Chapter 3 Organizational Context: Design and Culture 79
Reinforcing the Stories and Folklore
The next step involves reinforcing organizational folklore. This entails keeping alive stories that validate the organization’s culture and way of doing things. The folklore helps explain why the organization does things a particular way. One of the most common forms of folk-lore is stories with morals the enterprise wants to reinforce. For example, Leonard Riggio, the CEO of Barnes & Noble, often tells stories about his childhood experiences in Brooklyn and in particular his father’s stint as a boxer. These often-told stories have been a great help to communicate a populist culture that needed to shed its elitist past. Also, Bill Hewlett of Hewlett-Packard is known for the often-told story of him using a bolt cutter to remove a lock that he encountered on the supply room. He left a note behind instructing that the door never be locked again to forever communicate the important cultural value of trust at H-P. 3M is probably the best known firm to use stories and sagas to emphasize cul-tural values. The famous Post-it Notes legacy is a great example.
The idea originated with Art Fry, a 3M employee who used bits of paper to mark hymns when he sang in his church choir. But these markers kept falling out of the hymnals. He decided that he needed an adhesive-backed paper that would stick as long as necessary but could be removed easily, and soon found what he wanted in a 3M laboratory. Fry saw the market potential of his invention, but others did not. Market survey results were negative;
major office supply distributors were skeptical. Undeterred, because he had heard stories about other 3M employees that conveyed the importance of perseverance, Fry began giving samples to 3M executives and their secretaries. Once they actually used the little notepads, they were hooked. Having sold 3M on the project, Fry used the same approach with the sec-retaries of other companies’ executives throughout the United States.74
The rest is history. Post-it Notes became a huge financial success for 3M, and retelling the story reinforces cultural values of innovation that can come from anywhere, perseverance, and championing of your good ideas.
Recognition and Promotion
The final step is the recognition and promotion of individuals who have done their jobs well and who can serve as role models to new people in the organization. By pointing out these people as winners, the organization encourages others to follow their example. Role mod-els in strong-culture firms are regarded as the most powerful ongoing training program of all. Morgan Stanley, the financial services firm, chooses role models on the basis of energy, aggressiveness, and team play. Procter & Gamble looks for people who exhibit extraordi-nary consistency in such areas as tough-mindedness, motivational skills, energy, and the ability to get things done through others. There is considerable research evidence that recognition can serve as a powerful reinforcer,75and thus those exhibiting cultural values that are given either formal recognition or even one-on-one social attention/recognition from relevant others can build and sustain the organizational culture.76
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be welcomed and accommodated with as little disruption and as few problems as possible.
One example of an organization culture literally built around change is Steelcase’s corporate development center, shaped like a pyramid with an open atrium containing a huge swinging pendulum to remind employees that the world is always changing. Another example of keep-ing up with the changkeep-ing workplace is Zenith, who uses its intranet as a kind of virtual water cooler. As the head of the marketing group notes, “Every day we say who is having a birth-day, a service anniversary, or if we’ve had an incredible sales day.”77
Even though some firms have had a culture in place to anticipate change, moving to a new culture or changing old cultures can be quite difficult: a case can even be made that it really can’t be done successfully. Predictable obstacles include entrenched skills, staffs, relationships, roles, and structures that work together to reinforce traditional cultural pat-terns. For example, the head of Bell Canada, which is trying to undergo a significant cul-tural change (from its 122-year-old monopolist mentality to a highly competitive environment), started with implementing formal quality and cost cutting programs, but realized very quickly that “We needed to get to the front lines of the organization, and my view is that it’s very hard to do that through formal programs.”78Another example would be the traditional tough, macho culture found on offshore oil rigs. It was very difficult to change the traditional cultural values of displaying masculine strength and daring to a car-ing, helping environment. This shift was difficult but over a long period of time these
“rough necks” came to “appreciate that to improve safety and performance in a potentially deadly environment, they had to be open to new information that challenged their assump-tions, and they had to acknowledge when they were wrong.”79The result of this cultural change on the oil rigs dramatically decreased the accident rate by 84 percent and produc-tivity, efficiency, and reliability all increased beyond the industry benchmarks.80In addition to the importance of frontline workers in cultural change, powerful stakeholders such as unions, management, or even customers may support the existing culture and impede the change. The problems are compounded by the cultural clash that is the rule rather than the exception in mergers and acquisitions (M&As), emerging relationship enterprises, and the recent economic crisis.
