Organizational Transformation
How to Achieve It, One Person at a Time
Bruce J. Avolio




The nature of my work has changed.

In this chapter, I will cover what I refer to as the first principle for organizational transformation. To prime you about this first principle, I’ll use an example that represents a transformative change in an organization that has unfolded over the past three decades. Many readers will know of the Mayo Clinic and its outstanding brand in the market for health care research and service. The Mayo brothers and their father founded this clinic in Rochester, Minnesota, a century ago, based on the principle that the best health care is delivered collaboratively. However, we wonder if many of our readers will know of the Cleveland Clinic’s story, as well as its less than stellar history.1

Back in the 1970s, the Cleveland Clinic was not on anyone’s benchmark list of organizations to aspire to be like in health care. This clinic was considered subpar, unsafe, and not a leader in any aspect of health care. Over the last thirty years, the Cleveland Clinic for many health care providers has become an aspirational organization for changes they seek in their own health care organization. A nurse who worked for the Cleveland Clinic during its past and present said that she would never have recommended a family member or close friend to the clinic, that in her own words it was a “butcher shop.” Now, thirty years later, this same nurse describes the Cleveland clinic as being one of the best cardiac care centers in the world. This same nurse went from disparagement and disdain to being a raving fan, proud to be part of this health care enterprise. We suspect a lot of self-concepts and narratives changed to produce what we now view as the Cleveland Clinic—same name or label, but fundamentally a different organization.


The first principle idea comes from physics and represents what physicists strive for in their quest to understand “how things work” at their most rudimentary level. In physics, it is the most basic or foundational law, concept, or rule available to explain how the universe works or, applied to our universe, how fundamental change unfolds in organizations. Thus, first principles thinking involves the following: “a mode of inquiry that relentlessly pursues the foundations of a problem.”2

This type of thinking is represented by one of the most iconic leaders in corporate America today, Elon Musk. With respect to first principles thinking, Musk stated,

I think it’s important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. [With analogy] we are doing this because it’s like something else that was done, or it is like what other people are doing. [With first principles] you boil things down to the most fundamental truths . . . and then reason up from there. (Elon Musk 2013)3

I have found that a lot of interesting literature on organizational change is guided by analogies, including one of the most frequently cited change models in the research literature, which describes three phases of change: freezing-unfreezing-refreezing.4 I find the same use of analogies in other models whereby their authors focus on melting icebergs,5 burning platforms,6 and the rider-elephant-path.7 Please understand, I also like metaphors and analogies as a means of communicating what change looks like, but I also suggest that reasoning by way of analogy can shortcut systematic inquiry and root cause analysis of change. Instead, by using first principles thinking, I am motivated to break problems down that are associated with explaining organizational change into their fundamental and most basic rules and components. This approach then allows us to ask formative questions about what needs to change and how that change originates, where, and its impact. Rest assured, I won’t completely abandon rhetoric, but we will use it sparingly to model a more disciplined focus on explaining organizational change as clearly as possible, with the goal being that you can do it in your own organization, whether it’s a team of two or 200,000.

You will see when you examine the four-state model that my goal was to plainly describe the end-to-end states of change between early identification and awareness where change becomes essential to one’s narrative, to the institutionalization of the transformation based on what I have learned in terms of how change unfolds. To get there I have asked myself the following questions:

• Which signals raised an awareness of the need for change amid all of the noise for complacency or sticking to your norms?

• What is (was) actually going on and emerging in the proximal and distal organizational environment that signaled change, which you noticed?

• What drove or caused the change to be seen in the first place and by whom?

• What hindered how the change was interpreted and unfolded?

• How did the change alter the way you saw yourself and what you owned in terms of considering what constituted “my organization”?

My goal is to help you anticipate or engage with the change to fully understand the basic founding principles that explain how change occurs, rather than just thinking about analogs and abstractions that may suggest or reflect what is going on but don’t clearly explain why—and, more important, how the change impacts each individual and then, ultimately, the larger collective of individuals we label “the organization.”

Using first principles thinking, I have looked first at what actually changes and, using the terms I introduced in the preamble, defined the unit of analysis as being the individual’s self-concept.


