Corporate Culture

      When an observer encounters the “artifacts” of an organization’s culture, often he or she feels the need to respond to the culture. Schein says that “If we understand and successfully cope [with a new cultural situation], then we feel exhilaration; if we do not understand, we feel at least some caution and a subtle sense of danger because inaccurate deciphering can offend others and lead to embarrassment for ourselves.” Often misunderstanding stems from “overprojection,” or the belief that other organizations or people are or should be acting in a way that we deem to be “culturally” correct or normal. However, the norms that we use as our own personal yardsticks are individually biased and in fact do not always reflect the experience of others. Thus, one must be careful in evaluating and ultimately reacting to any organization’s culture.

      Usually organizations expend significant effort in trying to acclimate new members into the organization in order to help these members feel as if they “fit in.” This socialization process involves introducing new members to the social norms of the group and the surrounding environment: “This is the way we do things around here.”

      If the new member does not learn or understand the cultural assumptions of the organization, then the member is likely to feel alienated and uncomfortable, and will be unproductive. Schein believes that optimal socialization occurs “when the new member learns those parts of the culture that are essential to the organization’s survival and continued functioning,” without becoming “oversocialized”—adopting the organization’s beliefs in such a wholesale fashion that the he or she cannot help the organization see things differently.  

      Evaluating Culture in Mergers and Acquisitions

      When one company decides to acquire another, it typically pays a substantial premium over the book value. With this premium price, the acquiring firm is purchasing three classes of factors that historically have contributed to the acquired company’s historical performance: its resources, its processes, and its business model, with the priorities embedded therein. The resources—including people, technology, products, facilities and equipment, information, cash, brands, and relationships with customers, distributors and suppliers—are the easiest to observe and evaluate. But much of what has driven the acquired organization’s historical performance—its capabilities and disabilities— historically has resulted from its processes and decision making criteria. Some of these processes and priorities may be relatively explicit, but many of the most important are buried as assumed ways of working together and of making decisions—the organization’s culture. These patterns of basic assumptions are difficult to observe and understand from the outside—and they certainly can’t be “plugged’ into valuation models that investment bankers and corporate M&A staffs employ to evaluate and value acquisition candidates. But because culture has such a powerful influence on what the acquired organization can and cannot do, assessing it is one of the acquiring manager’s most crucial tasks.

      In order to achieve a successful match with an acquired firm, the managers of the acquiring company must first have a clear understanding of their own culture—and the capabilities and disabilities that this culture constitutes—before looking for other companies to acquire or with which to merge. And then, it is critical that the acquiring company understand the culture of the other company—and the implications of that culture for its capabilities and disabilities. Often problems with mergers and acquisitions occur when the acquiring company integrates the acquired company into its own. At a minimum, there is a clash of cultures. Often, however, the result is that while many of the acquired company’s resources are retained, its culture—those processes and the business model that made it attractive in the first place— are vaporized very quickly. In some cases this may have been the acquiring company’s intent. But in many cases it was not. 

      The Role of Cultural Differences in Managing Cross-Functional Processes

      Often there are several cultures operating within the larger organization. There can be managerial culture, nationality- or geography-based culture, occupationally-based culture, functional unit culture and business unit culture. The degree of difference among these sub-cultures will be determined by the extent to which the problems each unit has addressed in the past have been similar or different. “As a group acquires history, it acquires culture,” writes Schein.

      Groups often maintain their identity by comparing and contrasting themselves with surrounding groups. The most effective groups are those that form a culture of their own, with their own language, assumptions for operation, and sets of attitudes. Building, maintaining, and creating a feeling of togetherness among group members so that they become capable of accomplishing things that individuals cannot accomplish alone is, in fact, an important objective of any manager. However, as sub-groups within an organization develop their own strong, independent cultures, they experience problems communicating with other groups and become more inflexible in their own operation. For example, the culture of manufacturing and marketing groups can be very different, because the problems they confront, they way they define success, and the consequent methods for solving their problems, are different. The consequent inter-group competition and conflict can often prevent effective collaboration and communication among different groups within the same organization.

      Schein encourages managers to view communication breakdowns as symptoms of a deeper root cause: real differences in how people perceive and understand the phenomena they encounter, because of their membership in different cultural units. “Most communication breakdowns between people result from their lack of awareness that they are making basically different assumptions in the first place.” 

      When Strategic and Cultural Change are required

      Schein’s research has important implications for managers who confront the challenge of fundamental strategic and organizational change. If we accept his view that culture is comprised of deeply embedded processes or patterns of working together that employees instinctively follow and that these processes are responses to the problems that a group has repeatedly and successfully confronted in its past—then attempts to change culture or process by directly attacking culture and process are unlikely to result in significant change. While it is true that facing (or creating) a “burning platform” situation can, as previously mentioned, confront an organization with a “change or perish” choice that forces rapid cultural adaptation, there is generally a great deal of collateral damage inherent in this scenario that most managers would prefer to avoid. What happens more frequently is that a forward-seeing manager senses that the sorts of problems the organization will confront in the future will be different, but in the present, the organization will continue to see the same problems that, in the past, it was able to address successfully through its culture. The culture won’t change (and indeed shouldn’t change) as long as the same problems or tasks will keep arising for a time.