The Case of Mergers and Acquisitions
Although M&As were thought to have peaked over a decade ago, they have again become very common because the wide divergence in stock-market values between firms, glob-alization, and the recent financial/economic crisis have left a climate for both friendly buy-outs and hostile takeovers. Besides the financial implications of M&As, the often slighted or even ignored organizational culture implications can be dramatic. As one veteran of a number of M&As concluded about the cultural side of mergers: (1) you can’t do too much, and (2) too little will be done. In the heat of the deal, he says, “people issues, as real as they are, become obscured.”81The clash between the two cultures in a merger or acquisition can be focused into three major areas:
1. Structure. These factors from the two cultures include the size, age, and history of the two firms; the industry in which the partners come from and now reside; the geographic locations; and whether products and/or services are involved.
2. Politics. Where does the power and managerial decision making really reside?
Corporate cultures range from autocratic extremes to total employee empowerment, and how this plays out among the partners will be important to cultural compatibility.
3. Emotions. The personal feelings, the “cultural contract” that individuals have bought into to guide their day-to-day thoughts, habits, attitudes, commitment, and patterns of
Chapter 3 Organizational Context: Design and Culture 81
daily behavior. These emotions will be a major input into the clash or compatibility of the two cultures.82
The potential (high probability) cultural clash from M&As will be greatly compounded when the partners are from different countries.83 With globalization now a reality (see Chapter 2), cross-border alliances are commonplace. Announcements of megamergers such as DaimlerChrysler, British Petroleum-Amoco, and Deutsche Bank-Bankers Trust reach the headlines, but the cultural clash aftermath seldom, if at all, is discussed. The highly visible DaimlerChrysler merger problems with advertising and U.S.-government-sponsored research aimed at fuel efficiency and cleaner cars is given attention, but the cul-tural issues are not given as much attention. Yet, the day-to-day culcul-tural clashes at all levels are the reality. As auto industry analysts have pointed out, Daimler-Benz had a conserva-tive, slow-moving corporate culture while Chrysler at the time of the merger had a fast, lean, informal, and daring corporate culture. For example, the Mercedes-Benz plant in Vance, Alabama, represents the merger in microcosm. The German “wunderkind” plant manager deliberately selected German, U.S., and Canadian managers (some with Japanese auto firm experience) for his team. They clashed not just over the operations system, but also on more subtle but explosive cultural issues such as image and decorum. This type of cultural conflict is greatly trying to be worked out, but guidelines and help are still needed for meeting the challenge of managing the cultural change on both sides.
The Case of Emerging Relationship Enterprises
Today’s networked global environment is going beyond formal M&As with what are being called “relationship enterprises.”84 Somewhat like network and virtual organization designs discussed earlier in the chapter, these relationship enterprises consist of a global network of independent companies that act as a single company with a common mission.
Examples include the following:
• The aerospace industry at the turn of the century is controlled by two networks—
Boeing (based in the United States) and Airbus (France). Importantly, each of these rela-tionship enterprises consists of more than 100 partners around the world.
• In the telecommunications industry, the Global One joint venture, led by Sprint, Deutsche Telekom, and France Telecom, serves 65 countries and functions as one rela-tionship enterprise to serve the global telecom needs of many corporations.
• In the airline industry, United, Lufthansa, SAS, Varig, Thai Airways, and others have formed into a relationship enterprise called Star Alliance. They provide the international traveler with seamless service anywhere on the planet and share systems, marketing, in-country operations, schedules, and frequent flier miles—everything except crews.
