Theory E and Theory O

Beer & Nohria (2000) expose duality in OD perspectives by proposing Theory E and Theory O, change theories representing bipolar values, goals, and actions. With shareholder value as the critical measurement of organizational success, Theory E is a “hard” approach to change that uses drastic economic restructuring and incentives to drive radical change in the tangible structures of the organization. Theory E is a quick way to drive a turnaround through a radical transformation at the expense of long-term damage to organizational culture.

With the critical measurement being the organization’s ability to learn, Theory O is a “soft” approach to change that focuses on building organizational viability by addressing beliefs and social relationships while enhancing individual and organizational learning and continuous improvement. Theory O preserves organizational culture but can slow change processes to the point that the organization has difficulty adapting. At the same time, loyalty and commitment to employees can prevent managers from making necessary business decisions.

Although Theory E and Theory O represent bipolar approaches to change, Beer and Nohria (2000) do not believe they are not mutually exclusive. Organizations can risk fomenting distrust by jumping between cutthroat and nurturing behaviors; however, they argue, “Companies that effectively combine both approaches to change can reap big payoffs in profitability and productivity” (p. 131).