Chapter One: What Are Organizations, and How Do They Change?

1.1 Organizations

An organization can be defined as a collective of people who work together to achieve common purposes and goals. In our lives, we engage in different types of organizations as part of a community, as clients, employees, and partners. Schools, community associations, sports teams, government agencies, health providers, entertainment providers, virtual and physical stores, industries, and advocacy institutions – are all organizations or parts of organizations. Organizations are legal entities with different configurations, like private or public companies, associations, and institutions. They can vary in terms of size and geographical spread. They can be for-profit or not-for-profit organizations.

In general, all organizations share some common elements (Figure 1):

• Purpose – organizations are formed for a reason. They have a purpose and overarching goals. This purpose is usually long-term, and some might call it mission (what the organization wants to achieve) and vision (why the organization wants to achieve that).
• Strategy – Organizations define strategic plans to accomplish their purpose and overarching goals. Strategy is how organizations plan to realize their purpose and achieve their goals.
• Structure – Most organizations have more or less formal structures that define general responsibilities, reporting lines (who responds to whom), and decision rights (who has the authority to decide what). Some organizations have a more vertical hierarchical structure, clear responsibilities, and centralized decision rights. Other organizations have flat structures, with more decentralized decision rights and sometimes with responsibilities more fluidly adapted to the organizational needs.
• Processes and procedures – Organizations have standard ways of performing the necessary activities to achieve their goals. Some have more formal processes and procedures, including policies and ethical guidelines, while others do not.
• Knowledge Assets – Organizations develop knowledge and skills that enable them to accomplish their goals. Although initially, this knowledge and these skills are developed by the organizational members, in the long term, this collective knowledge and these skills become an organizational asset.
• Material Assets – Include infrastructure (e.g., buildings, equipment), inputs and outputs of production (e.g., raw materials, stock), and financial resources that enable the organization to operate.
• Human Assets – Organizational members are often among the most important assets in any organization, as they manage and execute the work. Human assets include all members, their relationships, and individual values, knowledge, and skills.
• Culture – Every organization has its own culture. An organizational culture is developed throughout the years as organizational members establish the way they usually make decisions and relate to each other. It includes the values that shape these decisions, processes, and relationships. We can say that the culture of an organization is “the way we do things here.” The culture of an organization can also be perceived in the way people communicate in the organization through shared language or jargon, rituals and ceremonies, and organizational artifacts such as the physical space design and decoration, institutional materials, website, and established dress code.

These different organizational components interact with each other. For example, organizational purpose shapes strategy; strategy may shape which skills and knowledge are developed and may also influence how structure and processes are designed. Culture affects which type of people thrive in an organization and how people relate to each other. As we discuss next, all these elements are interdependent, and disruptions in one component likely affect the whole organization.

1.2 Organizations as Living Systems

A system can be understood as a set of interdependent components that work together to accomplish a common purpose.^[1] The many components of a system are critical to its overall functioning, and when one component is removed or disturbed, it affects the system’s operation and outputs. Because organizational components are interdependent and interact with each other, the whole organizational system is always larger than the sum of its parts.

Systems that interact with the external environment are called open systems. The human body is an example of an open system, as external conditions, such as temperature, sounds, and smells, influence how the body operates and responds. Therefore, organizations can be understood as open systems since their main components interact with each other to achieve organizational goals, as well as with the external environment. The economic, political, and cultural contexts of the locations where these organizations do business influence their operation and performance. For example, a company operating in a country with economic instability is likely to be affected in different ways than companies operating in countries where the economic environment is more stable. Like the human body, an organization operates effectively when its different internal components are well-aligned and it has the ability to react adequately to external factors.

Understanding organizations as a system enables us to assess which organizational components are working well and which are not. It also helps us to understand how these different components relate to each other and if they are working well together to achieve organizational goals. Lastly, it might help us to evaluate the impact of external factors on the organization’s functioning and performance. This is particularly important, as our environment and contexts frequently change.

Different models illustrate how organizational components interact with each other. Some examples are the 7-S and the Star Model. We offer a model to guide the analysis of organizational functioning and identify potential issues and opportunities for improving performance (Figure 1).

Organizational systems are composed of different levels – individual, group, and whole-organizational levels (Figure 2). Understanding how these levels interact with each other and their specific components is crucial for gaining a comprehensive understanding of the organization’s operations. This knowledge helps identify areas where problems may arise and where there may be opportunities for improvement or change.

1.3 Organizations as Socially Constructed

Although understanding organizations as a system is a valuable approach to identifying issues and opportunities for improving organizational performance, it is essential to remember that people are a central component of this system. The way individuals interpret and develop their understanding of the organizational environment also impacts how an organization functions. Social norms and cultural context influence how individuals think about the role of organizations, what being a good professional means, and what a successful career is. For example, decades ago, loyalty was often considered an important characteristic of a good professional. Likewise, a successful career is often seen as a constant progression in the organizational hierarchy. Another prevalent perception in organizations is that the ideal professional is someone fully dedicated to their work, which often disadvantages women and those who care for others in hiring and promotion decisions.