The self-concept is the cognitive container in which we each hold our identities—images of who we believe we are and what we describe to others when asked, “tell me about yourself.” And we all possess multiple identities in this cognitive container, such as parent, engineer, community organizer, Catholic, and so on.8

For example, we know that as we go through life we have certain identities that are quite stable, such as being a supporter of democratic values in countries like Sweden or the United States, yet we are still subject to change as life within and outside our organizational experiences changes. For instance, we might start out with an identity such as “I am a girl, a daughter, a sister, a student, a dancer, a Canadian, a Caucasian with a Norwegian last name and sense of heritage” or “I am a boy, a son, a brother, a paperboy, a New Zealander, a Caucasian with an Italian last name and a Jewish mother.” As life goes along that identity changes or perhaps expands to include, “I am a spouse, a parent, a teacher, a scientist,” and so on. All of these identities are contained in one’s self-concept and narrative and by design or serendipitously will no doubt change over time, more or less for different individuals.

The self-concept is formed and developed over the course of our lives.9 At the source of our self-concepts are the experiences we have with our followers, peers, leaders, culture, families, society, education, and so forth. For example, when people born in the United States describe what it means to be a U.S. citizen, they often describe that using terms such as having liberty, independence, and freedom. These are terms that are ingrained in the self-concepts of most U.S.-born citizens and those who settle here and become part of how we all view ourselves and in turn others in our country. We know these ideas are part of our self-concept; when they are violated, we seek to defend them in our arguments, debates, and courts. But individuals who come to the United States as adults from countries led by despots and dictators are often startled by how “chaotic” it is to live in the United States because they have formed a self-concept based on controls, compliance, and a prevention focus versus being able to exercise independence or liberty.10

People do change their self-concept as they become more immersed in a different way of doing things. We suspect you have experienced this sort of change in the way you view yourself, if you have traveled and spent time in a different national culture from your own. With such travel, one can quickly see how differently people behave in terms of work, leisure, family, and community, in contrast to one’s own cultural experiences. It is reasonable to assume that the scripts for how people behave or should behave were written by very different authors, and that is largely true as one transforms over time.

The same is true for individuals who move from one organization to another and discover that some organizations are loosely structured, highly empowering, and open to trying new things, whereas others are characterized by being locked down, preserving the past, and making sure all of the rules are always followed—always. Try talking to individuals who have worked for these two very different organizations for their entire careers, and we suspect you will see a very different interpretation when asked, “Can you tell me a little about what you do at work?” These different interpretations by each individual are, in part, rooted in the individual’s self-concept and work identity, and someone who comes in to change either of these organizations will quickly discover how ingrained these self-concepts and identities are in each individual.


By studying successful, unsuccessful, and somewhere in between transformations in organizations, I’ve learned that fundamental organizational change occurs when there is a change in the knowledge structures and scripts that people use to understand and explain their experiences with each other and with their customers and other stakeholders. Starting with leadership and extending over time throughout the organization’s transformation, one or more very stable, centrally defining attributes (essentially, the organization’s identity) gets redefined, and this opens up new possibilities, unlocks new behaviors, and redefines constraints into opportunities that have an impact on each individual’s self-concept.11

To represent how this type of change occurs, let’s consider an organization that produces very intricate chrome parts for large industrial manufacturers like Harley-Davidson. The founder’s son and CEO of the company emphasized to his employees that they should behave just as owners do in this organization, and the culture that was created empowered and rewarded them to do the right thing for advancing their organization’s mission.12 The CEO encouraged his employees to “step up” if something wasn’t working right in their business by giving awards for this kind of thinking. These “step up” awards were very common and often suggested by peers recognizing other peers.

For one award, a peer nominated a fellow worker for noticing that a visiting U.S. senator, who was walking across the manufacturing floor, had been twirling his safety glasses while making a point to the senior leadership team. Safety was the top priority for this workforce day in and day out, given the extremely dangerous conditions on the shop floor. The employee who received the award turned his machine off, walked over to the senator, and reminded him that he was in a safety zone, so he needed to wear his safety glasses to assure a safe visit to their facility. According to the CEO, who hadn’t noticed the senator had removed his safety glasses on the tour, this type of ownership behavior and recognition of it by peers was very common among this workforce. If you listened to employees describing “my organization,” you would hear them describe the ownership they assume for being safe, taking care of each other, and making safety an operating goal for their success. Employees expressed a great deal of confidence in having their own voice and being able to challenge others in any position, including their CEO, to follow the guiding principle for creating and sustaining a safe work environment. When new employees entered the organization, they quickly learned this narrative, and within more or less a couple of months into working there you heard them speak in the same way about “my organization.” Here we see how the culture of an organization helps employees to make sense of how they are supposed to behave.


