet efficiently in an earlier era. This deeply rooted norm that characterizes classic hierarchical relationships was greatly strengthened with the introduction of the divisional organization structure. Corporate executives were willing to delegate substantial responsibility to a new level of general managers only if they had the mechanisms to hold them accountable.4 Strongly influenced by powerful corporate staffs, most companies developed sophisticated corporate-driven processes based on capital planning and operational budgeting systems to establish top-down control throughout their organizations.

While such systems proved highly effective in allocating funds and driving ongoing performance, they eventually contributed to a deterioration in interpersonal relationships. The objective-setting and forecasting processes often degenerated into a game-playing exercise between adversaries, and the monitoring activity frequently became an excuse for an increasingly powerful corporate financial controller to intervene in the operations of front-line managers.5

In a management group dominated by engineers, tight controls had long been a central characteristic of Westinghouse’s management style. The principle of tight control was firmly reasserted after a decade-long experiment with freer management created a serious performance decline in the mid-1970s. But the shorter, tighter leash placed on employees led to constant complaints about the haggling in the planning and budgeting processes. The highly sophisticated system was based on company-imposed estimates of capital costs and cash flows that became an unending source of debate, and many felt the system was driving them to achieve short-term results at the expense of long-term business development. About the only topic on which there seemed to be general agreement was that the tightly administered processes were consuming an enormous amount of management time and energy.

Contract

In the traditional large-organization model, another strong influence on attitudes and behavior was the contractual nature of the relationship between the corporation and its employees. This characteristic was born of legalistic biases that became greatly strengthened by two more recent organizational trends: the highly incentive-leveraged compensation systems that reinforced the notion of a financial relationship between the company and its employees, and the massive restructuring, rationalization, and redundancy programs that underlined the fact that this relationship could be terminated at any time.

While the implicit or explicit contract between employee and employer initially served to define expectations and give the relationship clarity and stability, it eventually led to a formalization and depersonalization of how individuals felt about their companies. As widening compensation differences fostered resentment and increasing terminations bred fear, people began to distance themselves emotionally from an entity they felt had betrayed them. More and more, they felt like employees of an economic entity, and less and less like members of a social institution.

The familylike relationship that once dominated the Westinghouse culture began eroding in the 1970s when CEO Robert Kirby resolved to revive the company’s sagging fortunes with massive layoffs and divestitures that cut the total work force by 30 percent in three years. However, more than the layoffs per se, what destroyed any sense of familylike loyalty at Westinghouse was how the layoffs were implemented. Any notion of an emotional relationship between the company and its people was firmly disabused by Kirby’s statement that he would fire his own mother if she weren’t producing the expected results. Twenty years later, a never-ending series of layoffs and divestitures reduced the work force from 200,000 in 1974 to 54,000 in 1994, and had long since eroded the once strong sense of company pride and loyalty.

Constraint

The other dominant characteristic common to the behavioral context of many modern corporations is the attribute of constraint. As companies expanded and diversified, top management found it increasingly important to develop clear, focused definitions of corporate strategy to provide the boundaries in which those with delegated responsibility could operate. Particularly in an environment in which opportunities for expansion exceeded most companies’ ability to finance them, such constraint was helpful in preventing diversification from dissipating resources and becoming unmanageable.6

Eventually, however, as companies elaborated broad strategic objectives through detailed strategic plans and translated them into specific portfolio roles for different businesses, the constraints became confinements and the boundaries became barriers. Managers of businesses classified as mature began to think of themselves as mature, averse to risk, and resistant to innovation. The strategic process became a constraint not only for how these managers could act but, ultimately, for how they could think. Constantly bombarded by strategic visions, roles, goals, challenges, and priorities, frontline managers retreated into a much more passive mode than the spirit that had initially powered the organization’s growth engine.

