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Recommended Reading for this Post:
- Both/And Thinking: Embracing Creative Tensions to Solve Your Toughest Problems by Wendy K. Smith and Marianne W. Lewis — Available on Amazon
- Corporate Culture and Performance by John P. Kotter and James L. Heskett — Available on Amazon
- Immunity to Change: How to Overcome It and Unlock Potential in Yourself and Your Organization by Robert Kegan and Lisa Laskow Lahey — Available on Amazon
Executive Summary:
Identifying the dominant theory in use is essential for understanding why certain initiatives succeed while others fail. By clinically diagnosing the indicators of Theory E (centralization and surveillance) versus Theory O (decentralization and capability building), executives can stop operating blindly and start engineering intentional growth.
9 part series on strategies for implementing organizational changes in Sales. Access the rest below:
1.1: Beginner’s Guide to Strategies for Organizational change in Sales: Theory E Vs Theory O
1.2: The 90-Day Blueprint: Re-Architecting Sales Leadership Beyond Fads
1.4: The Clinical Guide to Sales Territory and Quota Planning
1.5: Probabilistic Strategy: How Sales Leaders Must Balance AI and Empathy
1.6: The Cognitive Architecture Audit: Diagnosing Your Sales Operating System
1.7: The Anatomy of Failure and Success: Scott Paper vs. ASDA
1.8: Stop Pitching Fads: The 4-Step Influence Framework for Sales Leaders
1.9: The Psychological Architecture of Sales: Decoding Expectancy Theory
Diagnosing the Cognitive Architecture
For a sales leader, identifying the dominant theory in use is essential for understanding why certain initiatives succeed while others fail. This diagnostic process involves examining the organization’s processes, decision-making patterns, and the “implicit contracts” held with the sales force. You cannot manage what you have not accurately diagnosed.
Indicators of Theory E Dominance
A sales organization following Theory E is often visible through its centralization of power. The decision-making process in a Theory E sales organization is highly centralized.
- Top-Down Directives: Decisions regarding pricing, territory assignments, and quota settings are made at the executive level and cascaded down without significant input from the field. The CXO often takes a direct role in approving significant deals or shifts in strategy.
- Communication Styles: Communication is primarily top-down, focusing on the “what” and the “when” rather than the “why”.
- Surveillance: In a Theory E environment, the CRM is frequently used as a tool for surveillance and reporting rather than for opportunity development.
- The Chess Board Metaphor: The “chess board” metaphor is apt here: departments and sales units are rearranged or combined to maximize strategic positioning and financial efficiency, often without regard for the underlying relationships or team dynamics.
Indicators of Theory O Dominance
Conversely, a Theory O sales organization emphasizes the “muscles” of the business—the skills, behaviors, and cultural norms of the sales team.
- Decentralized Decision-Making: In Theory O, the decision-making process is distributed. Decision-making is decentralized, and frontline feedback is actively sought to refine sales processes and market strategies.
- Leadership Role: Leadership is consultative, with sales managers acting more as mentors and coaches than as directive enforcers. The leader’s role is to foster an environment where “the people who know the most about something are the ones making decisions about it”.
- Responsiveness: This decentralization allows the organization to be highly responsive to customer needs and market changes, provided that the culture supports open communication and trust.
- The Scientific-Executive Bridge: The Pathology of Pure Archetypes
- The Engagement Trap: When Culture Fails Capital
- The “Learning by Mistakes” Dilemma
- Diagnosing the “Whiplash” Effect
The Scientific-Executive Bridge: The Pathology of Pure Archetypes
To truly understand the required shift toward integration, an executive must recognize the historical negative effects of operating purely within one archetype.
The Pathology of Pure Theory E: Since its publication, the focus on Theory E has allowed companies in highly competitive, commoditized industries to survive acute financial distress by forcing efficiency. However, the negative effects are well-documented:
- Cynicism and Distrust: Employees often view Theory E initiatives with suspicion, leading to an environment where people focus on protecting their own positions rather than collaborating for the good of the company.
- Destruction of “Implicit Contracts”: All informal agreements between the company and its employees are suspended, which can destroy the loyalty required to weather future crises.
- Loss of Innovation: Departments like R&D and Planning are often the first to be cut under Theory E because their value is not immediately quantifiable in near-term cash flow.
The Pathology of Pure Theory O: Theory O has positively affected companies by creating sustainable competitive advantage through human capital that is difficult for competitors to replicate. However, the “soft” approach has known negative consequences:
- Lack of Impetus for Hard Decisions: Leaders may become so loyal to their employees that they fail to make necessary structural changes, leading to the gradual erosion of market position.
“Workshops Without Results”: Cultural initiatives can sometimes become decoupled from financial realities, leading to a “rosy picture” that masks underlying economic problems.
Time and Resource Intensive: Building capability through learning and participation is a slow process that can be perceived as expensive and inefficient by capital markets.
The Engagement Trap: When Culture Fails Capital
The greatest risk to a Theory O-dominant sales force is creating a highly engaged team that fundamentally fails to execute the prime directive of the business.
The expected outcome of Theory O is a highly motivated, committed, and innovative sales force that can achieve high performance through collective intelligence and loyalty. However, clinical diagnosis often reveals the “Engagement Trap.” Champion International provides the classic case study of this organizational pathology.
Under CEO Andrew Sigler, the company embarked on a cultural transformation known as the “Champion Way,” focusing on teamwork, communication, and a firing freeze to build trust. The actual recorded outcomes at Champion were positive in terms of operational indicators—plant yields and quality improved significantly, and the company successfully transitioned to a more egalitarian, team-based structure.
However, the financial outcomes were disappointing for shareholders. For more than a decade, Champion failed to significantly increase its economic value, and it was ultimately acquired for only 1.5 times its share value when the transformation began. The cognitive architecture was flawlessly designed for human capability, but it lacked the economic ruthlessness required for institutional survival.
The “Learning by Mistakes” Dilemma
While continuous learning builds capability, executives must ensure that bottom-up participation translates directly into near-term financial viability.
Other examples include Richard Branson’s Virgin Group, where a “learning by mistakes” culture is utilized to build organizational capability across diverse business units. While this fosters high employee engagement, the challenge remains ensuring that this engagement translates into the “prime directive” of business—making money both today and tomorrow.
If your sales organization is running highly rated offsites and boasts high employee net promoter scores, but top-line revenue is eroding, your Theory O dominance has become pathological. You are managing a country club, not a commercial enterprise.
Diagnosing the “Whiplash” Effect
By thoroughly auditing your firm against these specific pathologies, you can uncover whether you are suffering from an uncoordinated mixture of both frameworks.
By analyzing these dimensions, a leader can determine if the organization is following Theory E, Theory O, or an uncoordinated mixture that may be causing “whiplash” within the team. Many sales leaders assume they are running an integrated model when, in reality, they are simply oscillating between the pathologies of both.
If you are deploying rigid, top-down headcount reductions to compensate for the financial shortcomings of your decentralized cultural initiatives, your team is experiencing severe whiplash. By diagnosing not just your current structure, but the specific pathologies your organization is suffering from, you can precisely engineer the integrated interventions needed.