Considering how individuals interact with each other and make sense of the organization’s rules, processes, and expected behaviors, and how this shapes the organizational culture and practices, is called the social-construction approach to organizational theory. From a social construction perspective, how employees interact with each other, collaborate, and work together is determined not only by organizational processes and structures but also by their own beliefs, values, previous knowledge, and experiences. This approach emphasizes the active role of employees in shaping the organization.

1.4 Why do Organizations Change?

One common aspect organizations share is that they all go through changes. Organizations change in response to changes in the external environment where they operate. These changes are often related to the economic, political, and cultural contexts. Innovations, such as the advancement of artificial intelligence, or crises, like natural disasters caused by climate change or global pandemics, can profoundly impact how organizations perform. Social changes also impact organizations; individuals living longer or forming diverse family configurations are some examples of societal changes that might drive changes in an organization’s strategy and, consequently, in the whole organizational system. Hence, organizations need to adjust to new and changing external conditions if they want to survive and continue pursuing their goals. Occasionally, contextual changes are so impactful that they might even alter the purposes of some organizations.

Even though changes happen all the time, due to our constantly changing social and business environments, effective change is not easy to accomplish, and facilitating change is a valuable skill for professionals and organizations. Change can be difficult because it requires that old ways of thinking and doing things end, so new ways of thinking and doing that are more aligned with the context can be developed. William Bridges proposed a model to explain how individuals experience changes. The Bridges Transition Model states that individuals go through three stages during a change process. The first stage, “Endings,” is when individuals understand that for change to happen, some behaviors, patterns, processes, and other elements must end. Acknowledging this need to leave something behind can be a challenging process for many individuals. The second stage is called “Neutral Zone.” In this stage, individuals are learning new behaviors, defining new processes, and adjusting. The neutral zone is often a moment of uncertainty and, naturally, may create some stress. Bridges calls the last stage of the change process “New Beginnings.” This is when individuals start to see more clarity and direction in the change process. They become energized to make the change happen.

If changing at the individual level can be challenging, can you imagine what changing a team or a whole organizational system might look like? Promoting changes in an organizational system requires changes at all the different levels, including individual skills and behaviors, the way people work together in teams, the processes, systems, structures, and often, the organizational culture. Not surprisingly, changes in organizations can be highly challenging. Nevertheless, organizations are constantly changing as a way of adapting to new conditions and surviving in the long term. That is why facilitating change processes is a highly valued skill. That is also why many professionals specialize in supporting individuals, teams, and organizations to change. As we will see in the next chapter, Organization Development is one discipline that specializes in helping organizations accomplish change effectively. Organizations, their leaders, and their members can develop skills that will enable them to recognize the need for change and to promote the necessary transformation to adapt to new conditions imposed by the external environment. Becoming change-capable is an essential competitive advantage to individuals, teams, and organizations.^[3]

1.5 Organizational Capability for Change

The first step to developing critical capabilities for becoming change-capable is to acknowledge the reasons why many organizations fail to effectively change and adapt to new circumstances. As Bridges states, changes can be confusing and distressing for individuals. Changes can sound like threats, and a natural reaction is to look for reassuring information about what the change means in concrete terms and what the potential losses and gains are. Therefore, a common reason many organizational changes fail is resistance from employees and a lack of support from leaders.^[4] Having a clear understanding of the need for change and a compelling vision of what the organization will look like after the change is essential to getting support from organizational members. Moreover, it is necessary to recognize that change may impact individuals differently; thus, it is natural that some will support the change while others will resist. Lastly, it is critical to acknowledge that most changes will require a shift in people’s mindsets and behaviors to be sustainable.

A second common reason is that organizations often overlook their systemic nature. Leaders will propose changes in some components without considering how these changes will impact other components in the system. As we learned, organizational components are interdependent, and changes in organizational processes, for example, will likely require changes in individuals’ behaviors and skills. Imagine an organization that, to survive in a more competitive market, must become more agile in making decisions to innovate its products. Let’s say this organization has a centralized decision-making process and a strong hierarchical culture where employees do not feel they are allowed to share ideas or that their ideas are not welcome. Implementing channels for employees to share their ideas or inviting employees to decision-making forums will likely not be sufficient if the hierarchical structure and culture continue in place.

Organizations that understand change as a process and develop certain characteristics are more likely to be successful in their transformation efforts. Authors have suggested different characteristics of a change-capable organization.^[5] The most relevant elements that make an organization capable of change are the ability to involve various stakeholders in dialogue, the ability to establish trust, the ability to understand the interdependencies in the organizational system, the ability to maintain streamlined communication, and the ability to share knowledge and learn.

Summary

An organization can be defined as a group of individuals who work together to achieve shared purposes and goals. Although different types of organizations exist, they can be understood as multi-level systems with key components that interact and are interdependent. Key organizational elements include an overall purpose, a culture, a strategy to accomplish the purpose, a structure with job positions, roles and responsibilities, processes, and material, human, and knowledge assets. Because the external environment where organizations operate is constantly changing, organizations often need to adapt to the new context to survive. Nevertheless, the change process can be challenging. Therefore, organizations must be change-capable and be prepared to adapt. Organizations that have the ability to involve various stakeholders in dialogue, the ability to establish trust, the ability to understand the interdependencies in the organizational system, the ability to maintain streamlined communication, and the ability to share knowledge and learn have a greater likelihood of going through changes successfully.