organizational change

Academy of Management Executive. 2004, Vol. 18, No. 3

Organizational change thatproduces results: The linkage

approach

Paul S. Goodman and Denise M. Rousseau

Executive OverviewThis article provides a tool for creating change that produces observable results in

complex organizations. Linkage analysis helps managers map, evaluate, and overcomebarriers that underlie the organizational improvement paradox. In this paradox,organizational changes are expected to lead to performance benefits for a unit as well asfor the firm as a whole, but benefits occur only for the unit. The organizationalimprovement paradox frustrates change efforts and is the norm in organizational changewhere the firm has multiple units and levels. Linkage analysis permits managers andchange agents to visualize the complex process of change. It details critical changepathways that otherwise go unrecognized and unmanaged. Through two cases, thereader can practice using linkage tools. Linkage analysis primes managers to takecritical and widely overlooked steps to produce visible firm-level results.

People have difficulty integrating events andrelationships over time .. . tend(ing) to mis-perceive feedback and focus attention on thewrong things.—J. S. Carroll, J. D. Sterman, & A. A. Marcus,

1998

Achieving organizational change that producesresults is not just a managerial challenge; it is acognitive challenge, too. Managers, like peoplegenerally, find it difficult to think about dynamicevents like feedback loops and time delays. It iseasier to pay attention to immediate effects andvisible changes. The outcome is a focus on theshort-term and local not the longer-term andglobal results from change, a problem that organ-izational incentives amplify. Thus, local improve-ments in cost reduction or efficiency are assumedto benefit the firm as whole, while little attention isgiven to actually ensuring results for the firm.

The Organizational Improvement Paradox

Since managers cannot manage what they givelittle attention to, a paradox is widespread acrossall forms of organizational change: changes thatsuccessfully improve performance in one part of

the firm often fail to translate into gains in firm-level performance. The roots of what we refer to asthe "organizational improvement paradox" (seeTable 1) are the feedback loops, time delays, andother change dynamics that are difficult for man-agers to recognize and act upon in translating lo-cal changes into broader gains.'

Changes that successfully improveperformance in one part of the firm oftenfail to translate into gains in firm-levelperformance.

The goal of this article is to make the dynamiccomplexity of organizations more accessible tomanagers and other change agents who seek toturn unit-level performance improvements intooverall gains for the firm. We offer a conceptualtool kit, which we refer to as "linkage analysis," tohelp managers conceptualize, assess, and over-come the barriers underlying the organizationalimprovement paradox. It is almost an article offaith that improving performance of one businessunit is good for the business in general. Many haveargued along the lines of a famous change article

8 Academy of Management Executive August

Table 1Key Features of the Organizational Improvement

Paradox

(1) A change has been successfully introduced in part of anorganization

(2) The change produces positive performance results for onedepartment or for an entire set of subunits

(3) Change agents anticipate that this change will improvefirm performance

(4) But the firm doesn't benefit from the change

by R. Schaffer and H. L. Thomson, "SuccessfulChange Programs Begin with Results," that suc-cessful implementation in a local unit or organiza-tional level, where it produces a local outcome, canbe presumed to generate improved firm-level per-formance, too.2 All too often, though, this is notwhat really happens. Many otherwise successfullocal changes have no real payoff for the organi-zation.

The organizational improvement paradox iswidespread in organizational change. Analyses ofinformation technology (IT) investments for manyyears indicate little or no impact on firm-level per-formance. Similarly, assessments of organiza-tional downsizing reveal that relatively few firmshave realized the cost savings or productivity in-creases they anticipated.^ In both instances,changes that had some benefit in terms of localefficiencies or cost reductions failed to achievetheir expected results for the firm.

Assessments of organizationaldovrnsizing reveal that relatively fewfirms have realized the cost savings orproductivity increases they anticipated.

Specifying Pathways for Change

A new frontier in understanding organizationalchange is to translate successfully implementedchanges into real organizational benefits—and wecan do so through systematic analyses of "cross-level linkages," that is, connections between de-partments or business units and the organizationas a whole. To manage change in a way that pro-duces tangible organizational benefits, actionmust be taken to map the flow of changes in activ-ities and outcomes from local levels wherechanges occur to results visible at higher levels.When managers fail to explicate and promotethese change pathways, from work groups to de-partments, from departments to the firm, the organ-izational improvement paradox results. A "change

pathway" is a causal model that specifies the prac-tices needed to build linkages between successfullocal changes and firm-level results.

Two examples show why it is important to spec-ify the change pathway (and the consequences offailing to do so). The retailer Sears, after substan-tial financial losses, began a major transformationled by CEO Arthur Martinez.^ The company devel-oped a new measurement system that mapped thecausal chain from individual employee actionsand customer behavior to firm-level results. Alignedwith a broad set of changes at Sears, the mappingprovided managers and change agents with a wayto link employee-level interventions (e.g., training inbusiness literacy) with changes in customer percep-tions and, ultimately, store revenue. A broad-basedmanagement team participated in developing a re-alistic change pathway, which they referred to as"the employee-customer profit chain." This mappingwas periodically checked against feedback fromconstituents regarding the change process. As part ofthe feedback process, the team recognized that afive-unit improvement in employee attitudes towardservice was tied to a 0.5 per cent increase in storerevenue, while other changes had relatively littleimpact on results. Based on this feedback, thechange pathway was redrawn and resources allo-cated toward promoting more effective customer ser-vice behavior within the stores. Although the partic-ular model Sears used is unique to that type oforganization, it highlights the possibilities that map-ping tools can unlock. Linkage analysis as we de-scribe it below takes this mapping a step further,enabled by knowledge regarding organizationallinkages.

