“Creating design-driven innovations requires two assets: knowledge of how people could give meaning to things, and the seductive power to influence the emergence of a radical new meaning.”

Roberto Verganti, Design-Driven Innovation: Changing the Rules of Competition by Radically Innovating What Things Mean

Thirty years or so ago, historian James MacGregor Burns published a classic text, simply titled Leadership. It was the first book on leadership that I had ever read, and it has stuck with me ever since. The reason is a simple comparison that has taken on greater meaning as time has passed. In the book, Burns described the difference between leadership as a transaction between people and leadership as transformation. This latter notion he advocated is the way to understand the nature of leadership.

Burns’ idea carried such authority that the whole notion of a transaction as the core activity between people in business has been lost. Now it is common for people to talk about how their products transform the experience of their customer. Transformation, which is another word for change, has become a standard upon which we measure businesses, and especially leaders.

This is a very good thing.

While we can affirm that this shift of perception has occurred, it doesn’t mean that we understand its implications fully. For it may well be that transformation is just another term for transaction. I know you are wondering why it matters. It does seem to be a bit pedantic, but I believe the difference between transaction and transformation is worth discovering.

Understanding A Transactional Approach Vs. Transformational Approach to Organizations

In simple terms, a transaction is an exchange between two parties. In contrast, transformation points to something changing, of becoming different, growing, expanding and the impact that follows.

Let me describe this regarding something that I experience every day.

As a consultant, coach and trainer, it would be easy to create a formula that applies to everyone and every organization. All you need to do is buy the formula. That is the transaction: you buy the product, and our exchange is done.

A transaction, therefore, is a lower level activity compared to transformation. It is easier, requires less thought, and repeated over and over again. And it works when the circumstances are right, and fails miserably when they are not.

This observation is an important point. There are activities that we do that are less significant than others. Higher level activities are a combination of many lower level ones, like a commercial transaction. But there’s more to it than just an exchange of goods and services.

Why are these higher-level activities transformational, rather than simply transactional?

Let’s look at this from an organizational perspective.  Here’s a personal example of mine:

I chair a committee of a regional organization that serves local chapters. We are also a work team that plans a day-long workshop with a presenter from out of town.  No audience will automatically show up. We have to recruit them. Our first attempt at holding the event was canceled in part because only three people signed up. We discovered that a transactional approach doesn’t work.  By transactional, I mean, treating the event as an activity that provides expert information. We had to offer more, something different: an experience that held the promise that it would matter, make a difference, that it would be transformational.

A transformational approach requires a different mindset; one that is more complex and functions at a higher level of organization. The popular term for this is emergent.

Understanding the 4 Components of An Emergent Mindset

Emergent gets a lot of use, sometimes as a word for new or meaning that revealing new aspects of something. The way I use emergent differs.

Sociologist Christian Smith provides a helpful, though rather academic, description:

Emergence refers to the process of constituting a new entity with its own particular characteristics through the interactive combination of other, different entities that are necessary to create the new entity but that do not contain the characteristics present in the new entity. Emergence involves the following:

 

First, two or more entities that exist at a “lower” level interact or combine.

 

Second, that interaction or combination serves as the basis of some new, real entity that has an existence at a “higher” level.

 

Third, the existence of the new higher-level entity is fully dependent upon the two or more lower-level entities interacting or combining, as they could not exist without doing so.

 

Fourth, the new higher-level entity nevertheless possesses characteristic qualities (e.g. structures, qualities, capacities, textures, mechanisms) that cannot be reduced to those of the lower-level entities that gave rise to the new entity possessing them.

 

When these four things happen, emergence has happened. The whole is more than the sum of its parts.

— Christian Smith, What Is a Person? Rethinking Humanity, Social Life, and the Moral Good from the Person Up, pp.25-26 (emphasis mine).

Let me take these four contributing factors to something becoming emergent and show how they are functioning in my illustration above.

First, we designed our event for individuals who have a particular interest in our topic.

We shifted our emphasis from positioning it as an informative workshop to a gathering for people who are dealing with the same issues in their local chapter, which meets the second criteria.

Part of our purpose is the third criteria, which is to bring people together so that they form supportive relationships that transcend, yet support, their local individuality. We want to create an atmosphere where there is ongoing interaction after our event.

Fourth, a movement that transforms each local chapter can grow, emerged from the experience. We want to be more than an association of people who occasionally gather (transaction-level). We are creating a community of support and interaction that is transformational. It not only changes us as individuals but also changes the local chapters through the connectional relationships that form.

Apply this idea to organizations, and we see that much of what we understand about them function at the transactional level, a lower-level of order than what is needed.

A business organized around transaction sees only the activities or tasks that people do. The company hires a person. They are assigned work. They do their work. The transaction is complete. In an ideal world, this is the best that a transactional approach offers.

This simple understanding of organizations is just that, overly simplistic, idealistic and largely false.