How then can an organization made up of scores, hundreds, or thousands of individual self-concepts achieve a collective identity? In the Microsoft example, the CEO is attempting to shift employee’s self-concept from an organization that worked to put a PC on every desk to an organization with a broader mission that continues to innovate beyond writing code for PCs to building new technologies, connecting individuals in fundamentally different ways to solve problems, and advancing the world we will engage in, such as through virtual or mixed reality technology.

The question I encourage you to consider now is: how can what we know about individual identity formation and change be applied to organizational identities and change? In 1985, Stuart Albert and David Whetten13 proposed that, just as individuals have unique identities that include a stable self-concept, so do organizations have a collective identity. Individual self-concepts help each of us make sense of and navigate through our world. Similarly, collective identities in organizations are based on organizational members’ shared experiences based on their consensus about what makes sense regarding how employees work in and for the organization. The organization’s identity is different from its image, brand, or reputation—the impression that it hopes to make or actually makes on outsiders. Rather, it is a shared set of perceptions and beliefs among insiders with regard to the central, enduring, and distinctive attributes of an organization and what matters to “its workforce.”14 If you are going to change an organization, you must change these shared sets of perceptions—one individual at a time.

A good example of an organization with a strong emerging identity is Amazon. Amazon’s founder, Jeff Bezos, works diligently to ingrain the now fourteen core principles of their business into every employee from orientation to evaluation. For example, one founding principle is called Day One, which means each and every day is like day one, so innovate! It is such an important principle that Bezos had two buildings named after it, Day One North and Day One South.15

Understanding how this shared organizational identity works and can be changed is at the very heart of the work covered in the remainder of this book. Consequently, for you to fully understand how organizational change actually works, we look to how the individual identity and self-concept are constructed, operate, and then ultimately are formed into a collective identity that characterizes the organizational identity.16

A few years back, I worked with a cable manufacturing facility that had previously been part of the AT&T organization. Since its founding in 1895, AT&T had gone through many transitions, including bankruptcy, acquisitions, and divestitures. In 1996, the AT&T Technologies business unit was divested and became Lucent Technologies. At one of its town hall meetings, following the third or fourth major change in as many years, senior leaders were describing the new ownership and asking for questions from the crowd. Ray, the CEO of this business division, knew almost every employee out of the 2,000 who worked in his facility, and knew one employee very well, who rose to her feet to speak at this company forum. The employee had started working at this facility when it was an AT&T plant roughly fifty years earlier. The woman’s comments began with an expression of appreciation for Ray’s description of what was going to happen with the company’s new owners, including his transparent statement regarding the high probability they had to significantly downsize the workforce. She went on to express how she had lost a part of who she was through the ongoing change process:

When I was a young woman, I could go into any place in this town, and if someone asked me what I did, I simply had to say, AT&T. That’s it. That told them everything about who I was and what I did. My job was to do something amazing that connected people to people through technology—at that time, a phone. But today, I could spend an hour trying to describe my organization, and I still wouldn’t convey what it is I do because I don’t know anymore. Now, I am just biding my time until I get out or am let go.

Ray addressed the entire town hall audience asking how many felt the same as this woman felt. A thunderous response represented the embodiment of the collective identity crisis.