COMO, a large public utility, also undertook amajor organizational change with the goal of im-proving firm productivity—but unlike Sears it didso without mapping the change pathway. It intro-duced a more efficient computer-based work envi-ronment for its customer service representatives.The implementation was successful to the extentthat unit productivity increased. But the firm's an-ticipated productivity gains were not realized. IfCOMO had mapped the change pathway, the com-pany would have learned that substantial over-haul in other areas would have to be done in orderto absorb and capitalize upon the increases incustomer service productivity.

What's New: Linkage Analysis Focuses onChanges Required Between Levels

Our contribution is to present ways in which man-agers, consultants, and organizational researcherscan directly map and support the linkages needed

2004 Goodman and Rousseau

to turn local improvements into broader organiza-tional results. We begin with the premise that asuccessful and sustainable change has been im-plemented and ask the question, "What can bedone to ensure that local change leads to payoff forthe firm?" Our focus is inherently cross-level; thatis, we want to understand how changes at theindividual, group, or subunit level impact organi-zational results. Linkage analysis reveals gaps inthe relationship between the lower and higher lev-els of a firm, obstacles in the translation of localgains into firm results that might otherwise gounrecognized and unmanaged without the explicitattention that linkage analysis gives them. Theclassic example of linkage obstacles is bottleneckswhere local changes can only create gains for thebroader organization when faster production inone local unit is coordinated with faster processingin another, resulting in a net gain for the firm as awhole. The image of car bodies coming off theassembly line and piling up at the door of the paintdepartment comes to mind. But less obvious link-age obstacles exist where the performance metricsof local units are not clearly tied to those metricswhich the larger firm values. An academic depart-ment's improved teaching ratings don't help thelarger university manage its budget, if that is whatits key concern is, unless those teaching ratingsare used to attract new tuition-paying students.Linkage analysis calls attention to ways of trans-lating local gains into broader organizationalbenefits.

Linkage analysis calls attention to waysof translating local gains into broaderorganizational benefits.

Managers face considerable ambiguity in antic-ipating how changes in a work group will affectdepartment performance or how a department'schanges will affect the organization's performance.By giving managers and change agents a way tothink about connections between levels, linkageanalysis differs from other approaches to promotingsuccessful organizational change. It focuses explic-itly on turning local unit gains into global firm re-sults. It takes successful change as a given—at leastin the place within the firm where it was imple-mented (e.g., its customer service center, shippingand receiving department, or North American salesterritory). A scan of current organizational changetextbooks reveals well-documented knowledge re-garding how to get change started, manage transi-tions, and make change last.^ Linkage analysis takes

the next step: It informs managerial action after suc-cessfully implemented change has occurred to cap-ture its potential benefits for the firm more broadly.This approach to change management is based uponPaul S. Goodman's 2000 book Missing OrganizationalLinkages, which specifies how connections betweenwork units (horizontal linkages) and between hierar-chical levels (vertical linkages) facilitate or impedefirm performance.^

Linkage analysis goes beyond traditional no-tions of organizational systems and alignments toincorporate dynamic organizational processes.One of the authors worked on a large-scale changeeffort with Eric Trist, a founder of socio-technicalanalysis and systems theory. Its basic idea is thatcreating change which aligns with the organiza-tion's social and technological systems enhancesperformance. In the study with Trist, alignment ofsocio-technical systems did indeed predict im-provements in productivity and cost reduction inthe firm's production systems. Nevertheless, thealignment perspective did not trace how changesin production impacted the firm's overall effective-ness. Similarly, proponents of the big-picture sys-tems view of change have done a good job of spec-ifying the parts that matter in implementingsuccessful change and why alignment is needed,but they are more oblique on the pathways fromdepartment or unit improvement to firm-levelgains. The linkage approach we present helpsmanagers and change agents directly map andsupport the connections needed to turn local im-provements into broader organizational results.

Linkage analysis is related to but goes beyondthe mapping approach at Sears as discussedabove. Sears mapped the linkages between organ-izational practices that enhance employee servicecapability, this capability's impact on customerratings of service, and the resulting impact ofthese ratings on actual sales. Its approach, by pay-ing attention to outcomes occurring over time,gave Sears' managers a methodology for tracingand estimating the quantitative effects of localchanges on store performance. However, althoughboth perspectives help managers visualize thecomplex pathway inherent in any organizationalchange, the Sears' approach created a modelunique to Sears.

In contrast, our approach identifies linkagegaps, bridges, and mechanisms valid for all or-ganizations seeking to resolve the organizationalimprovement paradox. Linkage analysis does notrequire longitudinal data to identify linkage op-portunities and can be used to anticipate as wellas react to linkage problems. Moreover, it buildsmanagerial capability to think longitudinally re-


garding time lags and feedback cycles. Though theapproach Sears used is linear, linkage analysispays attention to feedback loops and time delays,thereby capturing the more dynamic elements ofthe change-performance relationship.

Applying Linkage Analysis: Two Case Studies

Linkage analysis is a three-step process. First, thebasic features of the organization are mapped toanticipate likely linkage problems. Second, spe-cific linkage obstacles are identified. The thirdstep is to design linkage-building processes,whose introduction can offset linkage obstacles.Let us start with two examples of the organiza-tional improvement paradox to explain how link-age analysis works.

