Culture Is the Ultimate Strategic Asset

We believe that corporate culture is the ultimate strategic asset of an organization. This means that it is the ultimate source of sustainable competitive advantage, because (as discussed further below) it cannot be copied. This view of culture as not just important but as the ultimate strategic asset is shared by several leaders of highly successful companies, including Ren Zhengfei of Huawei, and Howard Schultz and Howard Behar of Starbucks.

Ren Zhengfei, founder and deputy chairman of the board of Huawei Technologies Co. Ltd (“Huawei”) has stated that “Culture is the ‘Nuclear bomb, of Huawei.”¹ Huawei is a world-class technology company headquartered in Shenzhen, China. What does it mean that “Culture is the ‘nuclear bomb’ of Huawei”? The nuclear bomb is the ultimate weapon in any war. Huawei views itself as being in a battle or war with all of its competitors. It is a continuous battle for survival. What Ren Zhenfei is saying is that in the battle for corporate survival, the ultimate weapon is corporate culture.

Similarly, Howard Schultz has stated that when people ask him what the secret is to Starbucks’ extraordinary success, he tells them that it is the organization's people that make the real difference. Howard Behar, who was the head of retail at Starbucks as well as president of Starbucks International, has written a book whose title states, It's Not About the Coffee! As the title suggests, Starbucks' success is not attributable to its fine coffee, per se, because coffee is, of course, a commodity; rather, its success is attributable to the leadership style and culture of the company, which impact the performance of its people.

Customer-Client Orientation

The importance attached to how the company views its customers or clients, as well as the assumptions employees hold about the nature of their customers and clients, can have a profound impact on how the company operates and thus on its success.

Some companies have been very effective at developing and communicating to their employees their values with respect to customers. Employees at Disneyland, for example, refer to their customers as guests. The word was chosen carefully to send a message to Disneyland employees about the company's customer orientation. It is intended to have an impact on the way employees interact with customers; in fact, employees are trained to make customers feel at home. The goal is customer satisfaction, which Disney hopes will encourage them to return to the park in the future.

Southwest Airlines is another company that has, throughout its history, effectively managed its culture with respect to treatment of customers. The culture promotes having fun and was built on “Luv” (a play on the name of the airfield where the company was born). Customers who travel this airline, which offers no-frills, low-cost travel, experience the caring firsthand, from check-in to baggage claim. Flight attendants have been known to play games in flight (like seeing who has the most pennies) and to sing songs. Since 1988, the company has won the airline industry's monthly highest customer satisfaction award (the Triple Crown) over 30 times and has been on the list of Fortune's World's Most Admired Companies more than 20 times.

People (Employee) Orientation

The second critical cultural area is the view people hold about themselves and others within the organization itself. Again, as was true with customer orientation, there are two components to this dimension: (1) how people are viewed with respect to their roles within the business and (2) how important people feel. Some companies devote a great deal of effort to satisfying employee needs and making them feel valued. At the extreme, these organizations develop a strong competitive team spirit that is directed at other companies and even at departments within the same company. At the other end of the spectrum are those companies in which employees are viewed as replaceable. Somewhere in between are companies where some employees are considered valuable assets (by themselves and everyone else) but where other employees are considered second-class citizens.

Southwest Airlines' culture also has a tremendous impact on its employees. While other airlines may offer higher salaries, employees remain with Southwest because of the emphasis that the firm places on valuing its employees who are, in fact, referred to as internal customers. This value is attributable to the company's former CEO, Herb Kelleher, who was famous for his antics and desire to promote fun. The company has numerous programs, including its Star of the Month (recipients have their profiles posted on the company's website) and its annual awards banquet, held to recognize the contributions that employees make to the company's success.

Similarly, the culture at Starbucks places an extremely high value on the treatment of people, who are referred to as “partners.” Starbucks uses a variety of tools to manage its culture, including a formal statement of core values, as can be seen on their corporate web site: www.Starbucks.com.

Medium-sized firms like Bell-Carter Foods have also successfully managed this important aspect of culture. Bell-Carter Foods is a family business that has been in operation for over 100 years. A significant focus of its business is on canning and distributing ripe table olives through retailers throughout the United States. In fact, the company is the largest table-olive producer in the United States and the second largest in the world. Tim and Jud Carter (the third-generation leaders of the family business) were extremely committed to creating and maintaining an environment in which employees felt valued and in which people could have fun. Jud, Tim, and their entire senior management team traditionally operated with open-door policies, which allowed any employee to bring an issue to them. At their corporate offices, Tim held monthly all-employee meetings during which any employee could discuss any issue they would like with him or other members of the senior management team. Finally, the company has traditionally made a practice of celebrating senior executives' birthdays in unusual ways. At their plant in Corning, California, Jud's birthdays were annual events in which employees tried to outdo the previous year's event. Over the years, these parties included everything from songs written especially for the occasion to having everyone “dress like Jud” (in khaki pants and a blue work shirt, complete with a red wig to represent his red hair). All these events and ways of operating helped to communicate the value that the company placed on its people. The company's people-oriented culture continues under the fourth generation of family leadership of CEO Tim T. Carter, Tim's son.

