# Section 11: Organizational Change
_All organizations must change, either because of a shift in mission or threats from the external environment. However, organizations must also put in place standard operating procedures in order to align action and resources towards specific organizational goals. Similarly, networks form organically in organizations that actively participate in problem-solving. In order to change, these processes and structures must be disrupted. Delicate political balances can be upset. As a result, inertia is very common in organizations. What are factors that lead to failed change processes in some organizations, and what can be learned from organizations that successfully implement change efforts?_
## Why Transformation Efforts Fail
_Kotter, J.P. (2007). “Leading Change: Why Transformation Efforts Fail.” Harvard Business Review, January: 96-103. Author: Tansits, Colin E; Editor: Perez, Philip A_
## The Power of Crisis drastic cuts in nealry every governmental program in existence in a matter of days. They were also forecasting with the help of a computer that modeled the national economy. However, after inputting their changes based on Reagan's campaign promises, the model showed massive federal defecits, to the tune of $82B in 1982 and $116B in 1984. These numbers would certainly not result in the kind of market shock Stockman was hoping for, so he and other supply-side theorists changed the computer's model.
_Duhigg, C. (2012). The power of habit: Why we do what we do in life and business (Vol. 34, No. 10). Random House. CH 6: The Power of Crisis: How Leaders Create Habits through Accident and Design. Author: Damon-Cronmiller, Christopher; Editor: Boucher, Timothy M._
## How a Charter School Revamped Its Culture
_How a Charter School Giant Revamped Its Culture to Put a Stop to Burnout. Author: Orlan, Samuel Lawrence; Editor: Lancto, Katelyn N_
## Organizational Change in an International NGO
_Lux, S. and Bruno-van Vijfeijken, T. (2013). “From Alliance to International: The Global Transformation of Save the Children.” E-PARCC Case Study on Collaborative Governance. Author: Whiting, Cal McCulley; Editor: Fantigrossi, Steven Marc_
## The Ballad of Paul O'Neill
_Duhigg, C. (2012). The power of habit: Why we do what we do in life and business (Vol. 34, No. 10). Random House. CH 4: The Ballad of Paul O’Neill. Author: Dieselman, Andrew; Editor: Whiting, Cal McCulley_
## eBay's $50 Billion Turnaround
_Carlson, N. “You Can Explain eBay’s $50 Billion Turnaround with Just This One Crazy Story.” Business Insider, February 8, 2014. Author: Uk, Bolary; Editor: Boucher, Timothy M._
The article describes an incredible visionary of eBay CEO, John Donahoe, who successfully turnaround the company from 80% decline of stock price. After joining eBay in 2005, he started to restructure the company by deemphasized eBay’s auction business and began to categorize the company to be “technology partner”, to small and large retailers and helped the businesses to cope with a world dominated by Amazon.
The story of turnaround eBay started from this smart tactical adjustment. Donahoe realized the main problem of eBay is the death of innovation such as it stopped innovating and developing sophisticated search technology. The company lost profits to the tech company and quantity of sales, when it depended on Google ads tool that made it hard for consumers to find products they wanted to buy. When the issues have been identified, Donahoe came up with a solution after consulting with eBay board director Marc Andreessen, who was best-known as the creator of the first Web browser. Andreessen strongly believed that the output of tech companies is innovation and the great innovative ideas come from the founders of the successful tech companies.
Knowing that the founder of eBay had no interest in it and he himself could not find an innovative tech company. Donahoe decided to build a team of founders by acquiring 34 companies after becoming the CEO. Currently thirteen startup founders work for eBay. A great turnaround example is the two-week reinventing the eBay homepage, which based on a rough idea of Jack Phillip Abraham, the founder of an e-commerce startup called Milo. When Milo joined eBay and Abraham brought and built Milo’s technology into eBay and soon the team were known as eBay Local team.
On Feb, 2012, Donahoe invited Abraham to join the meeting on the topic of “Innovation” with other senior management teams. The purpose of the meeting is to bring the life of innovation to the company. Abraham got the idea to reinvent eBay by having a similar News Feed like Facebook, instead of displaying updates from friends, the page could show updates from eBay sellers and product categories. Based on the shopping history and search of the users, eBay turned the feed on without waiting for users to start following any product. Donahoe was excited about the ideas and asked to get the plan for next few weeks by promising to give all the needed resources. Abraham and Palmer who got the ideas during the meeting were delegated the task to develop the plan. While both still had their daily work on hand, and they agreed to create a small team of 6 smartest people from eBay, because having a huge team would be time consuming, due to the politics and bureaucracy of eBay. Abraham got the idea to bring the team to far-away location for a limited time to accelerate the project. With entrepreneurship spirit, Abraham has been a kind of person who is risk-taking and productivity. Without a clear roadmap of what the team going to do, the fear of uncertainty arose when he was in a cab trying to contact people to join this secret mission. Finally, he got the other four people joining the team to build the plan. After the team found out the incredible place in Sydney that they could work together, they named the group as “Team Six”. Over the two weeks, the team worked together and built a functioning prototype of a reinvented eBay.com.