BIG 6, a large international consulting firm, in-troduced a multimillion-dollar information systemto facilitate knowledge sharing. Although BIG 6'soffices w ere relatively independent of each other,they worked on a common class of problems. Theinformation system was designed to permit solu-tions discovered in one office to be used in otheroffices. If consultants were able to use a good ex-isting solution, then they would need to spend lesstime on discovering solutions themselves. The in-formation system should reduce the time to com-plete an engagement. If the team then were able toproduce more engagements, the revenue per teamshould increase, and the office and firm shouldbenefit. This information system was successfullyimplemented, and a variety of metrics showed thatthe system was actively used by the consultantsacross offices. However, there were no observableincreases in revenue/labor hours at the firm level.

TELECO, a high-tech firm, implemented a com-pany-wide change program to improve costs, qual-ity, customer satisfaction, and overall profitability.This program included extensive worker training,development of problem-solving teams using inno-vative methodologies for quality improvement.

new recognition and reward systems, and otheractivities. Changes were introduced across TELE-CO's many units including product development,manufacturing, sales, and other administrative ar-eas. Two years into the change, despite significantreductions in manufacturing's product defects andcosts, the firm's profitability actually declined.This decline was not attributable to any industry orenvironmental changes. Now let's use linkageanalysis to figure out what happened in each case.

Step 1: Linkage Identification

The first step in linkage analysis is identifying thecritical organization features or dimensions thatbear on understanding the organizational im-provement paradox. Four organizational featuresare critical to identifying linkage obstacles (seeTable 2).

1. How is the firm organized?

When units in an organization (e.g., departmentsor work groups) are relatively independent, it iseasier for the benefits from change in any one unitto translate into broader organizational gains.Sales gains for a retail chain translate directly intoincreased sales for the firm as a whole when thechain's stores operate independently. In suchcases, unit changes are more likely to impact firmoutcomes directly. On the other hand, where theactivities of units are interdependent, negativeconsequences and bottlenecks are more likely toarise as a result of the change. While any organi-zation with distinct subunits and levels has mem-bers who possess information that differs from thatof others with different vantage points, linkageanalysis can identify where greater attention toinformation sharing is needed in solving coordina-tion problems. As the number or degree of interde-pendent activities increases, it becomes more dif-ficult to align changes in one unit or level with

Table 2Classifying the Change's Linkage Environment

Environment

Dimensions Simple Complex

InterdependencePerformance MetricsFunctional ContributionTime LagObstacles

Implications for Linkage Analysis

LowSameDirect, estimableShort (months or less)Fewer

Easier to trace and manage linkages

HighDifferentIndirect, difficult to estimateLong (year or more)Greater

More difficult to trace and manage linkages

2004 Goodman and Rousseau 11

those in another. In highly interdependent worksettings where complex coordination is required,many obstacles must be overcome before benefitsfrom a change at one unit are realized by the firm.In such conditions, mapping the change pathwayreveals potential obstacles and ways to overcomethem.

BIG 6, as a consulting firm structured aroundgeographically distributed offices, fits our descrip-tion of an organization with relatively independentunits. Team-level changes that increase revenueshould be directly translatable into increased rev-enue for both the office and the firm. TELECO, onthe other hand, provides a more complicated set ofarrangements. Improving quality in manufactur-ing may or may not lead to increases in sales,since firm-level gains depend on increased de-mand for the greater capacity manufacturing hasnow created. At TELECO, linkage analysis callsattention to the downstream implications of im-proving manufacturing's production capacity.

2. Are the performance metrics similar?

Tracing outcomes from local to higher levels iseasier when their performance metrics are thesame. In BIG 6, the metrics (e.g., revenue/billablehours) are the same across the team, office, andfirm. In TELECO, the metrics for product design(e.g., time to design) are different from those of thesales organization or the broader firm's own per-formance metrics. The more different the metrics,the more difficult it is to trace effects across levelsand units. At BIG 6, as in the case of Sears' stores,all offices are evaluated on the same performancemetrics. Tracing cross-level effects is straightfor-ward—changes in a consulting firm's office reve-nue can be directly mapped to changes in firm-level revenue. However, different metrics acrosslevels raise concern regarding reliability, consis-tency in measurement intervals, and the possibil-ity that their underlying causes aren't the same. AtTELECO, changes in manufacturing depend on re-ciprocal adjustments in other functional areas in-cluding product development before firm-levelgains in revenue are realized. Removing the link-age obstacles here requires considerable supportactivity, as we will describe in Step 3, to translategains in one unit for the benefit of the broader firm.

3. What is a unit's functional contribution tooverall firm performance?

How much do changes in a local unit's perfor-mance indicators contribute to changes in thefirm's performance indicators? It is natural to focus

attention on units with larger staffing, expenses, orrevenues—but these indicators are not the bestguide to evaluating functional contribution. If weassume that BIG 6 has twenty offices of equal size,a local unit's functional contribution to the firm'soverall performance is 5 per cent. At TELECO, thefunctional contribution of each unit is more diffi-cult to identify. Linkage analysis reveals that prod-uct development's functional contribution rests inthe relationship between reduced product-cycletime and overall sales. Estimating the product de-velopment unit's functional contribution to the firmis a complicated task. While the rate of new prod-uct creation contributes to changes in sales, so domany other factors. Though it is possible to esti-mate the functional contribution of the changes inproduct development, any estimate needs to ac-count for numerous interdependent activities, in-cluding the perceived market value of the prod-ucts, how new products are launched, which otherunits are involved in successfully producing andmarketing these products, and the linkages amongthe various units.

The challenge for managers and consultants isto be explicit about the functional contribution of aparticular unit to the firm. Without doing this, it isdifficult to evaluate the performance improvementthat results from an intervention in that unit onfirm-level indices. Knowing each unit's functionalcontribution makes it easier to allocate appropri-ate levels of support for those local changes criti-cal to achieving firm results.