      There is, however, one way that managers can begin to change the culture now, so that the organization will be ready with new culture when the future they foresee finally arrives in the present. This is done by creating a separate team of people and confronting them with a new task, which represents as closely as possible the sorts of problems the organization will confront in the future. This task might be to develop more reliable products with faster time-to-market than has been necessary in the past; to shift product architectures from proprietary, interdependent ones to custom-configurable modular ones; to shift accountability for results to a different level in the organization, etc. Let the team figure out an effective process for addressing the new problem. If they succeed, don’t disperse team members, but rather let them address the same task again, with the charge to do it even more effectively; and then to do it again. And again. The more often the new group uses its new process to address the new task, the more strongly the new culture will emerge within the group. Then, rather than dispersing team members into the old organization, team members in the old organization can be moved, one by one, into the new. As the sorts of problems the organization initially was confronting fade away as the market changes, the old organization with its culture can also fade away.

      When attempting to change an organization’s culture, in other words, the fundamental unit of analysis, or the starting point, is the task, not the process or culture—because processes, priorities and culture are a response to recurring tasks.  

      How culture alignment accelerates strategy execution.

      It creates a distinctive advantage

      The Four Seasons started as a single small motor hotel. It’s owner, Isadore Sharp, quickly recognized that to make money, he had to build larger hotels. But he was not satisfied: the larger hotels, although efficient, were sterile, definitely lacking the “home away from home” atmosphere he was seeking for business people. What to do? He made a strategic decision by asking himself: “Does owning the hotel matter?” The answer was, “no.” Sharp shifted his strategy from owning hotels to running hotels, letting others pay for the bricks and mortar.

      Still, Sharp remained focused on a home-away-from-home atmosphere as a way to command premium prices for his rooms. His secret? The Golden Rule, trusting employees to treat customers as they would themselves like to be treated, and letting them set the standards. This also invested the employees in building the culture over time. Driven by culture, The Four Seasons hotels, now international, are among today’s top-rated corporate hotels, consistent winners of prestigious customer satisfaction awards.

      It delivers the mission

      A Christian healthcare center created a culture focused on mission and purpose in a most unusual way: it opened its books to reveal the internal information that many other healthcare centers keep under wraps: healthcare delivery errors, death rates, and other not-so-pleasant statistics. Potential patients, instead of being put off, were impressed with the healthcare center’s honesty and transparency, and began making it their center-of-choice, preferring to go there instead of to the competing centers whose statistics were secret.

      Over time, the success of this cultural enhancement allowed the center to expand its mission by pursuing a loftier goal as a trusted consultant to other hospitals.

      It builds productivity

      “When trust is low, speed goes down and cost goes up. When trust is high, speed goes up and cost goes down.” Stephen M.R. Covey This is certainly a message with a win-win foundation. Note this: the total Return-On-Investment (ROI) in culturally/strategically aligned organizations is three times higher than it is in non-aligned organizations. In a landmark ten-year study by Kotter and Heskett, companies that intentionally managed their cultures well outperformed organizations that didn’t:

      ! revenue increased 682% vs. 166%

      ! stock price increased 901% vs. 74%

      ! net income increased 756% vs. 1%

      ! job growth increased 282% vs. 36%

      It manages risk

      Although most of the publicity surrounding the Columbia space shuttle disaster focused on the foam panels that damaged the wings on take-off, the inquiry board found that as much a culprit was a NASA culture with flaws that inadvertently created the conditions for disaster,. “It has been scorched into my mind that bureaucracies will do anything to defend themselves” said Admiral Harold Gehman, Jr., Head of Inquiry. “Because of bureaucratic intimidation at NASA, engineers had no voice and no ability to make needed changes that might have prevented the disaster.”

      It maintains sustainability

      Jim Collins, (Good to Great) is a keen observer of the bottom-line benefit of cultural alignment “Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.”

      For example, Lee Iaccoca, while turning around Chrysler in the 1980s used force of personality rather than a focus on sustained culture change. When Iaccoca’s attention shifted elsewhere, the culture shifted right back to its historical culture patterns. Collin’s research proved that leaders of companies that sustained top performance over time persistently paid attention to the development of a strong culture aligned to strategy.

      Cultural alignment, then, is not a “feel good” approach. It’s a foundation to organizational success that:

• ! creates distinctive advantage
• ! delivers mission
• ! builds productivity
• ! creates breakthrough performance results
• ! manages risk
• ! and maintains sustainability.

      It’s also a leadership choice: will the organization just let culture evolve by default, or shape culture more deliberately by design? As a leader, do you delegate this and allow it to unfold as it may in different functions and groups over time? Or do you pay attention to what is important to focus on and develop sufficient cohesion and strength of culture patterns? Burns notes: “If you want to use culture as a competitive advantage there is no choice but to focus collective attention on what is important and to engage core groups in creating the practices and norms of behavior to make it happen..”

      Note the illustration on the following page.

      Conclusion.

      Managing culture is a complex and vital part of the work of general manager. It can be one of the most powerful tools that a manager can employ in their efforts to get the diverse and dispersed set of people that comprise most organizations to work together in a coherent, consistent and purposeful way. Culture can also be one of the most vexing barriers to managing change in an organization. An increasing number of people in the worlds of management and academia have found Edgar Schein’s model of culture—what it is and where it comes from—to be a managerially useful, intellectually consistent way to frame their work. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

      Bibliography. 

1. What Is an Organization’s Culture? august 02, 2006 Clayton M. Chr Istensen
2. The Culture Strategy Fit December 02, 2008 Management Forum Series presentation by Sherrill Burns