While it is easy to identify firms like Starbucks, Southwest, and Bell-Carter where people are valued, it is equally as easy to identify organizations that have problems with their orientation toward employees, because these organizations usually experience very high turnover. Conversely, organizations that are successful at making employees feel valued (by whatever means) tend to experience relatively low turnover. (We do not wish to imply that employee orientation is the only cause of turnover, but it is often a significant one.) In one $100 million company, for example, employees expressed much fear about the future and felt that anyone below the senior management level was a second-class citizen. Turnover was rampant, not only among the lower levels of the company but also among members of the executive team.

Performance Standards/Accountability

The next key dimension is a compound of two elements: performance standards and accountability. Performance standards include things like what and how much employees are held accountable for, the level of quality expected in products, and the expected level of customer satisfaction. Accountability refers to the process of holding people responsible or accountable for what they do or fail to do in an enterprise.

Performance standards and accountability are (or at least ought to be) two sides of a single coin. However, in practice many organizations can have explicit performance standards but still not hold people accountable.

In some companies, employees believe that they are held accountable only for coming to work on time. In others, employees are held accountable for achieving goals that will help the organization meet its mission. Sometimes the definition of accountability can become distorted, as was the case in one $35 million high-tech manufacturing company that had traditionally placed a high value on “commitment.” Over time, employees came to believe that commitment meant spending nine to ten hours a day at work, regardless of what they were doing during that time period. The norm was to come to work early and to never leave the office prior to 5:00 (if possible, staying until 5:30) as a way of showing commitment. Although the company had many employees “working,” they were having difficulty meeting their goals because employees were focused on an inappropriate standard of performance.

At other companies, like Smartmatic (a Venezuelan company), Johnson & Johnson, and GE, people are held accountable, not only for achieving goals but also for behaving in ways consistent with the company's values.³ Similarly, we have assisted several of our clients in developing measures of culture in order to hold people accountable for adherence to key corporate values as part of their performance management systems.

Commitment to Innovation and Change

The fourth major cultural element is how a company views and reacts to innovation and change. Growing organizations that embrace change as a way of life tend to experience less difficulty in making the required transitions that have been discussed throughout this book. Those in which change is viewed as threatening tend to experience significant problems. In one $100 million organization, for example, the owner-entrepreneur nominally supported the changes needed to take his company into the future. However, when confronted with the need to make changes in his company's planning process, product line, structure (including delegating more decision-making responsibility to members of his management team), and corporate culture, he resisted. Instead of changing, he held on to the old ways of doing things until his business began to lose market share. When this occurred, he blamed his senior management team and replaced them for the second time in as many years.

Process Orientation

The final dimension of culture is what we have termed “process orientation.” Some organizations believe in business processes and others are process averse. Growing organizations need a variety of processes as part of their infrastructure in order to scale and continue to grow in a healthy manner. These processes include communication processes, decision-making processes, planning processes, and many others.

Some organizations are anti-process because they equate process with bureaucracy. However, processes are required to help a company avoid choking on its own growth.

There are many examples of how processes contributed to organizational success. For example, the key to the success of Ford Motor Company in the early years of the twentieth century was not the car, per se; it was the assembly line created by Henry Ford. Similarly, the success of Dell Computer was not a proprietary computer technology; it was attributable to the process of making computers to order online and bypassing the traditional “middleman” in distribution. Finally, the growth of Walmart into the dominant retailer is attributable to its logistics and information systems, not to its products, which are identical to those sold by Kmart!

Language

The words and phrases people use to talk about themselves, events, or the organization are manifestations of the organization's culture. As noted earlier, Starbucks refers to employees as partners. This is intended to suggest an ownership relationship among employees. Other companies refer to employees as associates (Walmart), team members (Infogix), and cast members (Disney). This language is intended to have a different connotation than viewing people as employees or staff. For example, the use of the term cast members at Disneyland and Disney World is intended to communicate to all employees, even the maintenance people, that they are like actors playing their defined roles in a live stage production.

In many organizations, acronyms are used to share and discuss ideas. We have frequently experienced this phenomenon. Although the message behind using acronyms might seem to be that the organization is striving for efficiency and using the minimal amount of time to communicate with one another, a more subtle message is that the firm is creating a language all its own that only insiders will understand.

Culture is also manifested in the language used to talk about the organization itself. With respect to organizational development, perhaps the most feared word is bureaucracy. The meaning attached to this word for many employees of entrepreneurships is that of a slow-moving dinosaur that seldom gets anything accomplished. The problem is that “bureaucracy” often becomes equated with “professionalized,” even though the latter is a state to be desired and an organizational form that is necessary for continued success. Managing language during the transition process, then, can be critical.

Language can also be a powerful means of communicating a change in culture. For example, employees of one Stage IV consumer products company were expected to behave professionally in every aspect of the firm's operations. People dressed very formally and spoke of and to each other very formally (for example, executives were referred to as Mr. or Ms.). Employees were very businesslike in everything that was done (even though the product produced and sold by this company had the image in its marketplace of being very friendly and fun). Executives dressed in suits and even in off-site meetings had a difficult time removing their jackets.

The old executive team was eventually replaced by a new, younger team. This team set about changing the firm's culture to one that better reflected the type of product it produced. Casual dress and casual language became a part of everyday life at the firm. Everyone from the president to front-line employees was now referred to by their first names. The president of this company was known to use such phrases as “That's a Big Wow”—something that would never had been used by the former regime. The language, then, reflected a change to a more casual working environment and a focus on the fun that had become somewhat de-emphasized by the former group of executives.

