At this stage, culture is the organization’s primary asset, but it is repeatedly tested by being acted out. If it is reinforced, if the organization succeeds, the culture grows stronger. If the organization fails, the founders are likely to be thrown out and their assumptions will come to be challenged and probably abandoned. During the growth phase, if the basic criteria of success are met, the organization will be very resistant to disconfirming forces and will tend to deny their validity or rationalize that they are irrelevant, as will be seen in some of the examples, especially DEC.

The need for a lot of unlearning in a young organization is limited by the success of the founder in selecting employees who already have the beliefs, values, and assumptions that the founder holds. If the founder is clear, only congruent employees are hired. If the founder is not clear at the selection point, some employees will find themselves in cultural conflict with the organization and either will become socialized and acculturated, or will leave the organization. In other words, the young company does not need to be unfrozen because the founders can pre-select their employees or individually socialize them. How this socialization process works is illustrated in the following examples.

Jones was the major ideological force in his company throughout its history and continued to impose his assumptions on the company until his death in his late seventies. He assumed that his primary mission was to supply a high-quality, reliable product to customers in clean, attractive surroundings. His customers’ needs were the primary consideration in all major decisions. There are many stories about how Jones, as a young man operating the corner grocery store with his wife, gave customers credit and thus displayed trust in them. He always took products back if there was the slightest complaint, and he kept his store absolutely spotless to inspire customer confidence in his products. Each of these mandates later became a major policy in his chain of stores and was taught and reinforced by close personal supervision.

Jones believed that only personal example and close supervision would ensure subordinates’ adequate performance. He would show up at his stores unexpectedly, inspect even minor details, and then-by personal example, by stories of how other stores were solving the problems identified, by articulating rules, and by exhortation-“teach” the staff what they should be doing. He often lost his temper and berated subordinates who did not follow the rules or principles that he laid down.

Jones expected his store managers to be highly visible, be very much on top of their own jobs, and supervise closely in the same way he did, reflecting deep assumptions about the nature of good management. These assumptions became a major theme in later years in his concept of “visible management,” the assumption that a “good” manager always had to be around to set an example and teach subordinates the right way to do things.

The founding group in this company consisted essentially of Harold’s three brothers. But one “lieutenant” who was not a family member was recruited early; along with the founder, he became the main culture creator and carrier. Sharing Jones’s basic assumptions about how to run a business, he set up formal systems to ensure that those assumptions became the basis for operating realities. After Jones’s death, this lieutenant continued to articulate the theory of visible management and tried to set a personal example of how to do it by continuing the same close supervisory policies that Jones had used.

One of Jones’s assumptions was that one could win in the marketplace only by being highly innovative and technically on the forefront. He always encouraged his managers to try new approaches, brought in a variety of consultants who advocated new approaches to human resource management, started selection and development programs through assessment centers long before other companies tried this approach, and traveled to conventions and other businesses where new technological innovations were displayed, resulting in his company being one of the first to introduce barcode technology. He was always willing to experiment to improve the business. Jones’s view of truth and reality was that one had to find it wherever one could, and therefore it was important to be open to the environment and never take it for granted that one had all the answers.

If things worked, Jones encouraged their adoption; if they did not, he ordered them dropped. Measuring results and solving problems were for him intensely personal matters, deriving from his theory of visible management. In addition to using a variety of traditional business measures, he always made it a point to visit all his stores personally; if he saw things not to his liking, he corrected them immediately and decisively, even if it meant someone had to go around the authority chain. He trusted only those managers who operated by assumptions similar to his own, and he clearly had favorites to whom he delegated more authority.

Power and authority in this organization remained very centralized, in that everyone knew Jones or his chief lieutenant could-and would-override decisions made by division or unit managers without consultation, and often peremptorily. The ultimate source of power—the voting shares of stock—were owned entirely by Jones and his wife, so that after his death his wife was in total control of the company.

Jones was interested in developing good managers throughout the organization, but he never assumed that sharing ownership through granting stock options would contribute to that process. He paid his key managers very well but did not share ownership, even with those who had been with the company throughout its history. In this area, the assumption was that ownership was strictly a family matter, to the point that he was not even willing to share stock with the man who was his chief lieutenant, close friend, and virtual co builder of the company.