The deterioration of this once legitimate element of management context is clearly illustrated at Westing-house. As a way to control operations that “had gone totally hog wild,” Kirby introduced the concept of strategic business units (SBUs) and imposed strict discipline through the company’s highly touted planning system, dubbed Vabastram (VAlue BAsed STRategic Management). Initially, Vabastram educated an engineering-oriented management team to a more financially oriented view, improving the discipline of Westinghouse’s investment process. For example, because of Vabastram, Westinghouse backed away from several tempting but overpriced acquisitions and avoided a number of risky contracts in the environmental cleanup business that later crippled some of its less disciplined competitors. Ultimately, however, top management’s blind faith in Vabastram deprived the business units of all flexibility and creativity. It reshaped behaviors, both within individual businesses and across them, as each of the thirty-seven SBUs focused on its own business, attempting to maximize its own return on allocated equity. Vabastram also reshaped the frontline managers’ relationships with top management. It gave top managers the data to decide whether to continue to invest or to sell off the business. As they made seventy divestitures between 1985 and 1987 alone, the message to the organization was clear: deliver current performance or your unit will be sold.

When Michael Jordan replaced Paul Lego as CEO in mid-1993, he identified not only the massive challenges in reviving the company’s sagging operating performance and restructuring its damaged strategic portfolio, but also the huge task of transforming an internal management culture that he described as “a throwback to the 1950s.” Although a fifties-based culture was ideal in the postwar era when a company’s opportunities exceeded its ability to fund them, in an environment in which innovation, responsiveness, flexibility, and learning had become vital sources of competitive advantage, a management context driven by compliance, control, contract, and constraint became more a liability than an asset.

The Context for Renewal

The portrait we have drawn of the large corporation in the mid-1990s is not a flattering one and, to some extent, is a caricature. While we hope there are only a few companies in which all four elements of the managerial context have deteriorated to the degree we have described, there are equally few that have emerged untarnished by any trace of such pathologies.

This historically evolved behavioral context has proven to be so debilitating because, as all four core characteristics atrophied, they drove management to become passive, compliant, and focused inward — captives of their glorious past, rather than explorers of a brave new future. The only enduring antidote to the pervasive disease of corporate sclerosis is to build a behavioral context that drives a company toward continuous self-renewal rather than a focus on refining existing capabilities and defending current positions.

To develop the kind of management understanding, belief, and commitment that drives the incessant need for renewal, companies have to build a very different behavioral context than the norms of compliance, control, contract, and constraint that hobbled Westinghouse and so many other large organizations. As we examined the management processes at 3M, Intel, Corning, Andersen Consulting, Kao Corporation, and other companies more adept at continually renewing their organizations, we identified four common characteristics of their behavioral context — discipline, support, trust, and stretch (see Figure 2).

Discipline

In traditional organizations, management assumed that desired behavior could be induced largely through the formal reporting relationships of the structural hierarchy and the policies and procedures meant to reinforce them. Compliance to authority, or the rules that supported it, was a necessary requirement of overall cohesion in the system. A management context shaped by discipline, on the other hand, does not rely on authority relationships or management policies — either exclusively or even primarily — as the means for influencing individual behavior. Rather, self-discipline becomes integrated into the flow of the company’s ongoing activities and is reflected in every aspect of corporate daily life. In disciplined organizations, people do more than follow directives and conform to policies; they also return phone calls promptly, come to meetings on time, refrain from questioning in the corridors decisions made in the conference room, and, above all, deliver on promises and commitments.7

Discipline is an organizational characteristic evident to anyone attending a meeting at Intel. Every meeting has an agenda and closes with a decision, action plans, and deadlines. Such a disciplined approach, however, does not imply that debate is limited or dissension discouraged. But once an issue has been fully aired, decisions must be made; the company’s clear philosophy is that people are expected to “agree or disagree, but commit.”

In a culture based on discipline rather than compliance, individual behavior tends to be embedded — built from the bottom up rather than imposed or driven from the top down. In other words, discipline encourages all employees to strive voluntarily to meet and exceed their own commitments.