Symbols

Things within an organization to which special meaning are attached are known as symbols. Depending on the organization, symbols may include furniture, awards, and dress (uniform). In many companies, the type of furniture or office an individual has symbolizes his or her value to an organization. In one $100 million manufacturing business, the type of telephone people had was a significant symbol of status. One individual, who occupied an open cubicle, lobbied very strongly for a speakerphone because this symbolized a higher status than the traditional phone that had been provided. Although a speakerphone was somewhat impractical in an open environment, the meaning attached to the phone was so strong that its practicality was secondary in this individual's mind.

If managed properly, symbols can be used to motivate people to achieve the organization's goals. For example, in one $100 million manufacturing company, the field sales operations had created a traveling coffee cup that was given to a sales rep who had done something beyond the call of duty. The individual receiving the coffee cup also received a letter from the divisional manager specifying why the cup was being awarded. The recipient was permitted to keep the cup for a month, and then it was returned to the manager to await being awarded again. A coffee cup seems like something fairly trivial, but at this company it had acquired a great deal of importance. It symbolized that the individual receiving it had provided a valuable contribution to the company.

Rituals

Special events and traditional ways of doing things are what we refer to as rituals in companies. Examples of corporate rituals include retirement parties, company picnics, afternoon beer busts, and annual meetings. Generally, rituals are intended to communicate the values and beliefs related to a company's people orientation.

Many years ago, we witnessed the retirement ritual at a manufacturing business. We were in a meeting with the president, and he informed us that we would have to break in about 10 minutes because he needed to be at an employee meeting in the company's cafeteria. He explained that one of the company's employees was retiring. When we arrived in the cafeteria, it was already filled with employees sitting and standing along the walls. The retiree was seated at one of the tables nearest the front; the table was otherwise empty. The president asked us to be seated at the table, and he approached a microphone that had been set up in the front of the room. He explained why they were there (basically to honor a loyal and long-term employee), mentioned the employee's years of service, and called her up to the microphone. He thanked her for her contribution and presented her with a pen-and-pencil set embellished with the company logo and an envelope containing a monetary gift. He then told the employees that there were donuts and coffee for everyone and that they should say good-bye to the retiring employee. It is difficult to capture the spirit of the event, but the goodwill of all was evident.

Although the entire presentation lasted no more than 15 minutes, the values and beliefs it communicated and reinforced were very powerful. First, it showed that the company values all of its employees and their service. Second, it reinforced the belief that loyalty and service will be rewarded. Third, it indicated that the company believes its employees are part of a family. The sharing of food (in this case simply coffee and donuts) added to the family atmosphere. Finally, it suggested that the leadership of the company is interested in and concerned about its employees.

Celebrations held at companies as diverse as Bell-Carter Foods (birthday parties) and Southwest Airlines (annual awards banquet) are rituals that help communicate to all employees that employees are viewed as a part of the family and that fun is a very real part of the culture.

Like other aspects of culture, however, rituals must be managed, or the values and beliefs they are intended to reinforce can become distorted. For example, annual meetings can become an excuse to get away at the company's expense instead of as an opportunity to learn from each other and build the team.

Rituals can also be mismanaged when employees no longer understand their intent. Two examples of this mismanagement include (1) the afternoon get together—which becomes a time for employees to share their complaints rather than share ideas and build their team, and (2) the meeting that is held each week because “we've always had it,” even though attendees agree it's a waste of time.

When, however, a ritual has been effective at communicating its message and employees embrace it, they may choose to maintain it, even at significant cost to themselves. At Hewlett-Packard, for example, during a period when the company's performance was less than expected and significant cuts were being made across various operations, employees voluntarily raised money to sponsor the company picnics. The implication of this is that employees clearly understood that the company valued them and that the picnic was only in jeopardy because of the company's performance. Further, the company had effectively communicated the belief that employee loyalty was valued, and employees chose to express their loyalty by sponsoring the picnic themselves.

Rewards and Heroes

There are monetary and nonmonetary rewards that a company can give employees for behavior consistent with the company's culture and its goals. Examples include bonuses, company-sponsored vacations, employee-of-the-month awards, certificates of appreciation, and items embellished with the company logo and presented in recognition of service of a particular kind. Many use certificates to recognize employees who complete a management development program or provide valued service to the company. These certificates help other employees understand what the company values.

Domino's Pizza is a company that uses rewards effectively to foster its values of teamwork, customer service, and high performance standards. National awards go to winners of annual competitive events and to individuals and stores with the best sales record. Recognition of a different kind is given to poor performers. The slowest delivery times are recognized by inscription of the store's name on a plaque placed near the slowest elevators at corporate headquarters. Finally, founder Thomas Monaghan's impulsive gift of his tie to an especially successful manager has become a tradition, and hundreds of these awards are presented annually.

As is true of the other manifestations of culture, rewards must be managed, or they can communicate values and beliefs and promote norms that are at odds with the company's goals. One small Stage II service firm had instituted a “manager-of-the-month” program intended to reward the “best manager.” Unfortunately, the program had become a popularity contest rather than a way to recognize behavior consistent with the company's goals. The criteria for determining who should receive this reward were vague, and employees were asked to vote on who they believed to be the best manager. This process was adversely affecting morale because, although the most popular managers won, those who were working hard to meet their goals were sometimes overlooked. Eventually, it might be expected that the good performers who were not rewarded for their behavior would simply give up.