Jones placed several family members in key managerial positions and gave them favored treatment in the form of good developmental jobs that would test them early for ultimate management potential. As the firm diversified, family members were made division heads, even though they often had relatively little management experience. If a family member performed poorly, he would be bolstered by having a good manager introduced under him; if the operation then improved, the relative would likely be given the credit. If things continued badly, the family member would be moved out, although with various face-saving excuses.

My introduction to the company concerned this dynamic. Jones had only daughters and had moved the husband of his oldest daughter into the presidency of his company. This man was a very congenial person but not trained for his general management position, so Jones authorized the creation of a management development program for the top twenty-five people in the organization (the hidden agenda was to teach his son-in-law something about management). Jones’s chief lieutenant brought me in as a consultant and trainer in the program; I was told from the outset that part of the goal was to educate the son-in-law.

Peer relationships among non-family members inevitably became highly politicized. They were officially defined as “competitive,” reflecting Jones’s belief that interpersonal competition was desirable. Winners would be rewarded and losers discarded. However, since family members were in positions of power, one had to know how to stay on the good side of those family members without losing the trust of peers, on whom one was dependent.

Jones wanted open communication and a high level of trust among all members of the organization, but his own assumptions about the role of the family and the correct way to manage were, to a large degree, in conflict with each other. Many members of the organization banded together in a kind of mutual protection society, which developed a culture of its own. They were more loyal to each other than to the company and had a high rate of interaction, which bred assumptions and norms that became to some degree countercultural to the founder’s.

Several things should be noted at this point. By definition, something becomes part of the culture only if it works, in the sense of making the organization successful and reducing the anxiety of the members (including Jones). His assumptions about how things should be done were congruent with the kind of environment in which he operated, so he and the founding group received strong reinforcement for those assumptions. As the company grew and prospered, Jones perceived more and more confirmation of his assumptions and thus felt confident that they were correct. Throughout his lifetime, he steadfastly adhered to those assumptions and did everything in his power to get others to accept them. However, as has been noted, some of the assumptions made non-family managers more anxious, thus leading to the formation of a counterculture.

Jones also learned that he had to share some concepts and assumptions with a great many other people. As the company grew and learned from its own experience, his assumptions gradually had to be modified in some areas. If not, he had to withdraw from active management of those areas. For example, in its diversification efforts, the company bought several production units that would enable it to integrate vertically in certain food and clothing lines where it was economically advantageous to do so. But when Jones learned that he knew relatively little about production, he brought in strong managers and gave them a great deal of autonomy. Some of the production divisions never acquired the culture of the main organization, and the heads of those divisions never enjoyed the status and security that insiders had.

Eventually, the founder also learned somewhat painfully that he did not send the clear and consistent signals he thought he did. Unable to perceive his own conflicts and inconsistencies, he could not understand why some of his best young managers failed to respond to his competitive incentives and even left the company. He thought he was adequately motivating them and could not see that for some of them the political climate, absence of stock options, and arbitrary rewarding of family members made their own career progress too uncertain. Jones was perplexed and angry about much of this, blaming the young managers while clinging to his assumptions and conflicts.

Following his death, the company experienced a long period of cultural turmoil because of the vacuum created by Jones’s absence and the retirement of several other key culture carriers. But the basic philosophies of how to run stores were thoroughly embedded and remained. Various family members continued to run the company, although none of them possessed the business skills that Jones had.

With the retirement of the chief lieutenant, a period of instability set in, marked by the discovery that some of the managers who had been cultivated under Jones were not as strong and capable as had been assumed. None of his children or their spouses was able to take over the business decisively, so an outsider was brought in to run the company. This person predictably failed because he could not adapt to the culture and to the family.

After two more failures with CEOs drawn from other companies, the family turned to a manager who had originally been with Jones Food and subsequently made a fortune elsewhere in real estate enterprises. This manager stabilized the business because he had more credibility by virtue of his prior history and his knowledge of how to handle family members. Under his leadership, some of the original assumptions began to evolve in new directions. Eventually, the family decided to sell the Jones Company, and this manager and one of the cousins started a business of their own, which ended up competing with Jones Food.