Making the Shift to a Transformational Emergent Organizational Approach

Most organizations, regardless of size, are filled with the ambiguity and complexity that inhabits all of life. A change in the environment, with technology or policies and regulations, and the organization experiences disruption. In other words, change turns a simple organization on paper into a complex one in real life.

I saw this in a hosiery mill where I once worked on a project. There were seventeen steps in the process of making a pair of socks. Because each stage was its own discrete activity, disconnected from all the others, it took six weeks from weaving to shipping to manufacture a pair of socks. This process was a simple transactional approach to manufacturing as it saw each step as its own transactional system. Throughout the project, the company decided to change their manufacturing system. They integrated the steps of the system, and the transformation of the process reduced the time required for producing a pair of socks to six days.

For an organization to shift from a transactional orientation to a transformational one requires it to move from an understanding of business as a structure of discrete processes to a culture that creates a product that matters in the marketplace. This culture, I’m suggesting, is what theorists call an emergent reality because the whole is greater than the sum of its parts.

Consider what Apple did in creating the iPod. It was a music player in many respects like many others produced at the time. Apple’s player transformed the entire experience of personal music listening because Apple wanted to change the culture that surrounded that transaction that took place commercially.

What is it that businesses miss that keeps them from replicating this transformation? Partly it has to do with values.

Every company espouses a set of values. They printed their values on cards, posters and are part of the boilerplate language of advertising. You can hear it statements like, “The most trusted name in …”

This approach is a transactional treatment of values. It is just an exchange of a word or two to convey meaning, making it possible for a company to say it believes in one thing and act in another. Their values are not their culture. They are jingles for sales transactions.

6 Steps in Creating an Effective Emergent Organizational Culture

When values transcend the transactional, they create a culture that unites and transforms the company into something different. How do you create an emergent organizational culture?

First, you have to distinguish the difference between a company’s organizational structure and its culture.

The structure can be reduced down to the individual position, task, department, and objective. The culture permeates the whole of the business from the CEO down to the janitor. It is not reducible. It is whole, meaning that if the company’s values are trust and fairness, then those values are the basis of how each person functions from the CEO down to the janitor. There are not one set of values for one level of the structure and a different set for another level. Culture is whole throughout the organization.

The lack of a culture that permeates the whole of the business is why so many companies have difficulty adapting to a changed global economic climate. Some people within the company benefit, while others don’t.  This disconnect is a product of structural design, not cultural development.

Second, culture is present in every organization. It can be whole, yet broken or deficient. How then do leaders focus on cultural change which produces long-term cultural development?

The company in which its founder is still in charge and has never let anyone make a final decision offers an instructive example. The company is full of passive followers, not people who know how to take individual initiative when needed. The value of such an organization diminishes because without the lone decision-maker the culture is not sustainable.

This specific issue is one of the most significant challenges facing contemporary organizations and institutions: transforming the culture of the company into a culture of shared leadership, one that shares leadership responsibility from top to bottom.

Third, there are multiple cultures within every company or social environment.

In some cases, we may call them silos. These cultures compete for turf and resources. Their individual self-interest is greater than their collective interest in the welfare of the company. As a result, the whole is not greater than the sum of its parts. The parts can be parasitic within the whole, eroding capacity and strengthening private or limited interests.

The challenge for leaders is to learn to lead from a values perspective and, in so doing, unify the disconnected cultures in their organizations to join and become one. You cannot attack the micro-cultures. You must identify the values within each of these cultures that are worth affirming and spread them in a manner that demonstrates their connection to the values of the whole.

I know it sounds far-fetched, but I have seen it work. It is the difference between nurturing a transactional work culture and one that’s transformational.

Fourth, you have to quantify how the values of a culture are measured and managed to personnel.

Values can be a condition of employment, and similarly, values must be operationalized. The deeper you go in understanding the importance of your values to the success of your company, the more those values will shape the culture of the company.

This transformational approach means that managers must align new hires with the values of the company, and manage them accordingly.

Fifth, organizational culture is a human, social, relationship phenomenon.

It is about how a company becomes a community. For some businesses, the notion of being a family shapes the culture, where caring is an essential aspect of their relationships with one another. For others it is fun, like at Zappos. In others, it is innovation, excellence, or trustworthiness. Whatever the culture is, it reflects the relationships and social environment of the organization.

Sixth, organizational culture grows from a set of shared ideas.

Principally, values, but not exclusively.  I often refer to organizations having connecting ideas, meaning ideas that are the foundation of organizational culture. A company’s mission, its values, its vision for the future, and a clearly defined understanding of the impact that the company provides contribute to the way people connect and share a common interest in the success of their collaborative efforts. These ideas are not just tactical points to use in a process. They are the glue which brings together people to make a difference collectively that is more than what they can do individually.

In effect, the connecting power of these ideas acts as the transformative agent for change in an organization. They must connect. They must matter beyond their inspirational power. They must guide decisions, define performance and create a culture that is whole and emergent.

Creating an emerging transformational culture is not an end in itself, rather it is a pathway. It is one that leaders can take to transform their organizations to meet the opportunities of the future in the present.