4. What are the time lags between the changeand observable results?

Time is a key but neglected factor in organiza-tional change. Many managers and change agentsdo not have a realistic understanding of the timelags between local performance change and high-er-level results. A thorough linkage analysis payscareful attention to time lags. The first concernfollowing a successful implementation is what ac-tivities must transpire between a change in unit-level performance and firm-level performance(e.g., what will higher levels do with greater localefficiencies, cost reductions, or improved quality?).Managers and change agents can begin to under-stand the lag between change and results by pay-ing attention to feedback cycles. Because manu-facturing at TELECO is a short-time-frame/high-volume activity, production-related changes becameapparent relatively quickly. When manufacturingtook the lead in implementing changes, not surpris-ingly it demonstrated visible results. These suc-cesses encouraged more participants, who gener-


ated other successes. Initial visible successes drovemore participation, which generated more results,which accelerated manufacturing's participation.Once this cycle began (six months into the change),manufacturing demonstrated positive trends in visi-ble results.

The second concern is how much time willelapse before changes in local results have aneffect at the firm level. Managers and changeagents often have untested assumptions regardingthe time lags that change involves, including thebelief that if a change is successful, results shouldbe evident in the next scheduled quarterly reportor annual review. In fact, in the case of BIG 6, thetime lag between changes in office revenue andfirm-level revenue is relatively short, constrainedonly by the speed of the accounting system. Thereare no intermediate activities delaying the trans-lation of office revenues into firm revenues. In theTELECO case, however, there are much longer andmore complex lags between reducing costs inmanufacturing and increased profitability at thefirm level. The longer the lags, the more otherfactors (e.g., distractions, resource allocation deci-sions, competing demands) can influence the rela-tionship between unit changes and performance.Linkage analysis can help managers and changeagents develop a realistic understanding of howmuch time and effort are required to turn localchanges into firm gains.

Implications

It will be easier to translate successful changes atone level into gains at another if forms of organiz-ing are independent, metrics are the same, thefunctional contribution is strong and discernable,and the lags between changes and results andbetween results at one level and those at anotherare short and identifiable. In such situations, theorganizational improvement paradox is less likely.In contrast, where forms of organizing are com-plex, metrics are different, and so on, the oppositeshould be true. However, in either case, linkageobstacles can occur. Step 1 tells us how compli-cated the linkages are between the firm's levelsand helps us chart the amount of effort required toovercome linkage obstacles. The next step is toidentify the obstacles in the causal pathway.

Step 2: Mapping the ChangePathway—Identifying Obstacles

Mapping the change pathway requires the analystto explicitly map out the major linkages and iden-tify critical obstacles. For BIG 6, Figure 1 shows the

basic flow diagram illustrating the change path-way. The change intervention was designed to in-crease knowledge sharing in an effort to increasethe revenue flow per team. The basic linkages are(a) the team engages in knowledge sharing, (b)knowledge sharing reduces time for a given en-gagement, (c) the team has slack capacity to doadditional engagements, (d) the team takes on anew engagement, which generates additional rev-enue, and (e) the knowledge-sharing cycle beginsagain. As we have pointed out above, the team'sadditional revenue directly passes to the office'srevenue, which in turn leads directly to the firm'srevenue. There are no time delays. The size of theincremental revenue depends on the functionalcontribution measured in dollars per engagement.

There may be obstacles even in BIG 6's simplepathway. Assuming that the knowledge system iswidely used, sharing can have multiple beneficialfunctions, of which reduced time per engagementis only one. Knowledge sharing could provide abetter-quality final product, although the time tocomplete the project remains the same. Knowledgesharing might lead to changes that affect customersatisfaction, but there may be no connection tofaster engagement completion. Second, if the sys-tem provides solutions that reduce engagementtime, the immediate consequence is slack re-sources for the team and office since some workersmay now be idle. If the knowledge system simplyhelps the team to be done earlier than expected,there is no incremental benefit to the team, office,and the firm—unless there are other engagementsto pick up the slack. Third, the incremental revenuebenefits must be mirrored across the majority ofteams in an office. If a few teams increase theirrevenues, while others experience additional slacktime or no change in revenue, the impact of team-level changes on the office or firm will remainnegligible. Lastly, if there are office-level perfor-mance improvements, these must also lead to per-formance improvements for the firm, based on thefunctional contribution of the office to the whole. Ifsmall-office changes contribute positively to netbilling, while changes in larger offices contributenegatively, there may be no observable benefits atthe firm level.

Using this change pathway, we can visualize apositive feedback system where knowledge shar-ing improves engagement performance, whichleads to more knowledge sharing, which, in turn,accelerates knowledge sharing and the subse-quent cycle. However, the linkage obstacles haveto be removed before this positive feedback cyclecan occur. Consultants at BIG 6 continually usedthe knowledge-sharing system, but usage did not


FIRM

OFnCE

TEAM

LEVEL

KNOWLEDGE SHARINGCYCLE

Firm Revenue

1Office Revenue

TeamRevenue

KnowledgeSharing

EngagementProcessing Time

New EngagementOpportunities

SlackTime

+ Capacity for NewEngagements

FIGURE 1Mapping the Change Pathway at BIG 6

reduce time per engagement. Knowledge sharingprovided valuable information on where to search,the quality of information sources, new tools, andso on, which improved the quality of work but notthe work processing time. For those teams that didreduce engagement time, some had new engage-ments to start while others experienced slack time.Given these two obstacles, there was a lot of vari-ance among the teams in contributing to new rev-enue for the office. Similarly, there was a lot ofvariation among offices in whether they contrib-uted at all to the firm's additional revenue.

