President, Lefkoe Institute
January 14, 2011

Are you aware that there are three different types of change that are necessary for your organization’s success?

I call these types of change: first order, second order, and third order.

First-order change in an organization consists of improving on what already is. It usually consists of finding ways to do things a little more efficiently. It results in incremental improvements consistent with the existing culture of the organization. This is the type of change most organizations strive for and achieve. But in a world where what works well today frequently doesn’t work at all tomorrow, first-order change is insufficient.

Second-order change consists of creating something totally new. It is characterized by a behavior change that requires a new way of thinking. An example of this would be a company where certain employees see themselves as service technicians whose sole job is fixing and installing equipment. For them, taking care of the customer is an imposition. As a result, giving such employees information about the importance of taking care of customers would be useless because the information is inconsistent with their existing beliefs about themselves and their role. They would need to change those beliefs so that they saw themselves as “customer satisfiers,” at which point taking care of customers would be natural and normal behavior.

Whereas first-order change is incremental and consists of improving what already is, second-order change is more fundamental and consists of creating new thinking that make possible behavior that had been impossible before.

A third-order organization is always operating from questions rather than answers. It is an organization that is willing to question and change its beliefs and culture at all times.

As Eric Hoffer, the San Francisco longshoremen philosopher, once stated: “In a time of drastic change

[such as the world is currently experiencing], it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer remains.”

Want more from Morty Lefkoe? Check these out:

Continuous improvement is important in a world that is constantly changing. But continuous improvement, by definition, is a process, not merely a state change. Second-order change merely substitutes one state for a better one. An organization committed to continuous improvement requires third-order change, which is a process, not merely a state change.

Examples of second- and third-order change organizations

It is relatively easy to identify a second-order change organization. It usually is doing something totally different than what everyone else in its industry is doing. Often it is something that everyone else says is impossible.

A good example of such a company is Southwest Airlines, founded by Herb Kelleher. At a time when everyone in the airline business knew that you couldn’t possibly fly from point to point profitably and that the only way to run an airline was to fly in and out of major “hubs,” Kelleher decided that the conventional wisdom was wrong and created what has become the most profitable and successful airline in the U.S.

He challenged the existing industry beliefs and created a new set of beliefs about running an airline.

It is much harder to identify a third-order change organization because it must be watched over time to see if one major challenge to conventional wisdom is followed by another. In other words, because third-order change consists of repeating second-order change over and over as the environment demands, you need to observe a company over time to see if it makes fundamental change repeatedly.

One such company appears to be Amazon. Jeff Bezos started by challenging the notion that retail requires physical locations, instead deciding to sell retail over the Internet. He started with offering a larger selection of books than even the super-sized bookstores with physical locations, and at a substantial discount.

Another of his second-order changes was the decision that if a lot of people were interested in buying digital books, he would manufacture the Kindle, a digital book reader. Whether he succeeds in the long run or whether the iPad or similar products defeat him is beside the point. He and Amazon have observed the environment and have continued to change as new opportunities have arisen. They have created second-order change at least twice, which probably makes it a third-order change organization.

Morty Lefkoe is the creator of The Lefkoe Method, a system for permanently eliminating limiting beliefs. For more information go to