By Christopher G. Worley

The current global financial crisis underlines the often-made point that the days of relatively stable and predictable business environments are over. Unfortunately, most organizations have been slow to embrace this reality and adapt to it. When markets crash or demand falls, too many organizations adopt reactive change management practices that often work well enough to ensure survival but rarely prepare the organization for the future. Weary and battered from the effort, and in the face of continued marketplace shifts, leadership reluctantly realizes that they have to go through the whole process again. That is, the goal of many organizational responses to crisis is “to adapt,” it is rarely “to become adaptable.”

But there are a handful of organizations that were not surprised by the downturn and leveraged their capabilities to respond quickly (even if they were surprised). We call organizations that can routinely adjust their strategies and structures “built to change” organizations. Built to change organizations see change as normal – the current economic crisis as simply the next change to address.

One of the key features of Built to Change organizations is the capacity to change continuously. Unfortunately, a strong change capability is a bit useless if the organization’s strategy and organization design are based on traditional rules of hierarchy and the pursuit of obsolete concepts, such as a “sustainable” competitive advantage. Believing there is a single advantage that will yield above average returns over a long period of time just doesn’t face up to the realities of today’s marketplace. Nor do traditional structures that equate leadership with hierarchical position, expect that a job description guides people’s behaviors, or reward people for seniority. Similarly, robust strategies and flexible designs are unlikely to drive consistently high performance without the capability to orchestrate change over time.

The capability to respond does not exist by accident; it must be consciously cultivated, nurtured, and developed. To build a change capability, organizations must address three issues – the amount of change-related knowledge and skill in the organization, change architecture, and change experience. First, organizations build capabilities on resources, such as knowledge, skill, physical assets, and intellectual property as well as processes and routines that coordinate action and behavior. If an organization wants to develop a change capability, it must signal that commitment by increasing the level of change-related skills and knowledge in the organization. Forward looking organizations, such as Canada Post, the Royal Bank of Canada, and Toyota Financial Services, are investing in the knowledge and skills of its HR function and line managers. Adding change management knowledge to the repertoire of HR generalists and organizational leaders builds a more versatile and agile workforce.

Second, capabilities are supported by structures, policies, and systems that provide an architecture within which to operate. Like organizations that have bought into the logic of a single, shared information system architecture, such as PeopleSoft or SAP, there is a great deal of efficiency in shared models, language, and mindsets. For any large-scale change that requires the cooperation of multiple functions, product groups, geographies, or business units, all parties need to be familiar and comfortable with the same change model. If every organizational unit has its own change management model and tools, coordinating large-scale change efforts is bound to be clumsy, expensive, and time consuming. The Limited Brands, Capital One, and Chevron have either adapted existing models or developed their own and created processes, tools, and approaches that apply across the organization and contribute to an enterprise-wide capability.

Finally, organizational capabilities, and especially change capabilities, do not come fully developed and ready to go, nor do they exist in a vacuum. Organizations must have experience with behaviors to build up the deep and often tacit knowledge that underlies a capability. If the organization has no conscious experience with change, then it cannot have a change capability. Many organizations developing a change capability must “lean into” change. They have to find visible strategic initiatives to support and then teach managers, leaders, and organization members how to apply change principles. Perhaps most importantly, they need to set up deliberate “after action reviews” where the learnings from change can be shared. This not only helps embed the knowledge and skill in the organization’s human and social capital, but helps to accelerate the implementation of the change capability.

The current financial crisis raises a number of important questions about organizations: Did they see this crisis coming and how are they responding to it? In my view, there is one answer to both questions. Organizations that are not built to change are more likely to miss the signals for change and are ill-equipped to manage the changes required of them. Organizations that invest in and develop their capabilities to routinely shift their strategies, structures, systems, and processes are less likely to be surprised by environmental disturbances, such as the current financial crisis, and better able to adapt.

Chris Worley, Ph.D. (University of Southern California) holds a joint appointment as a Research Scientist in the Center for Effective Organizations at the University of Southern California’s Marshall School of Business and as an Associate Professor of Management at Pepperdine University. He is the former Director of the Master of Science in Organization (MSOD) program at Pepperdine University, where he received the Harriet and Charles Luckman Distinguished Teaching Fellow from 1995 to 2000. In addition to his articles, chapters, and presentations on strategic change and organization design, he is author of three books, including Built to Change, Integrated Strategic Change, and five editions of Organization Development and Change, the leading textbook in the field. He is a member of the Academy of Management, NTL, the OD Network, and the Strategic Management Society. He is on the editorial board for the Journal of Applied Behavioral Science. His recent consulting clients include Microsoft, The Hartford, Healthways, Intel, and BP.