This case exemplifies a common pattern follow-ing the adoption of a knowledge-sharing system.An appropriate system was selected and success-fully implemented, but the managers of this well-known company did not map out the change path-ways, identify obstacles, or resolve them. Therewere some benefits but not the anticipated gainsin firm performance. Step 3 will describe what BIG6 might have done to better capture local benefitsfrom the knowledge-sharing system for the firm.

At TELECO, mapping the linkage pathway isinherently more complex. There are three majorwork units—product development, manufacturing,and sales—plus a corporate administrative unit.These units are highly interdependent and use

different metrics for performance. The time lagsbetween product development and sales areknown and measured in months. The time lagsbetween change practices and observable resultsare ill-defined.

The change included system-wide training, in-creased team problem-solving skills, and new re-ward and recognition systems. It was expected togenerate faster and more effective new productdesign, which would be manufactured at a lowercost and with higher quality, which would bepassed on to a higher-level-capacity sales force,which would sell more products at a lower cost,and the final result would be greater firm profit-ability. Several feedback processes were antici-pated to accelerate the change's impact: Increasedquality in manufacturing would reduce costs,which, in turn, would put more resources into de-signing defect-free processes, which, in turn,would reduce costs. Another anticipated feedbackloop centered on increased sales, expected to cre-ate more economies of scale in manufacturing,which would reduce costs, and, in turn, would in-crease sales and profitability. Linkage analysisdemonstrates that lack of coordination in the prod-uct development-manufacturing-sales cycle repre-


sented an obstacle keeping local improvementsfrom yielding potential firm-level results.

Most TELECO units initially showed little inter-est in the change. The manufacturing departmenttook the early lead, demonstrating successes thatcaptured additional participants in manufactur-ing, who, in turn, contributed to new successes.Manufacturing's implementation successes led toincreasing participation among its members, andwith its further successes, a positive feedback cy-cle had begun. In manufacturing, success wasmeasured in terms of better quality (fewer defects)and lower costs. These two indicators were mutu-ally reinforcing and added to the visibility of man-ufacturing success. However, the change that tookhold in manufacturing failed to do so in productdevelopment. Manufacturing had tangible, con-crete problems, and solutions were evaluated via afast feedback cycle that produced immediatelyidentifiable, tangible results. Product develop-ment's work was less concrete, with a longer lagtime between solving a problem and seeing re-sults. Results of the change were therefore morevisible more quickly in manufacturing than inproduct development, and as a result the TELECOmanagement refocused their attention—and re-sources—on manufacturing, shifting these awayfrom product development. It is natural to focus onmore visible units producing immediate results,thus ignoring the more intangible contributions ofproduct development. Though costly in terms of thechange's ultimate failure to produce results, ignor-ing product development was easy to do withoutan explicit analysis of the linkages along thechange pathway at TELECO.

TELECO reflects the classic organizational im-provement paradox where a gain in some indica-tors (or for some units) creates challenges for oth-ers. Ouality and costs improved but created excesscapacity that the company did not use appropri-ately. Because the results of change took longer tosee in product development, and management hadredirected development resources toward manu-facturing, few, if any, new or improved productswere generated to fill the excess capacity. At thesame time, TELECO's competitors also were im-proving their quality and cost indicators, so it re-alized no comparative advantage. Moreover, under-utilized capacity and indirect costs, which had notchanged, contributed to the firm's declining profits.

TELECO is an exemplar of a complex changesituation (e.g., interdependent units with differentmetrics and different time lags between changeand results). Its failure to yield positive results forthe firm should come as no surprise. It did not mapthe pathways across levels or identify obstacles in

establishing the critical linkages that improve-ments in manufacturing matched improvements inproduct development (Figure 2). Successful changeat TELECO requires coordinated changes in prod-uct development, manufacturing, and sales toachieve firm-level benefits (Figure 3).

Implications

Mapping the change pathway forces changeagents to make explicit the intervening outcomesthat must occur for performance indicators to showimprovement. It surfaces the assumptions beingmade about the likely effects of the change effortand permits them to be evaluated and revised ifneeded. It can reveal barriers that exist betweenchanges in one unit or level and the requisite re-sponses from interdependent others needed tomake the change successful. These barriers can bepolitical as well structural. Change agents such asmiddle-level managers may lack the requisiteclout to overcome linkage obstacles. Mapping thechange pathway permits identification of areaswhere critical support may be needed from higher-level management. This mapping identifies keyconnections that must be reinforced to make localperformance gains organization-wide. It helpschange agents anticipate linkage obstacles andbegin building the mechanisms critical to over-coming them.

Step 3: Building Stronger Linkages

The third step in linkage analysis is to introducemechanisms that will remove obstacles and en-hance the firm's ability to capture local perfor-mance gains. Once obstacles are identified, or-ganizations must offset them to ensure positiveresults from change across multiple levels. Threecritical linkage-building processes can help changeagents and managers translate positive results fromchanges at one level into benefits for the firm as awhole.

1. Creating Multilevel Motivation Systems. Onecritical mechanism to offset obstacles identified ina linkage analysis is creating shared multi-levelmotivational systems. In these systems the energyof people is focused not only on their jobs but alsoon the team or unit to which they belong as well ason the larger organization. For example, in a firm-wide change at Champion International Paper,shared motivational systems were reinforced fromexecutives to front-line staff and from the produc-tion to marketing departments.'^ Workers and man-agers were each rewarded for individual, group.


