CHAPTER TWENTY-SIX
Corporate Culture: Use It, Don’t Lose It
CHANGING THE CORPORATE CULTURE has become the latest management fad. Every business magazine carries articles about it. And not a week goes by without my being asked to run a seminar on the subject.
There is indeed a need to change deeply ingrained habits in a good many organizations. Electric-power and telephone companies always had their profits guaranteed by public regulation. Now they find themselves up against cutthroat competition. Customers demand just-in-time delivery. Consumers are increasingly picky about quality and service. Employees sue at the drop of a hat alleging discrimination and sexual harassment. And with product lives shrinking, there is an urgent need in most mechanical industries in the U.S. (and even more in those of Europe) to change drastically the way new products and new models are conceived, designed, made and marketed, with the process eventually being telescoped into months from years.
Form and Content
What these needs require are changes in behavior. But “changing culture” is not going to produce them. Culture—no matter how defined—is singularly persistent. Nearly 50 years ago, Japan and Germany suffered the worst defeats in recorded history, with their values, their institutions and their cultures discredited. But today’s Japan and today’s Germany are unmistakably Japanese and German in culture, no matter how different this or that behavior. In fact, changing behavior works only if it can be based on the existing “culture.”
Japan is the best example. Alone of all non-Western countries it has become a modern society, because her reformers, a hundred years ago, consciously based the new “Westernized” behavior on traditional Japanese values and on traditional Japanese culture. The modern Japanese corporation and university are thoroughly “Western” in their form. But they were used as containers, so to speak, for the traditional and thoroughly un-Western culture of the mutual obligations and loyalties of a clan society—e.g., in the lifetime commitment of company to employee and employee to company, or in organizing industry in keiretsu, groups of autonomous firms held together as “vassals” by mutual dependence and mutual loyalty.
The reformers of India and China, by contrast, felt that they had to change their countries’ cultures. The only results have been frustration, friction, confusion—and no changes in behavior.
Another example: Konrad Adenauer in the 1920s was a vocal critic of Weimar Germany, for its “bourgeois” values, its greed, its materialism, its worship of money and business. When he became chancellor of a defeated Germany after World War II he deliberately and uncompromisingly strove to restore the pre-Hitler “bourgeois” Germany he so thoroughly detested. When criticized—and he was harshly attacked by well-meaning “progressives” both in Germany and in the West—he answered: “Pre-Hitler Germany, no matter how deficient, is the only culture Germans alive today know that still worked: we have no choice but to use it to build the new, the post-Hitler Germany.”
But there is also a good—and American—business example: the railroads. In the late 1940s, the American railroads were losing money hand over fist. Worse still, they were losing market share to trucks and airplanes even faster. Yet they were clearly needed—and so Uncle Sam, everybody agreed, would have to take them over. And most of the passenger business did indeed have to be taken over by government agencies. But passenger business was never more than one-tenth of railroad traffic.
The railroads’ real business, freight traffic, remained totally private in the U.S.—the only country in the world where this is the case. Moreover, the American railroads are the only ones that make money. Every other railroad system is virtually bankrupt. And the railroads in the U.S. carry a significant share of the country’s freight—a little more than one-third of long-distance traffic—with no other system carrying more than 5 percent to 8 percent (and neither the British nor the Japanese railroads carry even that much). The American railroads based this turnaround on the existing values of their managers, their clerks, their train crews—on the railroaders’ dedication to technical standards, for instance.
If you have to change habits, don’t change culture. Change habits. And we know how to do that.
The first thing is to define what results are needed. In the hospital emergency room, for instance, each patient should be seen within one minute after arrival by a competent person—e.g., an emergency-room nurse. The new model of the washing machine or of the laptop computer has to be ready for market testing within 15 months of its predecessor’s introduction. Every customer inquiry, including every complaint, has to be settled by telephone within 24 hours (the standard of a well-run mutual-funds firm).
The next—and most important—step is not a “training session” or a management conference, let alone a lecture by the big boss. It is to ask: “Where within our own system do we do this already?”
The American railroads began their turnaround around 1948 or 1949 when executives at the Union Pacific, the Chesapeake & Ohio and the Norfolk & Western first asked: “What is the most important result we need?” They all answered: “To get back on the railroad the shipment of finished automobiles from factory to dealer.” Then they asked: “Is anyone on any railroad actually doing this?”
The moment the question was asked, they all realized that one subsidiary of the Chesapeake & Ohio—the one serving Flint, Michigan, home of the Buick Division of General Motors—was actually increasing its share of finished-automobile shipments while every other railroad in the country was losing automobile business. Yet all these people in Flint had done was to find out what traditional railroad services Buick needed and was willing to pay for—and then to provide the service with true excellence.
Marshall Field in Chicago was one of the first of the high-class big-city department stores to get into trouble, in the 1970s—and one of the first ones to get out of trouble too. Three or four successive CEOs tried to change the culture—to no avail. Then a new CEO came in who asked, “What do we have to produce by way of results?” Every one of his store managers knew the answer, “We have to increase the amount each shopper spends per visit.” Then he asked, “Do any of our stores actually do this?” Three or four—out of 30 or so—did it. “Will you then tell us,” the new CEO asked, “what you people do that gives you the desired results?”
In every single case these results were achieved not by doing something different but by systematically doing something everyone had known all along should be done, had in the policy manuals, and had been preaching—but only the few exceptions had been practicing.
The next step, therefore, is for top management to make sure that the effective behavior as it develops out of the organization’s own culture is actually being practiced. This means, above all, that senior management systematically asks, again and again: “What do we in senior management, and in this company as a whole, do that helps you to produce the results that all of us are agreed are the necessary ones?” And: “What do we do that hampers you concentrating on these necessary results?” People who successfully managed to get old and entrenched organizations to do the needed new things ask these questions at every single meeting with their associates—and take immediate action on what they hear.
Iraq vs. Grenada
Finally, changing habits and behavior requires changing recognitions and rewards. People in organizations, we have known for a century, tend to act in response for being recognized and rewarded—everything else is preaching. The moment people in an organization are recognized—for instance by being asked to present to their peers what made them successful in obtaining the desired results—they will act to get the recognition. The moment they realize that the organization rewards for the right behavior they will accept it.
The best example: the way the American military services worked together in the recent Iraq campaign. In the invasion of Grenada in 1983 there was no cooperation at all between the services—if there had been the slightest opposition, the invasion would have ended in disaster. The military immediately organized all kinds of conferences, pep sessions, lectures and so on, to preach cooperation. Still, less than a year and a half ago, the Panama invasion almost foundered because the services still did not cooperate.
Only a year later, in Iraq, cooperation worked as no service cooperation ever worked before. The reason: Word got around, I am told, that henceforth the appraisal of an officer’s cooperation with other services—as judged by those other services—would be a material factor in promotion decisions.
[1991]