In other cases, organizations can overdo it with respect to rewards. In one large company, each time a meeting or event was held, all attendees received some type of memento: a T-shirt, coffee mug, pen, or plaque. Over time, these rewards came to have no meaning to those who received them. Employees complained that they had closets full of T-shirts and cupboards full of mugs. The president of the company, upon hearing this, decided to use rewards more strategically. He did not immediately take away all of these rewards, but he dramatically decreased their use. No one seemed to notice! The hope was that, over time, these types of rewards would again be appreciated.

Those who receive rewards and recognition can, over time, become recognized as company role models (heroes). Therefore, it is important that those who receive rewards truly exemplify the organization's values, beliefs, and norms. When they do not exemplify the organization's core values, the business can be promoting behavior that is inconsistent with its long-term goals.

It is important to also recognize that corporate heroes can be still working in the company or long since departed. These are the people that employees hold up as role models. Herb Kelleher is a living hero in the company he founded—Southwest Airlines. His behavior (which promoted fun) let all employees know what is acceptable. Similarly, Bill Gates, founder of Microsoft, but no longer active in the business, is still a living hero at that company where he represents the values of innovative product development, competition, and other aspects of the company's culture that have helped to support the company's success. Finally, at Apple, though Steve Jobs is now deceased, the legend of Steve Jobs lives on. He is still an icon and somewhat mythic figure at Apple, and his story still exerts a powerful presence.

Sadly, there are other truly heroic business figures that are not well utilized by their companies. For example, Ueli Prager, the founder of Mövenpick, a global restaurant, food, and hotel company, is underutilized as a cultural icon. If his story were told, he would be well recognized as a great entrepreneurial figure. Similarly, Nikola Tesla, a truly great technological genius, is only now getting some of the recognition he deserved because Elon Musk, the entrepreneurial founder of Tesla Motors, has named his flagship car the Tesla.

Uncontrolled Culture Change

The corporate culture of a start-up or early-stage entrepreneurship is dictated principally by the founder and the few people he or she initially hires. Everyone understands the culture and buys into it. It is very easy for the founder(s) to influence and maintain the culture through direct contact with all employees on a daily basis. However, by the time there are four or five generations of employees, it is almost impossible for people at the lower levels of the organization to have any direct contact with those at the top who articulate the culture. Therefore, the culture that those at the bottom of the organization adopt may be very different from the culture the founder and the original group of employees want to promote.

Such different perceptions result from the tendency of individuals to interpret the corporate culture in ways that meet their own needs. These differences in interpretation can be viewed as mutations in core values. In the absence of a well-managed culture, this process of mutation can lead to the original culture becoming very distorted. This can be a subtle—almost imperceptible—process. In addition, if the culture is not managed or is not managed effectively, there can be a clash between the old and new cultures that can affect the company's success.

In one $500 million service company, the two companies of equal size that merged to create the larger entity had extremely different cultures. One of these companies was very entrepreneurial, while another bordered on being a bureaucracy. In the entrepreneurship, managers were encouraged to do their own thing; in the other, people waited to be told what to do by their managers. In the more “professionalized” company, there were well-developed systems and processes that were consistently used; in the entrepreneurship, if systems and processes existed, they were frequently ignored. After the merger, the senior management team, consisting of the executives from both companies, worked together to develop a strategic plan for taking the new business to the next level. The team tried, unsuccessfully, to blend the two cultures but could seldom see eye-to-eye on what was needed. Over a period of about two years, the new company's performance significantly declined, and the members of executive management were replaced.

Given our previous discussion of the relationship between culture and the organization's infrastructure, any time a change is made in a particular area of the company, there will be an impact on culture, whether or not the organization has planned this change.

Planned Culture Change

If an organization is to be successful as it grows, culture must be managed at each stage of growth so that the values, beliefs, and norms support the other changes taking place. As we discussed in Chapter 3, culture does not become a critical factor until a company reaches $100 million in revenues, but that does not mean that it should or can be ignored. For example, in a $50 million manufacturing company, strategic planning was done, but because the culture and other systems did not support it, it was nothing more than a yearly paper exercise. The company had not found ways to explicitly manage its culture so that it supported planning.

Microsoft, recognized as being one of the most phenomenally successful entrepreneurial ventures of the late twentieth century, went through several periods of cultural change. Microsoft was founded in 1975 by Bill Gates and Paul Allen. At that time, Gates and Allen focused on developing the software for the first personal computer—the Altair (produced by MITS computing in New Mexico). Over the next several years, the company developed software for other computer makers, and by 1980, revenues had reached $8 million. It was in 1980 that Microsoft was selected to produce the IBM-PC operating system (MS-DOS). This system eventually became the industry standard. In these early days of the company (and for obvious reasons), the focus was on the developer, and the culture of the organization reflected this.

As Microsoft continued to grow, with sales reaching $24 million in 1982, Gates began to realize that the informal manner in which the company had operated in the past would no longer be appropriate for the future. He began to hire professional managers to help take his company to its next stage of development. Jon Shirley, a 25-year veteran of Tandy, was brought in as COO and began to help develop the infrastructure needed to run the much larger firm that Microsoft was becoming. At the same time, however, the company tried to maintain the feel of a much smaller firm. This was facilitated, in part, by a number of rituals (like the annual holiday party and company picnics), as well as the norm that any employee at any time could email Gates or Shirley directly if they had a question or concern. Gates and Shirley typically responded quickly and personally to each email received.