No Firm-LevelBenefits

Manufacturing

Firm-Wide

Interventions

New High-Quality,Low-Cost Products

FIGURE 2Critical Feedback Processes at TELECO

plant, and corporate performance. One conse-quence of shared multilevel motivation was collec-tive energy allocated to solving problems acrossunits within each paper plant. In addition, the fo-cus on firm-level performance led to higher levelsof collaboration across plants and between plantsand staff functions such as human resources andplanning.

In TELECO, narrowing the focus of the change tomanufacturing was dysfunctional, reflecting man-agement's failure to understand the longer timelags required before changes in product develop-ment could yield visible benefits. A linkage anal-ysis prior to the change at TELECO should haveindicated that core resources and rewards neededto be allocated to support product development'sinvolvement in the change—or improvement inmanufacturing capacity could not yield gains forthe firm.

Multi-level rewards tend to be dynamic. What

and whom the organization rewards often need toshift over time as the change process progresses.To initiate changes at TELECO or other similarfirms, initial rewards should likely focus on indi-viduals or teams, to get the change off the ground.Once the change starts to capture people's atten-tion, the rewards should then shift to reinforce thecritical linkages across levels (e.g., rewards fornew product ideas or cost reduction across all lev-els). At TELECO, such a shift could have fosteredcloser ties between manufacturing and product de-velopment in order to stimulate new ideas for prod-ucts and to connect changes in the manufacturingprocess to potential product innovations, and viceversa.

2. Creating Problem-Solving Mechanisms Be-tween Units. A mapping of the change pathway iscritical to anticipating linkage obstacles. However,no change effort is perfect from its inception. Allchanges generate linkage obstacles and poten-


Profit

FIRM

UNIT

LEVEL

Firm-Wide

Interventions

Sales

SalesCapacity

NewHigh-Quality,

Low-CostProducts

Manufacturing

ProductDevelopment

FIGURE 3Supporting Linkages at TELECO

tially negative consequences that must be man-aged to capture benefits from the change for theorganization as a whole. These difficulties canonly be addressed once a change is in place. Ineffect, there is need for ongoing redesign of howunits relate to each other. This is particularly truewhen the change itself impacts how one depart-ment or work unit relates to another or to the largerorganization. Bottlenecks, misalignments, and con-straints require a constant process of evaluation,feedback, and problem solving to smooth the wayfor improved performance outcomes.

Two particular problem-solving processes, reac-tive and proactive, are critical to removing obstaclesand preventing performance-outcome changes inone level from negatively impacting another level'sperformance outcomes. Reactive problem solvingdeals with solving existing problems. It stems fromthe recognition that failure of any part or unit mightultimately bring down the whole system. The mosteffective team production systems contain highlytrained, fast-response, problem-solving teams. Theother vital form of problem solving is proactive. Here,the focus is on improving the system to minimize

problems that would otherwise require reactiveproblem solving. Reactive and proactive problem-solving processes tend to be embedded in teams. It isimportant that both of these problem-solving pro-cesses function and that neither dominates the other.

In BIG 6, neither problem-solving process wasactivated. An effective reactive problem-solvingsystem would have identified the gap betweenexpected revenue increases and actual increases.When the change created slack time because noother new engagements were available, an effec-tive reactive problem-solving system would havegenerated solutions such as expanded marketingefforts to increase new engagements. (Had the ob-stacle been failure of information sharing to occur,using a very different perspective, the proactiveproblem-solving process might have focused onnew ways to share knowledge, such as knowledgecenters with help desks organized by customersectors or topics.)

The work of proactive teams is both independentof and interdependent with the duties of reactiveproblem-solving teams. For example, in the case ofan organization-wide change at Champion Paper,


proactive teams reduced the number of problemsthat occurred while reactive teams were betterable to respond to the breakdowns that did occur.Over time, the operation of these two types ofteams can change the mix of problems which thefirm faces. That is, as the proactive teams reducethe variance in the total system, the reactive teamsshould have fewer problems to confront and thusshould be able to work more quickly and moreeffectively. Over time, as system failures decreaseand the reactive teams have less work, reactiveteam members may be able to shift toward proac-tive problem-solving to further facilitate changessystem-wide. Through this cycle, effective linkagescan be created to help changes at one level trans-late to others.

3. Coordinating Both Vertically and Horizontally.Successful coordination requires processes thatlink interdependent activities in order to achieve acommon goal. If changes are made in one unit of aproduction system, for example, some type of coor-dination mechanism is necessary to ensure thatthese changes are passed along the value chain toother production units, the sales department, andso on—a key issue in the TELECO case.

Effective coordination processes share severalkey characteristics. First, a firm needs multiple,overlapping linkage mechanisms. Traditionally,coordination is accomplished through the use ofadvance planning and/or real-time feedback. How-ever, because not all aspects of coordination canbe anticipated, discrepancies between desiredand actual results must be monitored to establishimproved coordination mechanisms. Second, coor-dination mechanisms should focus on the individ-ual and group levels as well as the organization asa whole. In our discussion of motivation, wepointed out the need to motivate across the variouslevels of an organization. The same holds true forcoordination processes. Furthermore, coordinationmechanisms should serve to create a shared cul-ture, with common beliefs and values which em-ployees hold firm-wide. Common performancemetrics across managers at all levels such asthose found in firms such as Citibank and Xerox(e.g., market share, return on assets, customer sat-isfaction, and employee satisfaction) promoteshared multi-level motivation and coordinationacross levels. Information systems that providesystem-wide information and/or decentralizeddecision support can also enable and enhancecoordination.