One clear lesson from the Jones Food case is that a culture does not survive if the main culture carriers depart and if most members of the organization are to some degree conflicted because of the mixed messages from the leaders during the growth period. Jones Food had a strong culture, but the founder’s own conflicts became embedded in that culture, creating conflict and—ultimately—lack of stability. What should also be noted is that, as a company grows and matures, subcultures and countercultures are inevitable, requiring more standardization, control through systems, and the evolution of new cultural elements dealing with business processes. More will be said about this in the next chapter.

The founding and culture growth process described in the Jones Company is common to most start-ups, even though the technology, market, and personality of the founder may be very different. The DEC story has many similarities with the Jones story. If one reviews the history of IBM, one can also see how strong founder values—in Thomas Watson Sr.’s obsession with sales and marketing—became embedded in IBM’s culture. It was only during Watson Jr.’s tenure that the need for much more technology became evident. But the marketing culture remained and was reinforced by bringing in Gerstner, an outsider, when IBM’s fortunes were waning. It is important, however, to note that he was a marketing expert and helped IBM to get back on track as a marketing company.¹

The emphasis in this early stage is on differentiating oneself from the environment and from other organizations. To this end, the new organization makes its culture explicit, integrates it as much as possible, and teaches it firmly to newcomers (or selects them for reasons of initial compatibility). One also sees in young companies a bias toward certain business functions, which influences the kind of culture that arises. In Jones Food, there was a distinct bias toward retailing and customers, whereas in DEC the bias was clearly toward engineering and manufacturing. Not only was it difficult for DEC’s other functions to acquire status and prestige, but professionals such as marketers were often told by managers who had been with the company from its origin that “marketers never know what they are talking about” and “marketing is not good because it lies to the customer instead of solving his or her problems.” In Ciba-Geigy, the early bias toward science and research remained, even though the company was much older. Since R&D was historically the basis of the company’s success, science was defined as the distinctive competence, even though more and more managers admitted overtly that the future hinged on marketing, tight financial controls, and efficient operations.

In summary, young cultures are strong because:

Proposals to deliberately change the culture, whether from inside or outside, are therefore likely to be totally ignored or resisted. Instead, dominant members or coalitions attempt to preserve and enhance the culture. The only force that might unfreeze such a situation is an external crisis of survival, in the form of a sharp drop in growth rate, loss of sales or profit, a major product failure, or some other event that cannot be ignored.² If such a crisis occurs, a transition to the next stage (being managed by an outsider) may automatically be launched. The crisis may discredit the founder and bring a new senior manager into the picture. If the founding organization itself stays intact, so does the culture.

How, then, does culture evolve in a successful growing organization? Which change processes can be actively managed, from the perspective of either a leader or a consultant? Several change processes can be identified:

Such differences in adaptation reflect important underlying assumptions about the nature of the world and the actual growth experience of the organization. In addition, since the parts of the organization exist in different environments, each part evolves to adapt to its particular environment. As subgroups differentiate and subcultures develop, opportunities for major culture change arise, but in this stage differences are only tolerated and efforts are made to minimize them. These evolutionary processes happen whether you do anything specific or not, but if you become aware of the processes you can aid them by imparting insight that permits planning and guiding the evolutionary process.

In this kind of growth, one would see many mini examples of disconfirmation, defining the new behavior and enforcing it through the embedding mechanisms described. But the overall emphasis is on maintaining the culture rather than changing it.

An example of change through this kind of insight occurred in “Gamma Tech,” an engineering driven company that had always lived by the assumption that marketing was a useless function relative to others. It thrived on its engineering culture yet its survival increasingly depended on effective marketing. In assessing their own culture, senior managers discovered that they shared a very limited and negative definition of marketing, as “just merchandising the products we already have.” With the help of an outside consultant, managers gained the insight that their definition of marketing was biased and limited. They were then able through educating themselves to redefine in their own minds that marketing included building up Gamma Tech’s company image, improving the connection between customers and the product development functions, training the field sales force on the characteristics of the new products, developing a long-range product strategy, and integrating various product lines according to projections of where future customer needs would be.

Gamma Tech’s managers suddenly realized that all of the specific things they needed to do better were, in fact, “marketing.” They began to see in their marketing managers skills they had not observed before, and this permitted them to begin valuing their marketing peers and moving them into more central roles in the management process. From an assumption that marketing was useless, they moved to a belief that marketing might be highly valuable, by redefining in their minds what marketing was. As they paid attention to various marketing functions, success came-and they gradually adopted the assumption that marketing was crucial to their continued existence.