Many organizational leaders work to create a coherent identity and self-concept: “I am a Starbucks barista; I am a Doctor Without Borders; I am a Seattle Seahawks football player; I am a ‘twelfth person’ (Seahawks fan), I am a member of the Geek Squad or the Second City Improv Group.” Many leaders work for years to build this collective identity and work hard at authentically wiring a core identity into the self-concepts of each of their employees with a vision of the organization’s future. Then, one day, the company merges or is acquired; it changes its name with oftentimes an implicit expectation that a new identity must form in the employee’s self-concept. Imagine two rival high schools merging and the outcome having just one identity—one mascot and one fight song. The challenge of merging two high schools is not all that different than two firms merging and their failure rates at trying to do so.17

Social psychologists studying the nature of the self-concept originally saw it as a singular thing—a person’s sense of unique identity making one different from others. In the past twenty-five years, however, these self-concept theorists have realized that one’s identity consists of multiple levels of self-concepts, including the individual level, and also two other levels that are critical in understanding how member identities can form into an organizational identity—these are relational and collective identities that comprise the self-concept.18

The self-concept is a label we use for those cognitive structures that include specific content, that is, rules, attitudes, and value judgments that are employed by the individual to make sense of his or her world, goals, and basic worth19—essentially containing all information related to the sense of self.20 You might think about the individual, relational, and collective self-concepts as different files containing different types of information about the self that we can refer to as needed to help understand our self in different situations. This especially occurs when we are trying to figure out how a change conflicts with one of our central identities, that is, being a physician who heals sick people as compared to being a physician who promotes healthy communities.

The individual-level self-concept “folder” is where people define themselves in terms of being a separate, unique, and valuable entity based on the perceived similarities and differences compared to other individuals (see Figure 2.1). Here, behavior is driven by self-interest and preservation and promotion of self-worth. We use this information, in broad terms, to answer the question, “Who am I?”

Next, the relational-level self-concept “folder” is where people define themselves in terms of connections, interactions, and role relationships with valued others. Here, behavior is driven by the welfare of the valued others and one’s self-worth, based on enacting the appropriate role behavior directed toward a valued other. We use this information when working one-on-one with another person to manage the interaction and of course relationship. This could also extend to thinking about “how to be” in small groups.

The relational identity script connects a person to other individuals who have certain signature characteristics with which the person wants to vicariously be associated and that enrich and complete the “who am I?” picture or narrative.

The collective-level self-concept “folder” is where people define themselves in terms of membership in social groups, including the organizations where they are employed and professions we used earlier. Here, behavior is driven by an orientation to sustain if not protect the welfare of these groups in which one belongs and from which one derives a sense of self-worth based on favorable intergroup comparisons. The degree of one’s belonging includes the extent to which an individual internalizes the norms and attributes of a valued reference group and forms more of a “we–based” self-identity.

Figure 2.1    Figure of core identities.

These collective self-concept data are what gets integrated across organizational members forming a sense of “we” as in “founder” or “owner” mentality among the employees of the facility supplying Harley-Davidson with chrome parts. It is also what gets threatened when organizations attempt transformation where employees are not properly readied for change, in that change may be viewed as an attack on their individual and collective self-concept.21

Returning to Microsoft, many in its Windows software division saw themselves as “the Microsoft,” the ones who ensured a PC on every desk. As Microsoft’s core businesses shifted into such things as “cloud computing” or building products like the surface tablet or Xbox, it was difficult for many in this division to change. Indeed, often other Microsoft workers would lament that the Windows folks would do anything to keep them from advancing, and we might assume that the changes being proposed threatened their narrative about what constituted their self-concept of “my organization.”

Interestingly, what unfolded at Microsoft under Steve Ballmer’s previous leadership and continues to unfold under Satya Nadella’s mirrors what happened at IBM beginning in the 1980s and over a period of several decades. At IBM, the mainframe division was analogous to Microsoft’s Windows division. These folks could not understand how a little box on someone’s desk would alter computing as they knew it in their narratives. They fought vigorously to keep the PC from taking over, not recognizing that IBM had to change what it was doing to survive and reach being a 100 plus year old company. As we know from history, IBM changed, not only from a mainframe company to a PC company but to a global services company under Lou Gerstner’s leadership. This may have contributed to Lou Gerstner’s comment in 2016, long after he retired from IBM, stating, “In anything other than a protected industry, longevity is the capacity to change, not to stay with what you got.”