The organization continued to promote a family feeling, but its culture also promoted being aggressive and assertive. Conflict was not unusual and in many cases was promoted. Although at times it may have gotten somewhat heated, whenever conflict is dealt with openly, it typically leads to greater innovation and creativity—significant values at Microsoft.

Throughout the 1980s, Gates continued to be in charge of product development and demanded the most from the developers. His “Bill meetings” (a type of ritual) were opportunities for him to question and critique ideas, as well as to promote his vision for what his firm would become.

As the company entered the 1990s, it faced new challenges. Revenues were now over $1 billion and were derived not just from the organization's sales of its operating system but also from application software. However, the company had not changed certain aspects of its culture to support a firm of this size. There was still a great deal of centralized control. For example, the president of the company still signed all employment requisitions, even for temporary employees. At the same time, however, product developers in different units worked independently on their products. Gates recognized that this needed to change as the environment pushed for software products that worked together. He assumed the role of coordinating the product development efforts. The company began to focus on creating integrated products, and this meant that its product development teams also needed to be integrated.

In 1991, the company began to realize that its primary customer base had shifted from the OEM (original equipment manufacturer, who purchased Microsoft operating software for use in its computers) to the end user (who purchased its application software and who demanded support for its use). Promoting a focus on end-user service and support required not only a shift in the company's infrastructure but also in its culture. Now the company had to promote not only “reverence for the developer” (a value on which the company was founded) but also “reverence for the customer.”

In 1991, the company also became more formal with respect to its security. Although it had been viewed as less than positive to wear badges in the mid-1980s, software developers began to realize that they had a great deal of valuable software and ideas in the firm that needed to be protected.

By 1999, the company had grown to over $14 billion in revenues and was continuing to experience great success. However, Bill Gates and the new president, Steve Ballmer, decided that they needed to “reinvent Microsoft,” calling their initiative “Vision Version 2.” This initiative was developed to address issues identified through interviews conducted with employees throughout the company. Interviews suggested that people did not necessarily understand the firm's direction and that the company had become too slow to react to market opportunities. The idea, according to Ballmer, was to “reinvigorate the vision,” that computing power will be usable on any device, anywhere.

One key to the new vision was to have programmers continue developing software to support the Windows technology, while at the same time giving programmers the freedom to explore non-Windows-based software that would support the growing Internet business. To minimize the possibility that these different types of software might end up competing for customers, the company redesigned its structure into eight new groups, focused both on technology and customers. The first two groups were devoted to basic research and continued product development. Each of the remaining six product development groups targeted a different buyer.

One of the reasons behind the changes made in 1999 at Microsoft was that people had come to feel that the company was becoming too bureaucratic. Decisions were taking too long, and many felt the firm was mired in red tape. Part of the problem was that the company had continued to operate with a culture of centralization. Many decisions were “bumped” to Gates or Ballmer, who were becoming (partly because of the sheer number of decisions to be made) bottlenecks. Before the new Vision Version 2, Gates and Ballmer were involved in every decision. In the new culture, rolled out in 1999, senior managers (those below Gates and Ballmer) were now responsible for running their businesses and managing their budgets as they saw fit (as long as they met their goals). In addition, the company continued to focus its developers on better understanding and meeting the needs of customers.

In September 2005, the company again restructured, this time into three divisions. The reason, according to Steve Ballmer, then CEO, was to “align our business groups in a way that will enhance decision making and speed of execution, as well as help us continue to deliver the types of products and services our customers want most.”⁷ In other words, this change was intended to continue the process of refining the structure to better fit the company's culture.

On February 4, 2014, Satya Nadella succeeded Steve Ballmer as CEO of Microsoft. Nadella's leadership has led to a transformation of the company's business and technology culture from client services to cloud infrastructure and services. He has been credited with helping bring Microsoft's database, Windows Server, and developer tools to its Azure cloud. Microsoft's revenue from its Cloud Services is growing and is estimated to be $6.3 billion in 2015.⁸

Assessment and Analysis of Current Culture

The first step in the culture management process is to perform a “cultural assessment” to determine what the culture currently is. Because the emphasis is on the real culture, not the nominal culture, we recommend ignoring written culture statements (at least initially) and focusing instead on what people have to say about the culture they live and breathe. As explained earlier, culture is a very fuzzy concept; asking an employee to describe his or her organization's culture usually results in the employee either pulling out the company's philosophy or culture statement and beginning to read it or looking blankly at the interviewer as if he or she is speaking a foreign language. In other words, the direct approach is not effective in gathering information on this subject.

A more indirect approach that has been very effective for researchers and managers alike is to ask employees to write or tell short stories about their experiences in the firm. Employees should be asked to tell a story or two related to critical incidents they have personally experienced or heard about that occurred at the company. Another effective method is to have them construct a story that describes their first day on the job. The construction of these stories can take place on paper, and they can then be read aloud in a group setting or told to interviewers.

The next step is to extract from the stories critical elements of the company's culture. The identification of these elements may be done by the employees themselves or by an independent observer. Once the elements have been identified and summarized, they should be circulated to employees for further elaboration or feedback.

An example of two stories that were told by employees at a Stage IV service business, and the elements of the culture that they identify are provided in Table 10.2. As shown in the table, the stories suggest a number of elements of this organization's culture, including concern for quality, the importance of extra effort, concern for people, the importance of first impressions, the concern that people feel valued, and the importance of treating people with respect.