The indoctrination process at Andersen Consulting exemplifies the process of embedding discipline in individual behavior. As an organization that grew from a highly respected accounting and auditing partnership, the consulting firm inherited much of its parents’ obsession with quality, accuracy, and thoroughness. Its highly disciplined approach was built on careful socialization of all employees, principally through intensive education about the company. The first session in more than 1,000 hours of training during a new recruit’s first five years is a six-week program that graduates compare to marine boot camp rather than to an executive education course. Eighty-hour weeks, demanding assignments, and a strict dress code all create a norm of discipline and provide training in new analytic techniques. Although competitors publicly berate the “Andersen Androids,” there is a trace of envy in how they talk about the uniformly high standards of these individuals.

Corning is another company whose top management has been successful in shifting from a compliance mode to a self-discipline mode. In 1987, when he became CEO of the hundred-year-old glass company, Jamie Houghton inherited a demoralized company in the midst of a major recession. In an internal environment that the press likened to a country club, managers failed to meet the corporate budget for six consecutive years, despite the multiple demands created by the complex matrix structure and tight formal systems.

Rather than installing more compliance-driven systems and policies, Houghton focused on creating an internal culture that encouraged managers to take more responsibility for their own performance. After shifting attention from the old top-down “do or die” sales and profit budgets to more broadly defined three-year targets in both operating margins and return on assets, he challenged managers to develop and commit to their own budgets. To build self-discipline, Houghton would simply walk out on presentations when managers were unable to define exactly how they would meet their targets, and he refused to consider bonuses or promotions for those who did not deliver on promised performance. In a couple of years, after what one manager described as “an almost Japanese relentlessness in getting people to agree and commit,” the organization clearly exhibited a new sense of self-confidence and self-respect. More important, as far as Houghton was concerned, it started routinely delivering on the ambitious targets it had set for itself.

Support

In most traditional organizations, the relationship between boss and subordinate is characterized by top-down control, a linkage almost guaranteeing that communication channels are dominated by formal reporting systems. In companies that have successfully institutionalized a renewal process, however, managers have rejected the assumption that the natural corollary of delegation is control. Instead, they view the appropriate complement as better defined through a relationship characterized by coaching, helping, and guiding.8

At Andersen Consulting, for example, the partners see their primary role as strengthening the firm for those who follow them. This well-accepted value, which they call “trusteeship,” is evident in the commitment partners make to the development and support of the firm’s associates. When recruited into the firm, each new employee is assigned a counseling partner who accepts responsibility for meeting with the new member every six months to discuss performance, career interests, and development needs. In addition, project managers give associates feedback and support, evaluating their specific project performance every three months and coaching them during the project. Through such activities, Andersen guides its operations while simultaneously developing its capabilities.

But the context of support applies to more than just the vertical relationships previously dominated by control. It also frames the horizontal linkages among peers — relationships that become characterized more by cooperation and collaboration than by the competition and contention that often develops across organizational boundaries in companies with strong systems-dominated cultures.

Such horizontal relationships are clearly evident at Corning, where the company’s technology-based organization created a long tradition of team-based management, as did its substantial experience with joint ventures and alliance partners. When Houghton became CEO, he further underlined the importance of working in positive and intensive collegial relationships, preferring to manage key issues through teams and groups rather than by reconfiguring formal structure. He created a six-person management committee (immediately dubbed “the six pack”) that not only became the key top-level decision-making body but also became the role model for collaboration. Eventually, Houghton decided that such mutually supportive activity needed to be formally recognized in how people thought about the organization. He began to describe Corning as an egalitarian network operating as a mutually dependent family, as opposed to the more traditional paternalistic authority-driven hierarchy. It was an organizational model in which support clearly replaced control as a dominant element of the behavioral context.

