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Successful Businesses and Organizations are Built on Theories

Updated on October 11, 2010

Our world abounds with a wide spectrum of theories to answer countless questions (hypothesis) from, “what is the meaning of life?” to “who am I?” As a result, many credible, as well as incredible, theories are offered to satisfy these questions. What makes a theory a theory is that not every one agrees with what “The” theory postulates. Interestingly, we all live our lives based on theories! This article’s focus is on how successful businesses and organizations are built on theories.

Theories in the business world tend to have a negative reputation. At times we observe how some business or management consulting firms will market themselves as delivering solutions that are “no theory” or “low on theory” based. Oh, really? The bottom line is that every business model, application, or strategy is based on theory!

The Role Theory Plays in Business

In business we are always looking for answers to questions such as: How can we increase sales? How do we improve productivity? How can we engage our customers more? What can we do to engage our employees? What can we do to build a great organization? And the list goes on. The answers or solutions to such questions are packaged in many ways: best seller books, training workshops and programs, coaching, business models, and other “tried and true” applications. What all these solutions have in common is that they are all based on a theory.

One bestseller is Jim Collins’ Good to Great (published by Harper Business in 2001), which quickly became the strategy for developing a great organization. Based on extensive research, Collins states in chapter 1: “We believe that almost any organization can substantially improve its stature and performance, perhaps even become great, if it conscientiously applies the framework of ideas we’ve uncovered” (my italics). Clues that Good to Great is based on theory are the words almost, perhaps, and if. Not every organization will become great and not every great organization will remain great. Why? Because every organization or business is made up of people diverse in thought and perspective and will apply the concepts differently. And that is a good thing!

Earlier this year, Collins published How the Mighty Fall and Why Some Companies Never Give In (HarperCollins 2009) wherein describes Five Stages of Decline, a theory, to explain why some of the Good to Great companies failed during the Great Recession. Collins states, “Most companies eventually fall, and we cannot deny this fact. Yet our research indicates that organizational decline is largely self-inflicted, and recovery largely within our own control.” (Page 25) What he is basically saying is that the Five Stages of Decline theory will not be true in every organization’s situation because people are unpredictable and will make or break an organization based how they interpret and apply business theories.

Therefore, to truly build a great organization or business, understanding the role theory plays and how individual make application of the theory is critical to the success of that organization or business.

The Power Theory Brings to Organizations

With theories all things are possible. Theories allow us to be creative and innovative. Theories have produced brilliant applications for the development of leaders, management, and employees. Theories have enhanced the way we treat our customers and employees. Theories allow organizations to experiment and grow. In time, well respected theories are treated as fact. Common examples of popular business theories are Six Sigma, the Myers/Briggs Type Indicator, Emotional Intelligence, Adult Learning Theory, 360 Feedback, the 80/20 Principle, or Maslow’s Hierarchy of Needs, to name a very few.

Each of these well-known theories has produced outstanding results but not 100% of the time, thus keeping them theories. Consequently, theories allow for customization of the applications based on the unique and individual needs of the business or organization.

The key to the power theory brings to an organization is how it is applied at the individual level. For example, if an organization wants to implement a 360 Feedback program then everyone in the organization needs to be able and willing to deliver and receive feedback. When everyone is effectively giving and receiving feedback, you have a theory that works. The power is with every individual making application of the theory, not just with the leadership or with “problem” employees but everyone. But then that’s just my theory.

Theories will continue to be instrumental in developing leaders, managers, and employees, which in turn will create great organizations. So the next time you are seeking the help of a business or management consultant beware if they promote themselves as “low on theory” because they typically operate under the theory that “one-size fits all.”

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