In analyzing stories, it is useful to identify how culture is manifested in the organization. What symbols are important to people? How do they talk about themselves, their customers, and company events (language)? What rituals are important? Who receives rewards (the heroes) and for what? What types of rewards are important to people in this firm? This is important information, not only in terms of identifying the current culture but also in terms of identifying how to manage these manifestations of culture in order to promote a strong, functional culture.

As a result of such analyses, a number of competing subcultures may be identified. For example, each department may adhere to slightly different values. This is important information in the culture management process because the goal of this process will be to blend all of the competing cultures so that they support the overall corporate goals.

In addition to story analysis, an organization may use interviews to collect information on its culture. Through a series of questions that focus on key aspects of corporate culture (for example, treatment of employees and treatment of customers), interviews can collect information on both the organization's current culture and what interviewees believe the culture should be. In most cases, it would be very difficult for someone inside the organization to effectively use this method because interviewees may not feel that they can be completely candid.

An alternative is to design and administer a corporate culture survey, which is not the same as an attitude survey. Culture surveys should focus only on helping to identify the organization's values, beliefs, and norms, not on things like whether employees are satisfied with their pay and benefits. Typically, these surveys should consist of no more than 40 questions, with each question representing a key element of the organization's desired culture. Those completing the survey are then asked to identify the extent to which each element of the organization's desired culture is currently being practiced.

Whatever method is used to collect information on the organization's current culture, the outcome of the cultural assessment will be a list of the elements of the current culture and their meanings. Some managers also find it useful to develop a list of the systems or structures (elements of the company's infrastructure) that promote each of the various cultural elements as a way of identifying possible targets for change.

Identification of the Organization's Desired Culture

In beginning to explicitly manage an organization's culture, the key question is, “What should our culture be, given our current stage of development?” In the final section of this chapter, we provide some general guidelines for the elements of corporate culture at different stages of development.

Whatever the stage, however, it is senior management's responsibility to answer this question. In doing so, the focus needs to be on both what the culture should be today and on what the culture should be in five years. From brainstorming sessions, workshops, or surveys, senior management should construct a set of values and beliefs that it deems will meet the organization's needs. These can be a set of three to five key phrases, each with a paragraph to explain their meaning, or simply a list of the key elements of the culture. If a company chooses to use a list, then senior management should develop its own written definition of each element so that there can be no misinterpretation of its meaning.

We recommend that the culture statement contain no more than five to nine key items so as to help employees remember them. However, these statements might also include brief definitions (no more than a paragraph).

Identifying Gaps between Current and Desired Cultures

Once an organization's management has identified what it wants or needs its culture to be, it then needs to determine the extent to which the desired culture is currently a reality for employees throughout the enterprise. The basic question is, “To what extent do our employees currently live and breathe the desired values, beliefs, and norms we have articulated?”

Addressing this question involves comparing the current culture (as identified through stories, interviews, and surveys) with the organization's desired culture (as articulated by senior management). In some cases, the desired culture will already be a reality. In others, the current culture will be quite different from one that will best support the organization's long-term goals (the organization's desired culture). Closing culture gaps involves developing strategies to better manage the organization's culture.

Developing a Culture Management Plan

A culture management plan focuses on ensuring that those aspects of the organization's desired culture that are already a reality are preserved. More important, however, is that this plan should focus on developing strategies for closing any gaps that exist between the company's current and desired cultures.

Developing strategies for effectively managing an organization's culture usually involves focusing on other systems, as culture affects and is affected by everything else in the Pyramid of Organizational Development. This is why it is important to identify those aspects of the infrastructure that are detracting from an organization's ability to realize its desired culture. Similarly, each time a change is made in the infrastructure, senior management needs to consider the cultural implications. To illustrate the impact that other systems can have on culture, Table 10.3 presents excerpts from a culture assessment completed for a Stage IV manufacturing firm we call Alpha Manufacturing. As can be seen in this table, a variety of other systems, structures, and processes were supporting the current culture, which wasn't necessarily the culture that the company needed to support the achievement of its long-term goals.

Sometimes the need for a culture change arises because of an acquisition or merger. In this case, senior management must perform an assessment of each of the cultures, identify areas of overlap and conflict, and determine the best way to blend the cultures. This may mean that some values of one or both companies will need to be significantly changed or, perhaps, eliminated in order to support the organization's growth. The culture's management is, however, essential in helping the company make a smooth transition because it has such a tremendous impact on employee morale.

For example, when American Century Investments acquired The Benham Group, they made a special effort to integrate the two companies' cultures. In the beginning, there were concerns because Benham's business focused primarily on fixed income rather than equities, whereas American Century was exclusively focused on equities. This could have created a significant cultural conflict. To facilitate the integration of the two companies and their cultures, American Century initiated a number of steps. They assigned a senior executive to devote virtually full time to the integration of the company for a planned period of approximately 18 months. They engaged the services of our consulting firm (which had worked with them for many years) to serve as a liaison between the two firms. Our firm interviewed a sample of employees from Benham during the first 18 months to obtain feedback on how the integration was going and whether there were any special concerns. Issues were identified, which were brought to the attention of the executive responsible for the integration, and they were successfully addressed. We also facilitated joint sessions for strategic planning and team building between the senior executives of both companies. Meetings were intentionally held in Mountain View, California, at Benham's corporate office, rather than in Kansas City, where American Century was headquartered. The integration was successful—made easier, in part, by the compatible sensibilities of the two CEOs, who had a number of things in common.