In the near future such relationship enterprises will become common in more traditional industries such as chemicals, textiles, and food, as well as new frontier industries such as biotech and memory. The reason that this loose network of alliances is the trend over more formal M&As has to do with legal terms (by law some countries do not allow majority pur-chase of their firms by foreigners), but mainly with political nationalism and organizational cultural values. Pride and pragmatic needs are driving this new form of global alliance, but the perspective and management of the organizational cultures in this new relationship is a challenge. Issues such as trust, communication, and negotiation skills become very rele-vant and important to success. The organizations and managers in the global relations
“must learn to communicate across the cultural divide; each must understand that the other perceives and interacts in a fundamentally different way.”85Importantly, three-fourths of
82 Part One Environmental and Organizational Context
companies believe their alliances failed because of an incompatibility of country and cor-porate cultures.86
Impact of Organizational Culture in an Economic Crisis
Besides M&As and the new organizational designs having an impact on organizational cul-tural change, the recent economic crisis has also stimulated both scholars and practitioners to reexamine the role that culture played and the lessons to be learned to effectively change the culture. For example, the mortgage companies (e.g., Countrywide Financial) and investment banks (e.g., Lehman Brothers) that collapsed at the end of 2008 were known to have very strong corporate cultures. However, as one analysis pointed out, “they were cul-tures characterized by rampant individualism, little attention or oversight from supervisors, and huge rewards for successful performance. Those values generated tremendous pressure to maximize individual performance and payouts, often by taking outsized risks and hiding failures. That same pressure often caused players to push the environment as to acceptable ethical behavior.”87
By contrast, at least at this writing, Goldman Sachs was one of the few that escaped the purge in investment banking. They are known for having a team-oriented culture (as opposed to “rampant individualism”) and according to Steven Kerr, a former organiza-tional behavior professor who then became chief learning officer at GE and then Goldman Sachs, the managers had several meetings a day and “making any decision required checks with many people, and before we made a decision to invest, many eyes had seen the pro-posal.”88In other words, lessons from the recent economic crisis are that first, the organi-zational culture can affect not only the ethical, “right thing to do,” but also survival in the long-term. Second, organizations need to continually challenge and change their cultural values. For example, Goldman managers regularly review their cultural values by asking questions such as: “Which are we most or least faithful to?” and “Which need refreshing or reaffirming?”89Such a culture of continual questioning seems to be an effective starting point in cultural change, but there is also a need to go beyond such specific guidelines and focus on a more comprehensive approach that will be able to adapt to changing conditions.
Guidelines for Change
Despite the complexity, significant barriers, and resistance to change, organizational cul-tures can be managed and changed over time.90This attempt to change culture can take many different forms. Simple guidelines such as the following can be helpful:91
1. Assess the current culture.
2. Set realistic goals that impact the bottom line.
3. Recruit outside personnel with industry experience, so that they are able to interact well with the organizational personnel.
4. Make changes from the top down, so that a consistent message is delivered from all management team members.
5. Include employees in the culture change process, especially when making changes in rules and processes.
6. Take out all trappings that remind the personnel of the previous culture.
7. Expect to have some problems and find people who would rather move than change with the culture and, if possible, take these losses early.
8. Move quickly and decisively to build momentum and to defuse resistance to the new culture.
9. Stay the course by being persistent.
Chapter 3 Organizational Context: Design and Culture 83
Also, organizations attempting to change their culture must be careful not to abandon their roots and blindly abandon their core, but distinctive, competencies and core values. For example, it is generally recognized that the reason “New Coke” failed was that it broke away from the tried-but-true Coca-Cola traditional culture; and the reason Google so far has remained at or near the top in all categories, from profits, to growth, to best places to work, is because it has remained true to its core cultural values and all Googlers buy into them. As was recently observed:
Talk to more than a dozen Googlers at various levels and departments, and one powerful theme emerges: Whether they’re designing search for the blind or preparing meals for their colleagues, these people feel that their work can change the world. That sense is nonexistent at most companies, or at best intermittent, inevitably becoming subsumed in the day-to-day quagmire of PowerPoints, org charts, and budgetary realities.92
Where Coca-Cola is an example of a firm with a long history and strong corporate culture, and Google is a new age company with a very powerful corporate culture, IBM, discussed earlier under creating and maintaining a corporate culture, is a good example of a firm that has successfully undergone cultural changes.