Abraham had the meeting with Donahoe and presented the prototype of the new eBay.com after coming back from the secret trip. Donahoe looked at the prototype on the computer screen and scrolling around, then he said this could be the future of eBay. All the directors love the feed and soon the feed became the central part of eBay.com, which 120 million people see every month. With this valuable tool, it increases the sale and engagement. This is an eBay turnaround story after Donahoe has hired a dozen Abrahams. His innovative vision for the future of the digital world and the decision to hire founders, since he believes that they are crazy enough to rush blindly into projects that will required inordinate amounts of time and money.
## Failed Policy Change
_Greider, W. “The education of David Stockman and other Americans.” The Atlantic, December 1981. Author: Sears, Kicia Kimberly; Editor: Tansits, Colin E_
The article details the first year in office of the man behind Reganomics, David Stockman. In an effort to get the public behind the drastic changes in Washington, Stockman had weekly conversations with the author, explaining the ideology behind supply-side theory, the chaos of early budget meetings, the battles in Congress, and the adjustments made after failure--either in Washington or in the market.
Stockman grew up on a working farm in Michigan, and was a congressman and conservative Republican by the time he was appointed to run OMB for President Reagan. He had enjoyed a mild youthful rebellion against his conservative beliefs as an activisit and theology scholar, but eventually came back to republicanism after studying at Harvard under influential neo-conservatives in political science and history. When he was called to work for OMB, he was a newcomer to supply-side theory, and was tasked with making Reagan's campaign promises a reality.
Unfortunately, the doubters and naysayers would prove themselves correct. Reagan's promises to cut income taxes, raise defense spending, and balance the budget were mutually exclusive. But early on in his appointment, Stockman was confident. He and other supply-side economists were predicting that Reagan's dramatic policy action would be enough to shock the market: they expected interest rates and inflation to fall, employment to become more efficent, and a big boom in the private sector that would outgrow the government. This belief held strong, and Stockman was confident that these new methods would do a far better job than the mostly-democratic relief programs, which he had seen fail again and again in his home state of Michigan. He predicted some pushback from liberals but thought that they would be convinced if he proved to go after weak ideas and claims rather than people.
The first few months in office were a whirlwind. Stockman and his staff were putting together policy papers recommending
Stockman used the deficit predictions, however, to get the President to commit to the massive cuts necessary to balance the budget. He calculated that $40B in cuts were needed across the board. However, with the way actual government spending works, these cuts seemed impossible. If the total federal spending were a dollar, 48 cents of it went toward the social safety net, which Reagan had promised not to touch, so that whole piece was exempt from Stockman's cuts. Defense was another 25 cents of the dollar, and not only could that not be touched, but Reagan had promised to increase its share. 10 cents of the dollar went to paying off interest on the national debt. The remaining 17 cents went toward everything else government does: operations and grants to state and local governments. This is where most of the cuts would have to be taken from. Even though this seemed impossible, Stockman didn't believe the numbers. He thought he could make the government run more efficently with his cuts and the effects wouldn't be as drastic as they seemed.
Additionally, the plan was to get cuts approved as quickly as possible, before new Cabinet members could fully get a grasp of their departments and put together effective counter-arguments and proposals. And this worked. As a result, "Stockman's agency did in a few weeks what normally consumes months; the process was made easier because the normal opposition forces had no time to marshal either their arguments or their constituents and because the President was fully in tune with Stockman."
The author also presents a nice summary of some of these changes that I will reproduce in full here:
"The check marks [programs that were approved by the President for cuts] were given to changes in twelve major budget entitlements and scores of smaller ones. Eliminate Social Security minimum benefits. Cap the runaway costs of Medicaid. Tighten eligibility for food stamps. Merge the trade adjustment assistance for unemployed industrial workers with standard unemployment compensation and shrink it. Cut education aid by a quarter. Cut grants for the arts and humanities in half. "Zero out" CETA and the Community Services Administration and National Consumer Cooperative Bank. And so forth. "Zero out" became a favorite phrase of Stockman's; it meant closing down a program "cold turkey," in one budget year. Stockman believed that any compromise on a program that ought to be eliminated—funding that would phase it out over several years—was merely a political ruse to keep it alive, so it might still be in existence a few years hence, when a new political climate could allow its restoration to full funding." (My note).
This all happened so fast, and eventually Stockman would come to lament the speed with which everything was done. He had to make snap judgements based on little information--something that barely ever works unless one is already deeply experienced.
One of the major fights that came up was regarding cuts to the Export Import bank (Ex-Im). Stockman was trying to prove that supply-side theory could be equitable, and make cuts on the wealthy, on big interests, etc. and not just cut social programs. However, the interests he was going after favored big American manufacturers. Though he got the cuts for the moment, he anticipated pushback in the future.