Although corporate culture change is a necessary part of the transition process, culture must be managed on a continual basis in order to ensure that it supports the company's goals and operations. The values, beliefs, and norms must be communicated and constantly reinforced because as a company continues to grow, new employees will need to understand what the culture is and what it means.

Senior management is ultimately responsible for the culture management process. Moreover, senior managers actually serve as role models for the rest of the company. It is important, then, that they not only communicate the culture through their words but also through their actions. At one technology company, for example, the founder and CEO decided to decentralize management decision making. Unfortunately, employees continued to complain that the founder still made most of the major decisions. The nominal culture said, “We believe in providing all of our managers with the authority they need to make decisions.” But the behavior, for whatever reason, stated, “The founder will decide.”

A positive example of the role senior management can play in the culture management process is that of a $35 million manufacturing firm. In this firm, employees came to equate commitment with hours worked, regardless of actual productivity. Changing this aspect of the company's culture began with a memo from senior management—sent to all employees—stating clearly that the company wanted people to work smarter, not longer hours. Senior management decided that they would no longer arrive at the office before 7:30 a.m. and would leave the office by 5:30 p.m. Through their behavior, they attempted to show their employees what the new value would be: we value productivity, not just hours worked.

A second way to manage corporate culture is through training programs. Orientation programs can serve as a way to provide new employees with an understanding of the corporate culture, as well as of how the infrastructure works to support this culture. Again, however, although the words are important, the other elements of this program—for example, whether the president welcomes them in person or in a video, the first impression left by their immediate supervisor, and the tone of the meeting—can leave a lasting perception of the company's values. In the absence of such formalized programs, employees are sometimes left to their own devices to read the handbook and identify what's important in the company.

Management and leadership development programs can also serve as a means of conveying the corporate culture, as discussed in Chapter 9. They help to build a sense of teamwork and, at a minimum, usually communicate to employees that the company values training and professionalized management. Further, management and leadership development programs provide managers with the skills they need to support and use the organization's systems in ways that reinforce the corporate culture.

Another way that corporate culture can be managed is through personnel selection. This can be proactive or retroactive. Proactively, the goal is to select personnel who will promote the values, beliefs, and norms of the firm and who are not at odds with the culture. Although this is a very time-consuming process and takes a great deal of planning and execution, it can be very effective.

Ritz-Carlton is a company that uses personnel selection to manage their culture. Southwest Airlines also uses this mechanism as one way of managing its culture. Their hiring processes focus on identifying attitudes rather than skills.

Retroactive personnel selection usually occurs during culture change. The goal is to eliminate individuals who will not support the new culture or, at a minimum, move them into positions where they can do little to harm the cultural change process. Some companies bring in outsiders, called hired guns, to perform the terminations. Usually, in these cases the entrepreneur realizes that he or she cannot do what needs to be done and either moves up or out of the company.

In other cases, the culture eventually becomes so strong that other employees force the cultural violator out. The person who refuses to adopt the new culture becomes an outsider and leaves of his or her own volition. Individuals who leave under these circumstances sometimes say that the company just wasn't any fun anymore.

Finally, corporate culture can be managed through the administration of rewards. As discussed in Chapter 8, it is important to ensure that rewards are linked to the behavior needed to achieve organizational goals and objectives, as outlined in the strategic plan. The company should be trying to create corporate heroes out of those individuals who best exemplify this behavior. These individuals can, in turn, act as role models for others. This is why it is not only important for employees to understand what they are being rewarded for but to publicize achievement as a way of motivating others to exhibit the same behavior. In some companies, the best performers are rewarded with bonuses. The reward structure and system must constantly be reevaluated to determine that it is motivating employees to be concerned with the appropriate goals and that these goals have not become distorted.

To illustrate how some of these corporate culture management mechanisms can be used to better manage an organization's culture, Table 10.4 shows the current and desired culture of Alpha Manufacturing. It also provides examples of how this company changed certain systems, structures, and processes in order to help increase the extent to which its desired culture was realized throughout the company.

In brief, Alpha Manufacturing developed a culture management plan that focused on changing other aspects of its infrastructure in order to support its new culture. In addition to developing this plan, the company created a culture management task force, made up of middle managers. Their responsibility was to further analyze the information provided by the culture assessment, monitor performance against specific goals that had been set in an effort to better realize the firm's desired culture, and provide feedback to the organization's senior management team.

Implementing the Culture Plan and Monitoring Changes

Step 5 (Implementing the culture management plan) and Step 6 (monitoring changes in the culture after the plan is implemented over time) are fairly self-explanatory. Implementation is a matter of execution of the plan. We also strongly recommend re-assessing the culture for the purpose of monitoring changes and measuring progress in achieving cultural objectives. For example, Emergent BioSolutions has used a culture survey to monitor changes in their company's culture. The survey has been administered approximately every 18 months since 2009, and the results have been used to identify specific areas that need to be focused upon and better managed.

Stage I

The culture of most small organizations emphasizes flexibility, ability to respond quickly to the environment, and the notion that the company is a family, with the entrepreneur serving as the parental figure. The organization seems to be constantly moving, and although there is a certain amount of anxiety about the company's future, there is also a great deal of excitement. In some Stage I companies, technical wizardry and innovativeness are valued, and often the technicians are the corporate heroes. In others, the focus is on sales and marketing, and those individuals who work in these areas become the heroes.