A context of support tends to become a pervasive concept in self-renewing companies, mainly because it is built on layers of individual behavior and cultural norms rather than being superimposed through systems and reporting relationships, as control usually is. In the end, support becomes a central part of the ongoing management process; at Intel, the whole system is based on the notion that ideas develop at the front lines and form into championed proposals that bubble up through the organization, gathering both support and opposition. The Intel norm of committing to a course of action only after the proposal has survived the aggressively challenging “constructive confrontation” process means that management can commit the organization’s unreserved support, knowing that the decision is safeguarded by support from below rather than control from above. Such commitments may involve massive commitments of human and financial resources: the cost of R&D for a new generation of chips has ballooned to $350 million, for example, and a new fabrication facility adds a further $100 million. But Andrew Grove is confident that Intel’s internal process of building support through challenge not only pools the organizational knowledge but also creates the necessary commitment to the project vital to successful implementation.

Trust

The relationship between a company and its employees is defined by a mixture of deterministic contractlike agreements — both explicit and implicit — as well as by a more organic familylike emotional bonding. While the former brings clarity and precision to the execution of objectives, the latter contributes a sense of commitment and dedication to pursuing the company’s broad purposes. Historically, companies have drifted toward the contractual end of the spectrum, not only in defining the employer-employee relationship but also in interpreting linkages among organizational units, as departments negotiated with each other on price and delivery times and divisions contracted with their business units on sales objectives and profit targets. In the process, individuals and organizational units were motivated to protect their self-interests and maximize their side of the contract, with the typical net result being an increase in adversarial relationships and an erosion of mutual commitment.

In contrast, most companies that have been able to continually renew themselves have avoided the development of impersonal, distant relationships by building an element best described as trust into their management context. This is the characteristic of an organization that leads people to rely on each other’s judgments and depend on each other’s commitments.9

Trust is most easily recognized in transparent, open management processes that give employees equity and involvement. At Kao, employees’ access to information and decision making is particularly striking, reflecting Chairman Yoshio Maruta’s belief in equality and commitment to continuous learning. Computer terminals throughout the company allow any employee access to the company’s massive information system. “They can even check up on the president’s expense account,” said a beaming Maruta. He is convinced that the increased creativity and more informed decision making stimulated by such access far outweigh the risk of confidentiality leaks.

Trust is also reflected in and reinforced by a sense of fairness in organizational processes and management practices. Although allocating partners’ compensation is often a thorny issue in professional firms, particularly when the contributions to a worldwide profit pool vary widely, the smoothly operating process at Andersen Consulting is built on the strong trust that partners have developed in the overall system. A partner’s fraction of the pool is derived from the number of “units” he or she is awarded, based on other partners’ evaluation on quantifiable dimensions such as business generated or studies directed and on judgmental criteria such as practice leadership, associate development, and teamwork contributions. All partners receive a list of other unit allocations, and, although there is an official appeal process, nobody in the firm can recall it ever being used.

In the end, trust is perhaps the most vital component of a management context for renewal because it is essential for risk taking. On the organizational trapeze, trust provides the confidence necessary for someone to let go of the security of “business as usual” and take an entrepreneurial leap, knowing that there will be strong, supportive hands at the other end. Such is the environment at Intel, where the company routinely deals with its highly unpredictable technological and competitive environment through a process the company refers to as “buying options.” By deliberately backing more than one potential solution to a problem, the company increases the chance it can subsequently back a winner — but it also guarantees that it will have to pull the plug on a loser. To ensure it maintains the confidence and commitment of the unsuccessful team, management is careful to celebrate the discoveries made along “the road not taken” with the same enthusiasm it shows for the contributions of the chosen option. As Intel founder Robert Noyce insisted, “The nature of such high-technology research is that you may not always find what you were looking for, but you find something else equally important.” Such a belief buttressed company support for nontraditional approaches and reinforced the frontline experts’ high-risk proposals.

Stretch

As many traditional companies found, the more they focused their investment criteria to allocate scarce funds, and the more their corporate leaders refined their strategic visions to clarify the understanding of corporate direction, the more those deep in the organization felt constrained. Tightly defined business boundaries limited the scope of acceptable proposals, and clearly prescribed project boundaries in turn constrained the generation of new ideas. And, on top of this, a budget-driven measurement system further limited managers’ focus to a financial target and a twelve-month horizon.