While this was happening, defense was running wild with spending. They had been told they couldn't be cut, and had been promised increases in the future. Their budget was basically rubber-stamped and then ignored.
Stockman was also preparing to increase revenue and reduce defecits. This next phase of his plan involved closing loopholes in the tax code, which he thought would assuage liberal fears. However, the President rejected this plan. Stockman, at least on the surface, wasn't upset, "The vulnerability of Stockman's ideology was always that the politics of winning would overwhelm the philosophical premises." When his ideas would get shot down by the president, fail or get mutilated in Congress, or fail to meaningfully affect the market, he was quick to shrug it off and move on. He felt like the drastic action by the administration was shocking politicians and more and more were coming to support supply-side theory. He even had a "spy" in Democratic meetings that helped him meet and respond to their budget proposals.
However, though he could rally after political failures, the market failures were a much bigger pill to swallow. In fact, the market was not only not booming, but going into decline. The CBO predicted future defecits of $60B, which forced the administration to face uncomfortable questions, questions that Stockman thought he had prevented by placing what he called a "magic asterisk" on any future defecit problems that came up in his recommendations, claiming that these issues could be taken care of in the future, with more cuts. At this point, Stockman and his analysts knew the plan wasn't working. But this is not what they said publicly. The author notes, "Reagan's policy-makers knew that their plan was wrong, or at least inadequate to its promised effects, but the President went ahead and conveyed the opposite impression to the American public. With the cool sincerity of an experienced television actor, Reagan appeared on network TV to rally the nation in support of the Gramm-Latta resolution, promising a new era of fiscal control and balanced budgets, when Stockman knew they still had not found the solution."
Instead, Stockman planned to make small changes to the Reagan policy that he hoped would go unnoticed in the political arena as being contrary to what was initially promised. He needed to cut the defecits, but he couldn't be perceived as abandoning the strategy. He hoped to make changes to the tax-cut plan, and to cut defense, Social Security and health costs (Medicare and Medicaid). He hoped that the uproar after the CBO's defecit numbers was enough to get people willing to do these things.
He anticipated delaying the tax-cuts would be easy, politically. He also anticipated that he could make compromises to Social Security and health costs by ignoring future predictions of problems (in 2010) and emphasizing how bad things would be immediately if these cuts weren't made. The hardest part was defense, and Stockman knew he couldn't make any changes that looked like contradictions to the Presidents promises. However, he thought that defense had gotten so greedy that they alienated themselves and the cuts wouldn't be opposed in Congress. He still anticipated a market boom, but pushed it from April to August.
When he was met with bigger resistance on Social Secuity cuts than he anticipated, he brushed it off, saying that he felt peopel would come around and that they were just too sensitive to reactions of the public and press. In the end, the President turned on these cuts and they were postponed, until they would be of no use in preventing huge defecits. They ended up modifying the tax-cut plan instead to help close the gap.
Through all of this, Stockman was beginning to doubt the supply-side theology. He had see
m what happened with these ideas in action, and thought that instead of being revolutionary, supply-side was just a way to rebrand old Republican idology of "trickle down" economics.
As things fell apart, his fears were confirmed. Politicians did what they (are supposed to) do best: compromise and make trades. Agreements were reached, and figures were decided. However, Stockman felt the figures that got approved were "ceilings" which could be reduced later on. Politicians were not on the same page, and when these figures were challenged later on, they turned on him. Eventually more agreements were struck and Stockman was forced to admit that his quest for equity in fiscal revolution had failed: "Now, as the final balance was being struck, he was forced to concede in private that the claim of equity in shrinking the government was significantly compromised if not obliterated."
Though it seemed like they had won politically, Stockman was no longer confident. He knew the numbers being presented to the public were imaginary. He said, " 'There was less there than met the eye. Nobody has figured it out yet. Let's say that you and I walked outside and I waved a wand and said, I've just lowered the temperature from 110 to 78. Would you believe me? What this was was a cut from an artificial CBO base. That's why it looked so big. But it wasn't. It was a significant and helpful cut from what you might call the moving track of the budget of the government, but the numbers are just out of this world. The government never would have been up at those levels in the CBO base.' "
Faced with failure, not just in the present but in the future, Stockman reflected on what had gone wrong. He blamed the speed with which he was asked to make cuts in the early months of his term, admitting they were made without much information. He turned on the supply-side purists, calling them "naive" and arguing that they had "gone too far." But more than that, he basically threw up his hands. He was scrambling to keep things together and said he couldn't put too much thought into how the system works, how slowly it moves, or what might happen, since he had little control over those things. He instead tried to focus on the immediate, and continue plugging away. He didn't know what would happen after the next election cycle, but it didn't seem to concern him too much. The reporter ends the article with a quote that seems to show Stockman calling supply-side a "crackpot" theory, but one that he is still going to push forward until there is another major shift in the economy or the political arena. He is defeated, but committed to lying in the bed he's made for himself. Unfortunately, it's not just his bed, but one he has made for the entire country as well.