Summary
Organization theory is presented from a historical perspective and the learning organiza-tion. The learning organization draws on systems theory and emphasizes the importance of not only adaptive learning but also generative learning, leading to creativity, innovation, and staying ahead of change.Modern organization designs are a marked departure from the classical bureaucratic model. The horizontal, hollow, modular, network, and virtual organization designs have emerged to better meet the needs for flexibility and change in the new environment.
The second half of this chapter on the organization context is concerned with orga-nizational culture. It is a pattern of basic assumptions that are taught to new personnel as the correct way to perceive, think, and act on a day-to-day basis. Some of the impor-tant characteristics of organizational culture are observed behavioral regularities, norms, dominant values, philosophy, rules, and organizational climate. Although every-one in an organization will share the organization’s culture, not all may do so to the same degree. There can be a dominant culture, but also a number of subcultures. A dom-inant culture is a set of core values that are shared by a majority of the organization’s members. A subculture is a set of values shared by a small percentage of the organiza-tion’s members.
A culture typically is created by a founder or top-level manager who forms a core group that shares a common vision. This group acts in concert to create the cultural values, norms, and climate necessary to carry on this vision. In maintaining this culture, enterprises typi-cally carry out several steps such as the following: careful selection of entry-level candi-dates; on-the-job experiences to familiarize the personnel with the organization’s culture;
mastery of one’s job; meticulous attention to measuring operational results and to reward-ing individual performance; careful adherence to the organization’s most important values;
a reinforcing of organizational stories and folklore; and, finally, recognition and promotion of individuals who have done their jobs well and who can serve as role models to new per-sonnel in the organization.
In some cases organizations find that they must change their culture in order to remain competitive and even survive in their environment. The cultural change process at IBM demonstrates how this may be successfully accomplished.
84 Part One Environmental and Organizational Context
Ending with Meta-Analytic Research Findings
OB PRINCIPLE FOR EVIDENCE-BASED PRACTICE
Organizational configurations affect organizational performance.
Meta-Analysis Results:
[33 studies; 40 organizations; d = .55] On average, there is a 65 percent probability that an identified organizational configuration will better predict performance of included organi-zations than if no configuration is identified and utilized. Moderator analyses revealed that organizations’ configurations contributed more to the explanation of performance to the extent that studies used broad definitions of configuration, single-industry samples, and longitudinal designs.
Conclusion:
Organizational configurations are groups of firms sharing a common profile of organi-zational structural characteristics. The Miles and Snow typology describes four such configurations—defender, prospector, analyzer, and reactor. Each of these examines the relationship between strategy and structure. At the heart of configuration research is the relationship that firms have with their environments. Specifically, organizations that exist in environments where goals are attainable, resources are acquirable, internal processes are growing and thriving, and stakeholders are satisfied will be more effective than those that do not have such a configuration.
Source: Adapted from David J. Ketchen Jr., James G. Combs, Craig J. Russell, Chris Shook, Michelle A. Dean, Janet Runge, Franz T. Lohrke, Stefanie E. Naumann, Dawn Ebe Haptonstahl, Robert Baker, Brenden A. Beckstein, Charles Handler, Heather Honig, and Stephen Lamoureux, “Organizational Configuration and Performance: A Meta-Analysis,” Academy of Management Journal, Vol. 40, No. 1, 1997, pp. 223–240.
1. What was Chester Barnard’s contribution to organization theory?
2. How does a learning organization differ from a traditional organization?
3. Briefly define the horizontal, hollow, modular, network, and virtual organization designs.
How do these differ from the classical design? How do they better meet the challenges of the new environment?
4. What is meant by the term organizational culture? Define it and give some examples of its characteristics.
5. How does a dominant culture differ from a subculture? In your answer be sure to define both terms.
6. How do organizational cultures develop? What four steps commonly occur?
7. How do organizations go about maintaining their cultures? What steps are involved?
Describe them.