In self-renewing organizations, top management works hard to replace an internal environment that constrains perspectives and restricts activities with one that induces employees to strive for more, rather than less, ambitious objectives. Thus stretch is the liberating, energizing element of managerial context that raises individual aspiration levels and encourages people to lift their expectations of themselves and others.10

In a company in which people feel stretched, they are constantly encouraged to see themselves and the organization not in terms of its past or present constraints, but in terms of its future possibilities. Kao’s self-image focuses much more on its commitment to being a superior learning organization than on precisely defining the boundaries of the soap and detergent industry segments in which it competes. Its Buddhist-based organizational philosophy also focuses management on how the company can best serve society by applying innovative technology to create true consumer value. Driven by this challenging but unconstrained sense of purpose, the organization seems to have had little difficulty in seeing how its technological capability in fats, fine powders, and liquid crystal emulsification, coupled with its expertise in selling branded package products, could lead them from detergents into cosmetics.

In a stretch environment, corporate leaders are willing to make substantial commitments to amass resources and build capabilities ahead of clear opportunities. By creating a form of “supply-side economics,” they build tension that is resolved only by creating new opportunities to meet the developed competencies and committed investments.

Andersen Consulting routinely uses this approach to help it “stay ahead of the commodization envelope,” as management puts it. In the 1950s, the young firm invested in building its own computer to develop internal expertise in automated payroll and computerized accounting. Andersen continued to use this approach, and, since the late 1980s, it has been making substantial investments to drive it into the emerging practice of business integration — a field that builds on its leading position in information systems consulting by linking more closely with business strategy and organizational change management. The firm has developed two new Centers of Excellence for Change Management and Strategic Services and hired and trained hundreds of new consultants very different from the traditional operations- and technology-oriented IS specialists. This major commitment has caused some internal stresses and strains, but, according to the firm’s partners, it is precisely the kind of change engine Andersen needs to keep growing and evolving.

In the end, stretch is integrated into the fundamental assumptions and beliefs that companies develop about the nature of their industry and their place in it. It fights the development of conventional wisdom and institutionalized verities based on assumptions of a static industry environment or the durability of a strategy, replacing such comforting beliefs with scenarios of discontinuity and norms of dynamic adaptation.

This energizing nervousness has long provided the intellectual and emotional background for decision making at Intel. Since the company’s earliest days, it has assumed that it was constantly “on the brink of disaster,” as cofounder Gordon Moore put it. He preached that major breakthroughs simply provided breathing space for the next frantic round of development in a business where a new generation chip with four times the capacity of its predecessor would replace it in three years. Because he preached his message so convincingly — and because it turned out to be so accurate — it became known at Intel as Moore’s Law and provided for a culture that shunned complacency and rejected incrementalism. Reinforced by the practice of “buying options” and by setting up competing teams for development projects, these values led each new development to start fresh with the explicit objective of making the designers’ latest achievements obsolete before anyone else did.

The resulting stretch, along with discipline, support, and trust, provides the framework in which employees can act. Yet these four elements of the renewing companies’ management context are far from independent and far from static. Indeed, in their interaction, the whole organizational dynamic of self-renewal is created, an issue on which we now focus.

Framing New Individual Behaviors

The power of this very different managerial context comes from the internal tensions among the four foundation characteristics. People learn to operate in an environment that is, on one hand, highly disciplined and demanding, yet, on the other, trusting and secure — when expectations are stretching and ambitious, yet within a supportive, nurturing setting. And in the resolution of these complementary yet often contradictory forces, the organization develops the energy and direction to drive its dynamic renewal process.