Perhaps it is fortunate that the founder of IBM, Thomas Watson Sr., engrained in the self-concepts of IBM employees going back to the second decade of the last century that they should be owners, who actually think rather than just do their jobs. In line with this promotion on thinking, IBM remains one of the most thinking-based organizations on Earth, with year over year having the largest number of new discoveries, as represented by its total number of patents.

When collective identities are activated, the most prominent features of the self-concept become those that are shared with other members. If ideas, meanings, attitudes, and value judgments are shifting, for a time they may no longer be shared, and that will have a causal impact on one’s collective identity. If the collective identity of one person in a 2,000 strong employee organization becomes “blurred,” or no longer clear and resonant, the impact would be minimal. If all 2,000 identities, as in the AT&T, Lucent, and what became the Connectivity company after it was acquired, are becoming blurred, the impact on the organization’s efforts to transform will be difficult if not disastrous. Why? You have to change the self-concepts of each employee, but you also have to realign those self-concepts around the emerging, new narrative and collective self-concept.22 To do so requires a bit of elasticity in the self-concept and identity to stretch into a new area of understanding.23

As you can imagine, when organizational leaders embark on a transformation, this can trigger changes in all three levels of one’s self-concept—the “Who am I?” as well as the “With whom am I connected and associated?” and, most obviously, the “Who are we and what do we do that’s meaningful to me and my organization?” These changes can evoke emotional and sometimes irrational acts of self-protection to defend one’s identity. An understanding of this fundamental truth—this is the first principle of organizational transformation.

A simple but profound example of the self-preservation capacity of the self-concept as a first principle occurred when an attempt was made to get rid of the green beret and have all U.S. Army Special Forces wear a black beret, just like the rest of the U.S. Army troops, with an admirable goal of denoting unanimity and cohesion across the various forces constituting the Army—being, as the motto stated back then, “An Army of One!”

This seemed like a rather simple change on the surface. Just change the color of your beret! What’s the big deal? Well, the big deal was that the color of the beret was more than a fashion statement. Since 1954, when the first green caps were commissioned for the 10th and 77th Special Forces Groups to visually set them apart, that green beret had become a symbol of membership in a unique and very meaningful organization. The beret took on even more significance when, in 1961, JFK designated it as the exclusive headdress of the Army Special Forces and called the cap “a symbol of excellence, a badge of courage, a mark of distinction in the fight for freedom.”24 This collective identity, tied to an act of presidential leadership, makes the “green beret” a symbol of a shared, collective self-concept worth fighting to retain. It touches all three levels of identity, including who am I, with whom do I want to be associated, and who are “we” that together do something meaningful and important for our nation.

At a workshop with some health care providers, I used the example of the green beret in a discussion of what it means to be a psychological owner in terms of one’s collective identity. A physician, who was also a U.S. Army veteran, came up during a break and said that the change in beret went to the very heart and soul of his identity. For him, it was not about the color of the beret but the connection to his community and people who, he said, died to save his life and to protect our freedoms. You don’t just rip out a symbol of fundamental importance to a group’s identity and expect people to go quietly forward with some new sense of who they are and what they represent. As in this individual’s case and the case of organizational change, you must understand how the self-concept will change to appreciate what it takes to transform an organization’s collective self-concept. In some cases, I realize that you might not know how it will change, so in those cases we suggest you experiment and do some tryouts first. We see this occurring when a leader develops a very different orientation toward his or her leadership when that leader has accumulated different experiences across domains of challenges he or she had not experienced that shift the leader’s thinking about what constitutes effective leadership.25

All leaders, especially those at the top of organizations, need to analyze their individual, relational, and, ultimately, collective self-concepts first to determine what content, attitudes, and value judgments might need to be addressed by abandoning, redefining, or expanding these features of an organization’s identity. They need to ask themselves the question, “How I am I going to write this narrative and exemplify the arc of change in a way that others will be motivated to try to make sense out of and then adopt?” This certainly will be more challenging for those leaders who are new to the organization or leaders acquiring another organization, who haven’t yet assimilated the sense of who the employees are in terms of their identity. To accomplish this sort of change requires a lot of dialogue around the existing shared self-concept and the desired one being developed that will transform all three levels—individual, relational, and collective self-concepts—of organizational members. This dialogue will serve to uncover what is central to the collective identity of organizational members, such as Alaska being nice, and what is peripheral and perhaps easier to change.26

The idea that shared self-concepts based on organizational membership is as much an expression of the self as one’s individual identity has been demonstrated in research on collective identities that feature prominently in people’s spontaneous self-descriptions preceding references to the personal self.27 Consequently, the commonly recognized “resistance to change” can be better understood and managed by simply recognizing the fundamental issue that transformational change is identity altering for every member of the organization.