Culture is communicated through direct interactions with the entrepreneur. Employees, in fact, look to the entrepreneur for direction, so he or she is able to almost daily define and reinforce the corporate culture, as well as to monitor and correct it. Very few entrepreneurs choose to commit their values to paper at this stage of development. Although this is not an absolute necessity, it can serve as a basis for communicating values as the business grows. Whatever is placed on paper, however, should be supported by the daily operations of the enterprise.

Stage II

The corporate culture of the Stage II business is very similar to that in Stage I. The organization still values responsiveness, but now there is a tendency for this to mean “crisis management.” The business still values flexibility, but now this means something like being flexible and creative enough to operate with less than adequate resources until personnel interviews are completed or until the new facilities are ready. The organization also still values the family, but now there is an extended family living within the same “house,” and one's loyalty seems to depend more on which leader (regardless of level) one is most exposed to. Corporate heroes tend to become those people who are the best fire fighters and problem solvers.

It is at this stage of development that the corporate culture of most organizations begins to become distorted. Because all employees can no longer have direct contact with the entrepreneur, they are left to develop their own interpretations of the corporate culture, based on what they have heard. Because the entrepreneur cannot be there to monitor behavior, he or she must depend on other managers to do so, but those managers have their own interpretations of the culture. If the company has not yet developed the strategic planning, performance management, management development, and organizational structure consistent with this stage of development, it may be placed at a further disadvantage because, even if it can develop the appropriate culture, there will be no support for it.

At this stage of development, a company should devote at least part of its planning time to articulating the culture that will support its efforts and to devising ways to communicate it to employees. Again, if there is an existing culture statement, it may need to be revised to reflect the needs of the current stage of development. In this regard, it should mention a shift toward planning and control in at least an implicit way, as well as an emphasis on meeting responsibilities and goals. Further, as suggested in Chapter 8, the reward systems should be reviewed and changed, if necessary, in order to support the behavior required to achieve the organization's goals.

Stage III

It is at this stage of development that the culture of an organization should make a fundamental shift toward promoting professional management. The culture of a Stage III organization should promote planning as a way of life, accountability for meeting departmental and individual goals, a commitment to training employees to become professional managers, and other behavior consistent with the professionalized firm. However, if the planning, control, management development, and organizational structure systems are inconsistent with the requirements of this stage of development, then the culture will be as well.

At this stage, the culture is, of necessity, still being implicitly managed in most cases. However, senior management can increase the probability that its culture will support its professionalization efforts by at least considering the impact that proposed organizational changes will have on what it believes to be the corporate culture and how that might be managed. In other words, it can build into its change efforts a cultural component that redefines existing elements and clearly articulates new elements. However, the effort required to explicitly manage these elements may need to be postponed until the systems and structure are at least nominally in place.

Stage IV

By the time an organization reaches Stage IV, it needs to develop a formal method for managing its corporate culture. Corporate culture management should become an important part of the planning process, and resources should be devoted to (1) performing a cultural assessment to identify potential problem areas, (2) clearly articulating the existing culture and the desired culture, if different, (3) identifying gaps between the current and desired cultures, (4) developing a plan for transforming or maintaining the corporate culture, (5) implementing the culture management plan, and (6) monitoring changes in the culture after the plan is implemented over time. The latter step should include a process for monitoring the culture on a regular basis to ensure that it is supporting the organization's goals.

Stage V

At Stage V, an organization will be diversifying. It will either create new business units or make acquisitions, or possibly both. The key challenge in this will be to either acquire or create business units whose cultures are consistent with the existing enterprise. The acquisition of companies with a compatible culture is a key strategy of Warren Buffett's iconic firm, Berkshire Hathaway. When Buffett acquires a company, he is seeking established companies with a certain culture that fits his style of laissez-faire (or hands-off) management. Buffett is looking for companies that can operate autonomously and do not require management from the parent company. This style of acquisition is also used by On Assignment, a rapidly growing leading company involved in the temporary staffing space. It is a core strategy of On Assignment, led by CEO Peter Dameris, to acquire established companies that can continue to operate autonomously. This same cultural strategy was used by privately owned Citation Corporation in the foundry business, under the leadership of T. Morris Hackney.

Stage VI

The key challenge at Stage VI is to integrate the acquired or created business units into the existing enterprise. Where the culture is well defined and it is desired that the acquired companies embrace the core culture of the parent company, this will require cultural integration as well. We have worked with and assisted several companies in the cultural integration process including American Century Investments (headquartered in Kansas City, Missouri), whose acquisition of Benham was described earlier in this chapter. On the surface, the merger of a Midwestern company with a California company located near Silicon Valley seems not to be made in heaven; but it was actually both a good fit and a well-executed cultural integration, because of the extensive culture merger planning and activities described above.

Stage VII

Stage VII involves the revitalization of a business that is in decline. This might involve the re-creation of the enterprise's entire culture as well as other aspects of the business. Implementation of cultural change in revitalization requires a cultural assessment like that done for Techcombank. Ideally, it also requires culture management training of the senior leaders, and development of the new culture using the five key dimensions we have described in this chapter. Finally, it requires the development of behavioral norms to help execute these values. It also can require the development of a comprehensive culture management system, as described above.