In the end, therefore, the power of the behavioral context lies in its impact on the behavior of individual organization members (see Figure 3):

• The ability and willingness of people to take initiative is rooted in the tension between stretch and discipline: the former is the source of energy and the latter converts that energy into tangible and timebound action. Stretch without discipline leads to daydreaming, while discipline without stretch locks the company into an ever-narrowing spiral of refining existing operations without the courage to make any creative leaps.
• Similarly, the combination of trust and support motivates cooperation and collaboration. Trust makes cooperation desirable; support enables individuals to convert that desire into action. Each is a necessary element in the organizational glue, but only in combination do they create a sufficient condition for integrating the disparate actions of dispersed people.
• Beyond initiative and cooperation, renewal also requires some other behaviors — an openness to learning, the courage of confidence, the willingness to commit, and the ability to execute. The same four attributes of context, in different combinations, provide the enabling conditions for each behavior.

To illustrate how a broad organizational context can create and sustain the individual behaviors that are the foundation of continuous renewal, we use the example of a small team in 3M’s optical systems business. The team’s creation of a highly successful computer privacy screen shows the ways the induced organizational values and management processes influenced individual behavior. (For a brief description of how the attributes of discipline, support, trust, and stretch have been embedded at 3M, see the sidebar.)

In 1985, Andy Wong became lab manager of 3M’s Optical Systems (OS) business unit, and four years later, he was promoted to head of the young operation. During the next few years, he assembled a team, focused on finding the applications and developing the capabilities to turn the struggling unit around, and eventually brought a successful new product to market.

Wong found the initial challenge of building a team difficult because the OS unit had generated losses and was unsuccessful despite its decade-long attempts to find commercial applications for its inherited optical technologies, some of which had been around for more than twenty-five years. He was able to get first-rate scientists, engineers, and marketers to collaborate because they could see that, despite its difficulties, the business unit had continued to receive funding from the division and support from several higher level executives who believed in the technologies’ potential. Furthermore, they all completely trusted that their personal credibility and future careers with the company would not be compromised if this high-risk venture failed. For example, Rob Noirjean, the marketing manager Wong recruited from another division, acknowledged that while the business looked like a gamble, it also presented an exciting opportunity that would provide good experience for his next assignment. The same sustaining context also facilitated the unit’s ability to obtain collaboration from other units. The corporate norm of mutual support and the overarching value of institutional trust made such cooperative activity integral to the ongoing management process.

If collaboration provides one foundation for a self-renewing company, initiative provides another. After collecting and supplementing his team, Wong created an environment in which individual enterprise and group energy combined to generate numerous new proposals and alternatives. 3M’s stretching corporate goal, which required each division to generate 25 percent of its sales from new products, was further intensified by internal competition among five emerging businesses, including Optical Systems, that made up the Safety and Security Systems Divisions (SSSD). The raw creativity unleashed by such an ambition-driven environment was channeled and focused by the disciplined demands of the company’s strict financial objectives implemented by Paul Guehler, the new division general manager. When he took over SSSD in October 1990, Guehler’s first objective was to “clean up Optical Systems,” a unit he thought needed more structure and definition. By turning up the heat on the unit, Guehler forced a reality check and created a sense of urgency to the process that Wong had unleashed. In this environment of both stretch and discipline, Noirjean generated and then rapidly focused the list of potential applications until the unit finally decided to develop the privacy screen.

The challenge of finding a successful application for an old technology in a unit that had been bleeding red ink for more than a decade was likely to be demotivating. Yet, within the OS unit, there was a widely shared, highly energizing sense of confidence that the new project would be successful. This spirit had been fueled by Guehler’s insistence that the team commit its ideas to paper, add multiple scenarios, and, most of all, articulate and defend its ideas. The discipline of refining and testing the plans served to reinforce the belief in the project’s viability. Furthermore, despite the long, checkered history of both the technology and its sponsoring unit, Wong and his team remained confident that the project would not be killed or the unit disbanded, as long as they could, according to Wong, “Keep our management in the boat by demonstrating steady progress and by painting a picture of the cathedral we were building.” Their trust in the system’s fairness and in management reinforced their willingness to plan boldly.

