I wrote about three types of organizational change in my book, Re-create Your Life, many years ago. Let me draw from several passages in that book because the business applications of this distinction should make the personal applications I wrote about last week even clearer.
Organizations, as well as individuals, require all three types of change to be successful.
First order change in an organization consists of improving on what already is. It usually consists of finding ways to do things a little better, faster or easier. It results in incremental improvements consistent with the existing culture of the organization (which is a function of the organization’s beliefs). You can make a lot of money doing this well.
Second order change consists of creating something totally new. It is characterized by behavior change that requires a new culture. In other words, the desired behavior is inconsistent with the existing set of beliefs and requires a new set in order to open up the possibility for the desired new behaviors.
An example of this would be a company where certain employees see themselves as “Service Technicians,” for whom fixing and installing equipment is their “real” job and for whom taking care of customers is an imposition. Giving such employees information about the importance of taking care of customers would be useless. Such information is inconsistent with their existing beliefs about themselves. They would need to change those beliefs so that they saw themselves as “Customer Satisfiers,” at which point taking care of customers would be natural and normal behavior.
Whereas first order change is incremental and consists of improving what already is, second order change is more fundamental and consists of creating a new set of beliefs that make possible behavior that had been impossible before.
One way to distinguish between a second and third order change organization is that the former creates a new and better culture in which to operate; the latter creates a culture that recognizes that there is no ”right” culture for all times.
A third order organization is always operating from questions rather than answers, such as, What makes sense today? It is an organization that is willing to question and change its beliefs and culture at all times.
As Eric Hoffer, the San Francisco longshoremen philosopher, once stated: “In a time of drastic change [such as the world is currently experiencing], it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer remains.” (Emphasis added.)
Continuous improvement is, by definition, a process, not merely a state change. Second order change substitutes one state for a better one. An organization committed to continuous improvement requires third order change, which is a process, not merely a state change.
A third order organization would welcome change because change would be its biggest competitive advantage. First and second order change organizations initially wouldn’t even see changes in the environment as they occurred. Eventually they would acknowledge the environmental changes and try to deal with them. They’d start with some first order change. Eventually some of them might make second order changes. By then what would have happened to the environment? It would have changed even more. Such organizations would never be dealing with the world as it is, moment by moment. A third order organization would.
When I lead workshops to help an organization create itself as a “third order” organization—in other words, an organization that creates third order change on a regular basis—I frequently ask participants: What limitations would a third order organization have? The answer is always the same: “There wouldn’t be any limitations.”
This is exactly the same experience that individuals have when they distinguish themselves as the “creator” and not merely a “creation.”
Examples of second and third order organizations
It is relatively easy to identify a second order change organization. It usually is doing something totally different from what everyone else in its industry is doing. Often it is something that everyone else says is impossible.
A good example of such a company is Southwest Airlines, founded by Herb Kelleher. At a time when everyone in the airline business knew that you couldn’t possibly fly from point to point profitably and that the only way to run an airline was to fly in and out of major “hubs,” Kelleher decided that the conventional wisdom was wrong and created what has become the most profitable and successful airline in the U.S.
He challenged the existing industry beliefs and created a new set of beliefs about running an airline.
It is much harder to identify a third order change organization because it must be watched over time to see if one major challenge to conventional wisdom is followed by another. In other words, because third order change consists of repeating second order change over and over as the environment demands, you need to observe a company over time to see if it makes fundamental change repeatedly.
One such company appears to be Amazon. Jeff Bezos started by challenging the notion of retail as requiring physical locations and decided to sell retail over the Internet. He started with offering a larger selection of books than even the super-sized bookstores with physical locations, such as Barnes and Noble and Border’s, at a substantial discount.
But his next second order change was even bigger than adding a lot more products, it was deciding that if a lot of people were interested in buying digital books, he would manufacture the Kindle, a digital book reader. Whether he succeeds in the long run or whether the iPad or similar products defeat him is beside the point. He and Amazon have observed the environment and continued to change as new opportunities arose. They have created second order change at least twice, which probably makes it a third order change organization.
The relevance of change in business to personal life
How is the distinction between three types of business organizations relevant to personal growth and transformation? I think the distinction between a second and third order organization is directly applicable to individuals: It is important to not only get rid of existing fears and barriers to action—so as to become a happier, more successful individual—but also to be constantly willing to grow, to learn, to change, to expand as your environment and experience require.
An individual who knows deep within that he is not his creation at any given moment, but the creator of any creation—in other words, someone who does not identify with his creation—would be willing to give up the creation he thinks he is at any given moment when he realizes it doesn’t serve him and create another one.
Second order change is reaching a better destination. There is nothing at all wrong with that. Run, don’t walk, to any opportunity to experience second order change.
A third order organization has a culture that holds there is no right way of operating at all times and under all circumstances, and is always open to change.
A third order individual distinguishes himself as the creator who creates his experience of life, minute by minute, always knowing that he is the creator of his creation, not any specific creation.
Please share below any comments you have on first, second, and third order change and my ideas on transformation in business.
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