The previous six decades have been witness to perhaps the most technological and industrial changes of any period in history. Developments in communications and information technology have significantly transformed the way in which major industries operate. As a result, business leaders have been tasked with perpetually adapting to a changing work environment, where the needs of workers and consumers seem to change annually. Drawing on theory to help guide both research and practice in this area has proven to be an effective way to anticipate and respond to change in the business world. Theories of change and management have correspondingly developed and expanded to match these technological and industrial changes. Therefore, the purpose of this paper is to review the most influential theories of change and innovation over the previous six decades. Beginning with classic theories of change and development in the 1960s and 1970s and finishing with contemporary theories presented within the past decade, this review will chronologically examine how these theories have transformed over time. Each theory will be described and research evaluating the engagement and efficacy of these theories will be discussed. Finally, gaps in each theoretical approach will be considered, as well its relevance to other models of change and innovation. This review will conclude with a brief summary and outline of key points.
While industry had grown strong in the United States over its then-200-year history, research into effective management strategies only began to emerge in the 1960s and 1970s (Schumpeter, 2005). During this period, the economic climate throughout the country was relatively stable due to the lucrative automotive and airline industries, among many others (Schumpeter, 2005). Therefore, theories appearing during this period were largely fixated on strategic management and careful planning (Schumpeter, 2005). For example, early theorists such as Peter Drucker and Ellen-Earle Chaffee proposed similar ideas that successful business management depended on setting specific objectives and systematically assessing progress over time (Mohrman, Lawler & Lawler III, 2011). Both of these researchers generally agreed that business was an outcome-oriented field, and organizational success was a result of the achievement of these strategically planned objectives (Mohrman et al., 2011).
Only in the 1970s did the first theories of innovation and institutional change begin to emerge. In their seminal review, published in The Journal of Economic History, Davis and North (1970) illustrated that institutional change required more than just careful planning and achieving specific objectives. While these steps were clearly important, effective management also necessitated adaptability, flexibility, and anticipation of cultural changes in society (Davis & North, 1970). According to Davis and North (1970) industrial changes were always a reflection of broader cultural changes, and organizations that could better evaluate and anticipate such changes were more likely to experience prolonged success in the market.
While early theories such as those of Drucker, Chaffee and Davis and North (1970) were the first to consider the variables that define organizational success in the field of business, they were also associated with significant drawbacks. First, they did not lend themselves well to research. The limited number of empirical studies testing the assumptions of these theories serves as a reflection of their somewhat weak conceptualization. Finally, many models presented during this period were overly simplistic, and failed to account for numerous variables that are now widely known to impact success in business (e.g., innovation, adaptability). The use of profit maximization as the sole motivating force for these models also suggests a relatively limited perspective on successful change management in business (Schumpeter, 2005). In summary, these models were first steps in the effort to establish theories of institutional change but were associated with many drawbacks.
The 1980s represented one of the most critical periods in American business history. During this time, several technological advances rapidly began to transform the business world, most notably of which was the personal computer (Schumpeter, 2005). The economic impact of the personal computer was so tremendous that America experienced its greatest sustained period of economic growth since the Gilded Age of the late 19th century during this time (Schumpeter, 2005). Additional factors that played a role in the sustained economic success during the 1980s were the prolonged peacetime during the Presidencies of Jimmy Carter and Ronald Regan, as well as the relatively stable oil prices and increase in investment in private businesses (Schumpeter, 2005). The expansion of new private business ventures grew rampant and increases in foreign trade resulted in greater international business competition. All of these factors contributed to an exciting and fast-paced business environment during this decade.
The impact of this economic boon in the 1980s is clearly reflected in the increase in business research that began to appear in peer-reviewed publications. Specifically, researchers and practitioners became interested in how to facilitate change and innovation, manage growth, and negotiate an increasingly competitive business environment (Mohrman et al., 2011). Michael Porter's "Five Forces Competition" Theory (1980) illustrates one of the first attempts to systematically analyze the forces that dictate an organization's competitiveness. According to Porter (1980), these forces could occur at the macro or micro level, and specifically impacted a particular company's ability to gain a profit (Porter, 1980). These five factors included bargaining power of supplies, bargaining power of customers, threat of new entrants, threat of substitute products, and rivalries within the same industry (Porter, 1980).
Additionally, Rosabeth Moss Kanter (1983) presented her "Theory of Change and Management," that was designed to improve organizational efficiency to respond to an increasingly competitive marketplace. However, unlike many previous theories, Kanter (1983) was among the first to consider how employees' attitudes and behaviors ultimately impact organizational success. According to Kanter (1983), employees were more inclined to behave in ways conducive to organizational success when certain criteria were met. Specifically, Kanter (1983) asserted that a business was more prone to be efficient when it accounts for both informal and formal sources of power; employees are granted the appropriate resources to meet company goals; and sufficient opportunity is present for employees to gain the skills they need to remain productive. When these factors are present, Kanter (1983) believed that organizations are more inclined to facilitate innovation, manage change, and respond to competitive rivalries.
Like the theories of the 1960s and 1970s, those of the 1980s were also limited in some respects. While they represented significant improvement in terms of their usefulness in business research, they, too, failed to account for several variables that are now widely known to impact organizational success. For example, existing theories up until the 1980s did not adequately account for how to acquire successful change management strategies at the individual level (By, 2005). Prevailing theories were predominantly oriented toward organizational success strategies but were limited in their consideration of individual leadership factors (By, 2005). Finally, theories of the 1980s did not include structural frameworks for change management, which prevented practitioners from understanding how to effectively initiate and management change (By, 2005).
