Chapter 17. Organizational Culture

Rob Goffee

Gareth Jones

Organizations are in trouble. As the pace of change accelerates, old certainties are under threat. We used to believe that when business enterprises reached a certain size with extensive global reach they became market makers, not market takers. Nothing could be farther from the truth. Consider the following: not long ago we expected DEC to dominate the IT sector—it has since been swallowed up by Compaq—the combined group merged with Hewlett-Packard; Daimler-Benz has merged with Chrysler; the United Kingdom's leading clearing bank, NatWest, had been acquired by RBS. Never has the churn among the Fortune 500 been higher.

In response to this, organizations are focused ever more closely on sources of competitive advantage. The strategy gurus used to tell us that this could be achieved by technology, global reach, supply chain management, and market segmentation techniques. We now know that important as these are, they can all be copied and exceeded by the competition. They are not sustainable sources of competitive advantage.

Let's conduct the following thought experiment. Think of your two favorite organizations in the world—organizations that, in your view, can continue to be successful. Now imagine that you are an organizational spy. What do you want to know about them? While it would be useful to know of their next technology, or new products under development, the most important information would answer “how?” questions. How do they innovate? How do they attract and retain the best? How do they stay close to customers? Questions, in other words, to do with their cultures. Those habitual, taken-for-granted assumptions about how things get done around the place. It is our proposition that an organization's culture is the single most sustainable source of competitive advantage.^[1]

However, we need to enter at least one substantial caveat here. The recent history of the analysis of organizational culture has been beset with a “one best way” fallacy. Peters and Waterman's classic, In Search of Excellence, comes close to arguing that if only organizations could develop certain cultural characteristics then their success would be assured.^[2] In our view, this is based on a misconception. There are no right cultures; only appropriate cultures. That is to say there can be no generically correct culture, only ones that are suited to the particular environment of a business and to the complexity of its value chain. Producing, bottling, and selling beer, for example, is fundamentally different from developing, testing, manufacturing, and selling innovative pharmaceutical products. The value chains are different, as are the external environments. Later on in this chapter we will describe and explain a contingency model of culture that addresses these issues.

We need, however, to briefly explore the role of leadership in all of this. First, our view is that leadership is a nonhierarchical concept—leaders can and should be found all over organizations.^[3] Indeed, one of the most pervasive organizational trends of the last 50 years has been based on the recognition of the importance of encouraging leadership behaviors at all levels of an organization. Second, because our view of culture is based on a contingency model, it follows that a key leadership task is the maintenance and modification of culture to an organization's changing environment. For example, when we interviewed executives at Hewlett-Packard about their jobs they frequently cited the constant adjustment of the culture as a critical success factor, taking all that was essential to the traditions of HP and applying them in new and changing circumstances. Finally, therefore, the role of leaders is as the embodiment of culture. Their behaviors will be closely observed to see if they merely mouth the key values of the culture or whether they practice them. It is one of the most admirable human qualities that people can identify the gap between what others preach and what they practice. It becomes clear that the role of the leader is as an exemplar of the culture, crucial to both the continuance of appropriate elements of the culture and equally significant in the process of constant adjustment in response to a changing external environment.

Clearly, culture is a complex concept, sometimes too elusive for the pressured employee to grasp, even though they may somehow recognize its importance. Because of this we have developed a framework for the analysis of organizational culture. It is based on the view that shared values, attitudes, behaviors, and assumptions are shaped by different sets of organizational relationships. Therefore, it draws largely from the classical sociological literature that emerged as a response to the widespread division of labor associated with the emergence of modern societies. The key concepts are those of sociability and solidarity.