We can see the effects of using multiple coordi-nation processes and the consequences of not do-ing so in our examples. At TELECO, where changewas less successful, only a senior management

team coordinated the change process. In contrast.Champion Paper International successfully usedmultiple coordination mechanisms, including atransition team, a consulting team that repre-sented various units across the company, a knowl-edge-sharing system, and so on. Together, thesemechanisms involving people with different van-tage points from different parts of Champion helpedthe company to coordinate the change and, whennecessary, to redesign the process as it progressed.

Linkage analysis can help to inform the processof coordinating change across levels. Mappinghow coordination mechanisms are distributedthroughout the organization, both vertically andhorizontally, will identify unattended-to gaps thatrequire additional coordination efforts. This map-ping can be used to incorporate new forms of mul-tilevel motivation, problem solving, and coordina-tion that can function synergistically. Sharedmultilevel motivation facilitates both problemsolving and coordination. For example, employeeswho direct their energies simultaneously towardtheir own work, their group, and their organizationshould enhance coordination processes. Effectiveproblem solving should enhance the shared moti-vation of all organizational members and facilitatecoordination. Effective coordination should reducethe need for problem solving and enhance sharedmotivation across units. Changes in any one pro-cess may enhance a second process and third pro-cess, which then feed back to improve the first.

Implications

The mechanisms we describe create linkages inthe change pathway that translate gains withinwork groups or departments into benefits for thelarger firm. Such mechanisms neutralize the obsta-cles that are inherent in complex settings withhigh interdependence, dissimilar metrics, indirectfunctional contributious, and long time lags.In effect, they remove the obstacles that linkageproblems generate and enhance the relationshipbetween improvements in one part of the organi-zation and the performance of the organization asa whole. Moreover, these mechanisms are syner-gistic. The magnitude and timing of changethroughout the organization are improved becauseof the combined effects of linkage mechanismspromoting multi-level motivation, problem solving,and coordination.

Linkage Analysis Enhances ImportantManagerial Competencies

The ever growing pressure for high performancein complex organizations means that the organi-


zational improvement paradox often must beovercome on a regular basis. Doing so is both acognitive and an organizational challenge. Organ-izations are inherently complex, and individualhuman beings have limited information process-ing capabilities. Linkage analysis permits manag-ers to visualize the complex processes of changeand specify critical change pathways that other-wise might go unrecognized and unmanaged.

The advantage of creating visual maps is per-haps best expressed by the title of a book on cre-ative design: Things That Make Us Smart.^ Its au-thor makes the key point that visual cues need tobe informed by the way people process informa-tion. Developing the capability to design mappingtools used to make organizational decisions canhelp overcome the cognitive and organizationalchallenges inherent in managing complex organi-zational change.

When change pathways are mapped out, de-monstrable results more readily occur because ap-propriate support is more likely to be provided.Consider how Dupont, a large chemical manufac-turer, built its own change pathway model.^ Abenchmarking study revealed that Dupont hadspent more on maintenance than other industryleaders but realized much lower benefits. Mainte-nance is a complex activity because of thetradeoffs between preventive and corrective main-tenance. For example, cost-cutting programsslowed equipment replacement programs andspare parts inventories. In consequence, equip-ment broke down frequently, which in this settingrequired more people working on corrective main-tenance, which pulled people away from preven-tive maintenance, which, in turn, accelerated thedown time on equipment and the need for morecorrective maintenance. A positive (accelerating)feedback cycle operated, driving out preventivemaintenance and exacerbating maintenancecosts.

Dupont initiated a new change program to re-duce and control costs but discontinued it after ashort time for lack of observable results. After an-other series of false starts, those responsible forthe change concluded that they needed to helpmanagers build better "mental maps" of variousmaintenance models. That is, they wanted to helpthe people responsible for any changes to be betterable to visualize the tradeoffs between preventiveand corrective maintenance and between mainte-nance and operations. Some of the tradeoffs in-volved technical issues, such as machine reliabil-ity, while others centered around social issuessuch as the loss of overtime which commonly oc-curs when there is a lot of corrective maintenance.

Dupont helped managers refine their maps byengaging in a simulation game to better under-stand the tradeoffs they faced, building a moreexplicit model of the change pathways, unex-pected consequences, and potential obstacles.From this learning experience, teams at the plantlevel built implementation plans to improve spe-cific maintenance functions. The results were en-couraging. The mean time between repairs im-proved by an average of 17 per cent, and costs fell21 per cent. These results were significantly betterthan those at comparison plants, which had notparticipated in the simulation game.

Undoubtedly there is a learning curve in imple-menting linkage analysis as managers developbetter articulated, more realistic models of howactivities and outcomes at one level impact thoseat others. Understanding time lags, for instance, isan important part of managing change effectively,and yet for the most part these lags are not wellunderstood—at least not until more careful atten-tion is paid to dynamic performance patterns. Theproblem is exacerbated by the short-term evalua-tion systems prevalent in many industries. Simi-larly, feedback loops are also important in under-standing linkages, but again, it can be difficult toidentify which of many possible cycles might beoperating in an organization. The tendency in suchcases is to rely upon simpler models, expectingpositive impacts across levels without specifyinghow to achieve them. However, as the Championcase illustrates, linkage analyses can help the firmalong a learning curve by involving not only topmanagers and change agents but people from dif-ferent levels and functions in sharing informationabout organizational dynamics from their ownvantage points. A good deal of the ambiguity thatdecision-makers face in organizations comes fromasymmetries in information, where people in dif-ferent units or levels possess different knowledgeand understandings regarding how the organiza-tion operates. Bringing in different vantage pointspromotes more comprehensive mapping of criticallinkages along the change pathway.

