Change Within the Economic Model

Alan Greenspan and his mentor Ayn Rand proselytized the theory of laissez-fair for over fifty years. This essentially means the government should never bring reform/change to private business organizations. During his time, Greenspan and others went unchecked as they created OTC derivatives that turned the world economy into a casino. Over the years, Banking companies have left the American tax payer with bad mortgage loans. Lenders like JP Morgan Chase and Bank of America are now admitting that they might have foreclosed on some homes by accident because of not reading their own fine print correctly. In 2008, Alan Greenspan admitted before congress that his laissez-fair ideology was gravely mistaken. He and several organizational leaders are now welcoming reform and change. Fortunately, there are several strategic leadership methods that can show leaders how they can appropriately create change while also helping followers stay comfortable during these transitional times.

8 Stage Process to Create Change

John P. Kotter codifies an eight stage process for creating major change in his book Leading Change:

   1. Establish a Sense of Urgency.
   2. Creating the Guiding Coalition
   3. Developing a vision and strategy for achieving that vision.
   4. Communicating the change vision through every vehicle possible.
   5. Empowering Broad-Based Action
   6. Generating short-terms wins and rewards...
   7. Consolidating Gains and Producing More Change
   8. Anchoring New Approaches in the Culture

A Sense of Urgency

Change usually happens in a state of crisis, where enough people feel a sense of urgency. The threat of losing ground or losing something of great value will create a motivation for change. In Kotter's book, A Sense of Urgency, he attempts to use comparative persuasion to differentiate between, complacency, false urgency, and true urgency. According to Kotter, people who have a sense of complacency think they know what to do, and do it. They also feel content with the status quo. Those with a false sense of urgency feel very angry and frustrated. People with a true sense of urgency think there are great opportunities and hazards everywhere. They also feel a powerful desire to move and win, now. He warns companies that "...the opposite of urgency it not only complacency. It's also a false or misguided sense of urgency that is as prevalent... and even more insidious." He goes on to explain how so many organizations are energized by anxiety and anger but their sense of urgency should be focused on a determination to win.

In one sense, the other seven stages in his eight stages for creating change are essentially ways to maintain this sense of urgency and determination to win. The guiding coalition maintains this sense of urgency, the vision creates a long-term goal for winning and the short-term goals keep the company workers determined to ultimately complete the leader's vision.

Dealing with Resistance

Kotter also notices that when people have bad experiences with change they become "suspicious of the motives of those pushing for transformation" and assume that the scenario will only end in carnage.Greenleaf, author of Servant Leadership, talks about how "the risk of change looms greater than the risk of failure, even though the old pattern is clearly destined for failure." With the resistance to change being so great amongst followers, Michael Beer and Nitin Nohria suggest to leaders that they should employ Kurt Lewin's classic unfreeze-change-refreeze method. Unfreezing causes doubt in the old ways of doing things; change trains them to be competent of a new pattern of behavior; refreezing integrates and reinforces the new patterns into the personality of the people. Michael Beer and Nitin Nohria would argue that Lewin's model assumes a strong resistance to change and in our current economical climate that resistance is gone. Beer and Nohria would argue that we are all, for the most part, sloshing around in the unfreeze stage. Since this is the case, they suggest that a "more plausible change sequence would be freeze-rebalance-unfreeze."

Mostly every organization in the country and the world has been or will be effected by the housing crash in 2008. If we approach change through Kotter's method of communication and education we can see what caused this and how to avoid it by changing our economic model.

Rising house prices were an example of a phenomenon called a "speculative bubble." This happens when prices of a financial asset suddenly take off and keep rising. Shiller, author of Irrational Exuberance, says this is driven by emotion. Justin Fox points out that the cycle of speculative bubbles date back to the 1630s. In the Netherlands people were buying and selling Tullip bulbs at the prices of houses. Half of the Dutch economy was caught up in tulip trades. People were not buying tulips because they liked them but because they thought they could resell them for a higher price. On February 5, 1637 the bubble finally bursts and leading citizens found themselves bankrupt. Historians say it took a generation for the Dutch economy to recover. The 2008 bubble is just the most recent of these events but they can be found throughout American history.

Before the 2008 housing bubble there was the 1920s stock bubble that crashed in the 1930s. British economist John Maynard Keynes attempted to develop a model for an emotion driven economy during the 30s but he never fully developed it. Perhaps economist today can develop and integrate it into our organizations. Perhaps this could even prevent future bubbles.


With several strategic leadership approaches available, leaders can appropriately create change and help their followers feel comfortable throughout their transition. By creating and maintaining a sense of urgency, communicating a clear path toward success, and integrating new patterns into the workers' daily lives, leaders can efficiently bring about positive change. With the current economical crisis forcing firms and companies to either sink or swim, the only way for these organizations to succeed is for leaders to embrace change and adapt accordingly. O' Grady says in his book Quantum Leadership, "people need to see leaders dealing with change so they can have someone...to identify with."


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