Consider that the range of future possibilities that organizations can pursue in terms of transformation is, in part, linked to the self-concepts of each individual. Indeed, “the essence of transformational leadership is to develop a collective rather than individual identity in followers, which makes group-oriented visions meaningful.”28 Leaders have to therefore work on transforming their own self-concepts and identities and behave in alignment with those identities to move organizations forward toward transformative change. To the degree that there is a great deal of variance across one’s workforce and its leadership, the challenges of changing an organization to a new way of “doing things” is that much more difficult, if not impossible. You can’t wish away this variance or anchoring in identities. You must come to understand it, work with it, and mold people’s self-concept into a new collective focus. The same is true with quality, if we didn’t address variance, we would not have a chance of achieving high-quality processes and products.

Corresponding to first principles thinking, there are fundamental leadership processes that are present prior to, during, and following the change process. It suffices to say that leadership is, at its core, a positive social influence process, whereby some individual or collection of individuals motivates others to think and act in a way that achieves organizational goals. I say “positive” here, in that I am going to focus on positive styles of leadership that are associated with the different states of change. For example, I will discuss how instrumental and transactional leadership help to clarify goals and expectations as one enters into the change process. I will also address the importance of authentic leadership in terms of building sufficient goodwill to sustain changes when they hit some rough spots. I will discuss transformational leadership in terms of its focus on developing followers to lead and own the change process, along with inspiring them to do so for all of the right reasons and values. In terms of ownership, I will define it as a possession of sorts.29 Ownership can be related to an object or something a bit less tangible. The discussion of ownership will include five levels: territorial, accountable, confident, identified or sense of belonging, and collective ethos.

We can say ownership means that it’s mine not yours. From there, as instrumental leaders set expectations for change and goals, people become accountable for engaging in and contributing to the change process. Once they have shown they can succeed in changing, they start to feel confident that the change is reliable and will be repeatable. From there we see that individuals come to identify with the change in a way that alters their identity and self-concept. If everyone comes on board, the collective self-concept of the organization will drive the creation of a new narrative associated with change processes and the direction the organization intends to pursue into the future.30

In this chapter, I have invested a lot of time to ensure that we have anchored the first principle in your logic, regarding how to interpret organizational transformation. In Chapter 3, we will provide a high-level overview of the four states of organizational transformation and will then build on the first principle to understand how organizational transformation emerges and unfolds.

As I close this chapter, I ask you to reflect on the following questions because, as you see from the following Confucius quote, it is perhaps the best driver of personal change:

By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; Third by experience, which is the bitterest.

• Do you currently work in a profession or an organization that is fundamentally linked to your self-concept and identity?

• If so, can you think about the time before you were a member and how you described yourself to someone you had just met?

• How was your description of yourself different than what you would now describe?

• Can you recall a time where your identity was challenged, if not threatened? If so, did you defend your identity or did you change it?

• Have you been a part of an organization that has tried to go through transformative change? If so, what did the leaders do to facilitate the change in individual, relational, and collective identities tied to the organization, and how did their efforts work?

• What aspects of leadership and ownership shaped the success of that change effort?


There has been some research and discussion on the elasticity associated with our identities. And we perhaps observed the lack of elasticity, when discussing a very central identity for some U.S. Army soldiers in the example about the green beret. Nevertheless, to change one’s identity requires that there is some degree of tension that motivates at least some negotiation of what does and does not constitute an extension to my identity. In other words, how far can I stretch myself, in terms of my definition of who I am and am not? In doing so, I have to consider: What do I gain and what do I lose when changing how I define myself? This internal dialogue with myself, perhaps triggered by my leader, will create some messiness until it gets resolved. Unfortunately, with many organizational changes, it just stays messy, and that frequently changes neither the individual nor the organization.31


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