Like the 1980s, the 1990s were also a period of sustained economic growth. Advances in personal computing technologies continued to change the ways in which businesses operated, and the wealth of countless Internet-based companies redefined the American business model (Schumpeter, 2005). In fact, according to Rado (2013), the concept of a business model was virtually non-existent until the late 1980s and early 1990s. A review of corporate linguistics indicated that the term "business model" experienced exponential increases in usage throughout the 1990s, as organizations soon realized that the utilization of such theory to drive their operational efforts was a clear path to success (Rado, 2013). Companies that did not have a structured business plan that demonstrated how they would implement and manage change ultimately closed, while those that possessed clear structural frameworks succeeded (Rado, 2013).
The most influential theories that began to appear in the 1990s were increasingly complex than their earlier counterparts. For example, Peter Senge's (1990) transformational book, The Fifth Discipline, describes this theorist's views on systems thinking in business as a means to sustained growth. According to Senge (1990), a business functioned as a system comprised of multiple networks of interworking parts. The goal of any business was, therefore, to improve the way in which these networks functioned to improve the overall organization's success (Senge, 1990). Additionally, Senge (1990) viewed employees as the most atomistic, and, therefore, most important, of these interworking networks. According to Senge (1990), effective management of change and innovation was a result of improving the mastery and commitment of these individuals.
Perhaps the most sophisticated theory to emerge in business literature in the 1990s was Everett Rogers' (1995) "Diffusion of Innovations" model. This model was proposed to describe the manner in which innovation and new technologies dispersed throughout a given population. Similar to the perspectives of Davis and North (1970), Rogers (1995) suggested that change and innovation were natural processes of human nature and were subsequently inevitable in business. According to Rogers (1995), diffusion represents the process by which these changes are communicated and spread through varying societal networks, a process which depends largely on individual efforts. Innovation occurs within a given society if it possesses individuals who are prone to adopt them in their daily lives and make critical decisions about their benefit (Rogers, 1995). Furthermore, diffusion occurs as a five-step process including: knowledge, persuasion, decision, implementation, and confirmation (Rogers, 1995). From an organizational perspective, those that understand this process can capitalize on consumer tendencies and more effectively meet their needs (Rogers, 1995).
Finally, John Kotter (1996) proposed an applied theory of leadership that gained widespread attention in the 1990s. According to this theorist, organizational success depended on responding to critical windows of opportunity, and leadership during these windows was a key determinant of success (Kotter, 1996). While research and the conceptual frameworks that directed business became increasingly sophisticated during this time, they similarly lacked specific strategies for developing the skills needed to lead change and innovation. Kotter's work illustrates the first of what would become a predominantly leadership-oriented research focus in the late 1990s and early 2000s.
The turn of the 20th century included the smallest period of economic growth since the Great Depression (Mohrman et al., 2011). During this time, the burst of the "dot.com" bubble resulted in millions of lost jobs, subsequently impacting additional markets and creating a shaky economic climate (Schumpeter, 2005). However, despite the tumultuous economy, technological change continued to define the early 21st century (Schumpeter, 2005). The previous three generations began to serve as evidence of how change occurs exponentially, and the most effective business leaders were those who were able to most effectively anticipate this change (Mohrman et al., 2011). Michael Beer's (2000) Breaking the Code of Change and Michael Fullan's (2006) educational change theory highlights efforts to conceptualize this change process and achieve a more responsive organizational system.
The work that has perhaps had the most profound influence on contemporary business thinking is that of Jim Collins. Author of multiple works over the past decade, Collins has conducted extensive research into the factors that determine modern business success and effective leadership. In from Good to Great (Collins, 2001), Collins transformed the way in which businesses viewed sustainability. Numerous novel concepts were presented to business thinkers in this work, including: the need to isolate and master one or two business strategies, rather than focusing on many; creating sustained success by promoting from within; and "level 5 leadership." This latter concept describes the leadership style most associated with success in the modern business environment, which includes counterintuitive qualities like humility and acknowledging weakness (Collins, 2001). Collins' (2001) work illustrates the increasing emphasis on leadership as a critical means of determining effective responses to change and innovation.
Additional leadership theories that have influenced approaches to change and innovation in the 21st century have included John Hayes' (2010) theory of change management and Nitin Nohria's (2010) theory of leadership. The former examines change management from a cognitive point of view, while the latter emphasizes the role of communication in the leadership process. Like Collins (2001), these theories reflect the increased attention placed on leadership and the role of individual personality characteristics to initiative and manage change.
Although research has progressed considerably over the previous six decades, several gaps in the literature still remain. For example, the global economic climate is one that has had a profound impact on change and innovation throughout the world - often lending itself to outsourcing among American businesses. Future research is needed that systematically explores how this globalization process has impacted the diffusion of change, as well as individual leadership styles (Howells & Bessant, 2012). Additionally, understanding how organizations can effectively coordinate across differing geographies is critical to effectively managing change and innovation (Howells & Bessant, 2012). Finally, continual examination of the internal organization of successful companies, such as the research of Collins (2001), is essential to understanding how to anticipate change and take advantage of critical windows of opportunity in the business environment (Howells & Bessant, 2012).
The purpose of this paper was to review classic and contemporaries of change and innovation in business. A chronological exploration of these theories was provided, beginning in the 1960s and concluding with modern change and innovation frameworks. Based on the evidence presented in this review, it is clear that research has progressed considerably over the previous six decades. Whereas previous theories were overly simplistic and limited in scope, modern theories are substantially more sophisticated and inclusive. However, numerous gaps in research regarding change and innovation remain. Future efforts are needed to expand on this topic and provide directions for today's business leaders.
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