Yet this whole midlevel framework misses two huge, incredibly important natural sources of

strength:

1. Having a coherent strategy—one that coordinates policies and actions. A good strategy doesn’t just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don’t do this. Rather, they pursue multiple objectives that are unconnected with one another or, worse, that conflict with one another.

1. The creation of new strengths through subtle shifts in viewpoint. An insightful reframing of a competitive situation can create whole new patterns of advantage and weakness.

Any coherent strategy pushes resources toward some ends and away from others. These are the inevitable consequences of scarcity and change. Yet this channeling of resources away from traditional uses is fraught with pain and difficulty.

In many large organizations, the challenge is often diagnosed as internal. That is, the organization’s competitive problems may be much lighter than the obstacles imposed by its own outdated routines, bureaucracy, pools of entrenched interests, lack of cooperation across units, and plain-old bad management. Thus, the guiding policy lies in the realm of reorganization and renewal. And the set of coherent actions are changes in people, power, and procedures. In other cases the challenge may be building or deepening competitive advantage by pushing the frontiers of organizational capability.

Entropy makes it necessary for leaders to constantly work on maintaining an organization’s purpose, form, and methods even if there are no changes in strategy or competition.

Organizational inertia generally falls into one of three categories: the inertia of routine, cultural inertia, and inertia by proxy…

The Inertia of Routine

… These routines not only limit action to the familiar, they also filter and shape managers’ perceptions of issues. An organization’s standard routines and methods act to preserve old ways of categorizing and processing information…

Deregulation acted to suddenly release many constraints on action, but many of the moves made in the first few years were guided by old rules of thumb rather than the realities of the new situation…

Despite deregulation, the CEO’s animated speeches on how the company had a new, competitive spirit, and an aggressive posture assumed by the senior management group, the company’s planning, pricing, and marketing routines were unchanged from the era of regulation. The new competitive spirit was pure aggressiveness, unalloyed by craft…

Inertia due to obsolete or inappropriate routines can be fixed. The barriers are the perceptions of top management. If senior leaders become convinced that new routines are essential, change can be quick…

The Inertia of Culture

… We use the word “culture” to mark the elements of social behavior and meaning that are stable and strongly resist change…

The cultures of organizations are more lightly held than those of nationality, religion, or ethnicity. Still, it is dangerous to think that organizational culture can be changed quickly or easily.

The first step in breaking organizational culture inertia is simplification. This helps to eliminate the complex routines, processes, and hidden bargains among units that mask waste and inefficiency. Strip out excess layers of administration and halt nonessential operations—sell them off, close them down, spin them off, or outsource the services. Coordinating committees and a myriad of complex initiatives need to be disbanded. The simpler structure will begin to illuminate obsolete units, inefficiency, and simple bad behavior that was hidden from sight by complex overlays of administration and self-interest.

After the first round of simplification, it may be necessary to fragment the operating units. This will be the case when units do not need to work in close coordination—when they are basically separable. Such fragmentation breaks political coalitions, cuts the comfort of cross-subsidies, and exposes a larger number of smaller units to leadership’s scrutiny of their operations and performance. After this round of fragmentation, and more simplification, it is necessary to perform a triage. Some units will be closed, some will be repaired, and some will form the nuclei of a new structure. The triage must be based on both performance and culture—you cannot afford to have a high-performing unit with a terrible culture infect the others. The “repair” third of the triaged units must then be put through individual transformation and renewal maneuvers.

Changing a unit’s culture means changing its members’ work norms and work-related values. These norms are established, held, and enforced daily by small social groups that take their cue from the group’s high-status member—the alpha. In general, to change the group’s norms, the alpha member must be replaced by someone who expresses different norms and values. All this is speeded along if a challenging goal is set. The purpose of the challenge is not performance per se, but building new work habits and routines within the unit…

Inertia by Proxy

A lack of response is not always an indication of sticky routines or a frozen culture. A business may choose to not respond to change or attack because responding would undermine still-valuable streams of profit. Those streams of profit persist because of their customers’ inertia—a form of inertia by proxy…

The important implication for competitors was that, at that moment, a rival could poach customers away from PSFS without triggering a competitive response…

Inertia by proxy disappears when the organization decides that adapting to changed circumstances is more important than hanging on to old profit streams. This can happen quite suddenly, as it did in telecommunications after 1999. Attackers who have taken business away from an apparently sleepy firm may find themselves suddenly without any profits.