Beyond a motivating sense of confidence, Wong and his team developed a deep sense of commitment to the privacy-screen project. This became a vital organizational attribute for a unit with limited credibility and developed genuine excitement for the challenge of the stretching objective the new product represented. But the less certain the project’s outcome, the more its sponsors had to believe that the organization would not punish them for taking risks. And while 3M’s stretching and demanding environment created excitement within OS, its managers were never distracted from their commitment to keep the project alive by worrying about their own jobs.

Despite the unit’s commitment to the privacy-screen project, the task of developing and bringing the product to market was complicated by numerous problems, obstacles, and challenges that demanded continual adjustment and refinement. The ongoing learning capability was encouraged by the business unit’s own self-imposed stretching challenge, framed not only by Wong’s expectations of his team, but also by Guehler’s more urgent demands. An institutionalized support system gave the team access to technological input from experts in other divisions and to top management backing, particularly from Wong’s mentor Ron Mitsch, a group vice president whose faith in the project and the OS team never flagged. Through this push and pull, the unit was able to continually adjust and adapt its product design and marketing strategy after the first two versions met with lukewarm market acceptance. But supported by unflagging confidence and unwavering commitment, the unit developed a third generation of the product, which it proposed for approval in early 1992.

Finally, the example of the OS unit demonstrates how the management context framed a commitment to execution — a bias for action and an ability to implement. The complementary tension between discipline and support that encouraged such institutionalized behavior was embodied in what Guehler described as his “give and take” management philosophy; he supported and invested in the privacy-screen project but, at the same time, took resources away and forced the unit to meet its financial objectives. His approach was well understood at 3M and reflected in CEO DeSimone’s comment, “[Managers] may have to close their eyes for a while . . . but, in the end, there has to be performance. We can’t allow every project to continue indefinitely. So we start to starve it. We force it to show it can survive.”

Individualizing the Corporation

In the aftermath of the restructuring gains achieved through downsizing, delayering, and reengineering, many companies have suffered a major letdown. Not only have the organizations become too physically strained and emotionally exhausted to maintain the momentum of improvement, but employees’ day-to-day behavior has reverted to old, familiar patterns. We suggest that, while corporate renewal may be initiated by a structural revolution, it endures only if it is supported by a cultural transformation. Top management’s role, therefore, is not only to reframe the configuration of organizational assets and responsibilities, but also to redefine the context of individual attitudes and behaviors.

Because this implies a fundamental redefinition of the management philosophy at the foundation of a company’s ongoing relationship with its employees, the change we describe is profound. In a fast-growth industrial era in which capital was the scarce resource, a company’s employees were often managed as if they were just another set of inputs: factors of production to be deployed and controlled to maximize the efficiency of a capital-intensive system. The work environment was deliberately designed to ensure that employees’ behavior was as predictable and controllable as machines they supported. By minimizing the idiosyncrasies of human activity, a behavioral context of compliance, control, contract, and constraint fostered the development of what William H. Whyte described as “the organization man” — employees who were shaped and molded to ensure that they operated in clearly defined boundaries and that they did things “the company way.”11

In redefining the behavioral context around the dimensions of discipline, support, trust, and stretch, however, top management is not only reframing the organization’s values and expectations, it is redefining the nature of the relationship between the corporation and its employees. The old notion of “the organization man” that forced the individual to conform to tightly defined corporate norms is being replaced by a concept that we describe as “the individualized corporation.” In a radical turnaround, the company must adjust and find ways to take advantage of each employee’s unique knowledge and individual capabilities.

This fundamental shift in management philosophy is behind the waves of delayering, reengineering, and em-powerment sweeping across today’s organization. Rather than managing through the abstractions of plans and controls, top-level managers are recognizing that their key task is to create a work environment that stimulates the company’s valuable human resource to be more motivated, creative, and entrepreneurial than its competitors’ employees. Only when they liberate and motivate their people to develop and leverage their knowledge and expertise will they have created a dynamic, self-renewing corporation.