The understandings that managers and changeagents have of the change pathway often reflectthe organization's culture, career paths, and phys-ical layout. Using linkage analysis to map thechange pathway is an important step both in cre-ating change that produces organizational resultsand in creating more realistic understandings ofhow the organization actually operates on the partof those responsible for its performance.

The current frontier of change management ishow to resolve the organizational improvement par-adox created by complex intra-firm relationships.


Addressing this paradox effectively demands morethan highly motivated employees or visionary man-agers. It requires a realistic mapping of change path-ways to identify where linkages are needed to cap-ture the benefits of change. As Albert Einstein said,"Everything should be made as simple as possible,but not simpler."

Acknowledgments

We thank Mike Beer, Ellen Fagenson, Bob Ford, and RobertMcKersie for helpful comments on an earlier version of thisarticle, Cathy Senderling for editing, and Bemadette Leppoldand Carole McCoy for word processing.

Endnotes

' Nobel Prize winner Herbert Simon first identified some ofthe problems that managers face in understanding linkagesacross levels. He described the phenomenon of loose couplingor, in his words, "near decomposability," a feature of hierarchi-cal organization that promotes robustness in the face of internalvariations in performance and from environmental fluctuation.See H. A. Simon, The organizational complex systems, in H.Pattee (Ed.). 1973. Hierarchy theory: The challenge of complexsystems. New York: Braziller: 3-27. Karl Weick has linked loosecoupling and the problem of managing linkages between levelsin organizational change to limitations from bounded rational-ity in his chapter "Management of organizational changeamong loosely coupled elements," in P. S. Goodman. 1982.Change in organizations. San Francisco: Jossey-Bass: 375-408.As Weick says, linkage problems arise in change "not simplybecause people have different perceptions, but also becausethey act and modify [only] the environments they perceive"(p. 384). See also Keating, E. K., et al. 1999. Overcoming theimprovement paradox. European Management Journal. 17 (2):120-124.

^ Schaffer, R., & Thomson, H. A. 1992. Successful change pro-grams begin with results. Harvard Business Review. January-February: 80-89; Jick, T. 2003. Managing organizational change.Cambridge, MA: Harvard Business School Press; Beer, M., &Nohria, N. 2000. Cracking the code of change. Cambridge, MA:

Harvard Business School Press; Nadler, D. A., & Tuschman, M. L.1992. Designing organizations that have good fit: A frameworkfor understanding new architectures. In D. A. Nadler, M. S.Gerstein, R. B. Shaw & Associates (Eds.), Organizational archi-tecture: Designs for changing organizations. San Francisco, CA:Jossey-Bass: 39-59; Tichy, N. M. 1983. Managing strategicchange: Technical, political, and cultural dynamics. New York:John Wiley & Sons.

^ Harris, D. 1993. Organizational linkages: Understanding theproductivity paradox. Washington, DC: National ResearchCouncil; Cascio, W. F. 2002. fiesponsibie restructuring: Creativeand profitable alternatives to layoffs. San Francisco: Berret-Koehler.

^ Rucci, A. J., Kirn, S. P., & Ouinn, R. T. 2001. The employee-customer profit chain at Sears. Harvard Business Review.January-February: 82-97.

^ See Endnote 2.^ The linkage framework presented here is described in de-

tail in P. S. Goodman. 2000. Missing organizational linkages.Newbury Park, CA: Sage. The interested reader might find cer-tain scholarly work on multi-level processes useful, includingR. J. House, D. M. Rousseau, & M. Thomas-Hunt. 1995. The mesoparadigm: A framework for the integration of micro and macroorganizational behavior. In B. M. Staw, & L. L. Cummings. (Eds.),Research in organizational behavior, 17: 71-114; and K. J. Klein,& S. W. J. Kozlowski (Eds.). 2001. Multi-level theory, research, andmethods in organizations. San Francisco: Jossey-Bass.

' In an example of an effective planned change, the Championcase captures a large-scale change at a major paper company,described by R. Ault, R. Walton & M. Childers. 1998. What works: Adecade of change at Champion International. San Francisco:Jossey-Bass. It provides a remarkable description of change atmultiple levels of analysis—within multiple plants, across plantsand staff units—and over a relatively long period of time.

® Norman, D. A. 1993. Things that make us smart: Defendinghuman attributes in the age of the machine. Reading, MA:Addison-Wesley.

^ For a description of Dupont's mapping processes, see J. S.Carroll, J. Sterman, & A. A. Marcus. 1998. Playing the mainte-nance game: How mental models drive organizational deci-sions. In J. J. Halpern & R. N. Stern (Eds.). 1998. Debating ratio-nality: Non-rational aspects of organizational decision making.Ithaca: Cornell University Press: 99-124.

Paul S. Goodman holds theRichard M. Cyert Professorshipand is professor of organiza-tional psychology at CarnegieMellon University. He was edu-cated at Trinity College (BA),the Amos Tuck School at Dart-mouth College (MBA), and hasa Ph.D. from Cornell Universityin organizational psychology.His research interests focus ondesigning effective work groups,learning in distributed workgroups, and organizationalchange and effectiveness. Con-tact: [email protected].

\

Denise M. Rousseau is the H. J.Heinz n Professor of Organiza-tional Behavior at Camegie Mel-lon University. Her research ad-dresses organizational changewith an emphasis on the employ-ment relationship and workercontributions to flexibility incontemporary firms. She is edi-tor-in-chief of the Journal of Or-ganizational Behavior and is the2004-2005 president of the Acad-emy of Management. Contact:rousseau@andrew^.cniu.edu.

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