Many of the interventions that have occurred over the years in DEC can be seen as efforts to give the company insight into its own culture. For example, at one annual corporate seminar the company’s poor performance was being discussed with the top eighty managers. A depressive mood overtook them and was finally articulated: “We could do better, if only our president or one of his key lieutenants would decide on a direction and tell us which way to go.”

Those of us familiar with the culture heard this not as a realistic request but as a wish for a magic solution. I was scheduled to give a short presentation on the company’s culture and used the opportunity to raise a question: “Given the history of this company and the kinds of managers and people you are, if Ken Olsen marched in here right now and told everyone in what directions he wanted you to go, do you think you would follow?” There was a long silence and then gradually a few knowing smiles. A more realistic discussion ensued. The group collectively realized that, given their history, they would not accept orders from above anyway—even from Olsen—and that they had better get busy to work out for themselves a new sense of direction. In effect, the group reaffirmed and strengthened its assumptions about individual responsibility and autonomy, but these senior managers also recognized that their wish for marching orders was really a wish for more discipline in the organization—and that this discipline could be achieved among themselves by tighter coordination at their own level. That they could not, in the end, achieve this coordination could also be inferred from other elements of the DEC culture—the empowerment of individuals and the assumption that internal competition is a good thing.

One mechanism is to stimulate cultural evolution by systematically promoting hybrids who grew up in the culture and therefore understood it, but who developed some new beliefs and assumptions that were more congruent with the new behavior that would be required to remain adaptive. Because of their personalities or life experiences, or the subculture in which their careers developed, hybrids are employees or managers who hold assumptions that are in varying degrees different from those at the core and thus can move the organization gradually into new ways of thinking and acting. If such managers are put into key positions, they often elicit a feeling from others on the order of “We don’t like what he or she is doing in the way of changing the place, but at least he or she is one of us.” So not only does the hybrid get more initial acceptance, but he or she is familiar enough with the core culture to know how to use it as a positive force to make changes at the periphery.

For this mechanism to work, some of the company’s most senior leaders must pay attention to disconfirming signals and have insight into what is missing. This implies that they must first become marginal enough in their own organization to be able to perceive their corporate culture accurately. They may obtain such insight through the questions of board members, from consultants, or through educational programs where they meet other leaders. If the leaders then recognize the need for change, they can begin to select for key jobs those members of the existing culture who best represent the new assumptions they want to enhance.

For example, at one stage in its history DEC found itself rapidly losing the ability to coordinate the efforts of large numbers of units. Olsen and other senior managers knew that bringing an outsider into a key position would be rejected, so they attempted to gradually fill several key positions with managers who had grown up in manufacturing and in field service, where discipline and centralization had been the norm. These managers operated within the culture but gradually tried to impose more centralization and discipline. Similarly, once Ciba-Geigy recognized the need to become more marketing-oriented, it began to appoint to senior positions managers who had grown up in the pharmaceutical division, where the importance of marketing had been recognized earlier. Organizations sometimes attempt to achieve such changes by bringing in outsiders, but at this stage the culture is too strong. Outsiders then either reject the culture or the culture rejects them.

But this is not the only kind of subculture that forms. With age, each set of employees and managers at a given level within the organization also shares common experiences that become the basis for mutually held assumptions about how things are and how they should be done. The shared assumptions of employees differ from those of management, especially if workers are unionized—and particularly so if they belong to an international union. First-line supervisors develop shared assumptions based on the nature of their jobs. Staff groups such as engineering, finance, and planning develop their own subcultures based on their professional and occupational backgrounds. Middle managers develop subcultures based on the similarities of their roles. Perhaps most important of all, CEOs and the people they take into their confidence discover that they live in a very complex financial world that only other CEOs really understand, thus creating yet another subculture that must be aligned with the others in the organization.

It is especially crucial to understand the three generic subcultures of operations (the line and sales organization), engineering (the designers of products, processes, and organizational structures) and top management (the CEO and his or her confidants) because they exist in all kinds of organizations in some form and are potentially in conflict with each other.³ Especially engineering and top management have as their primary reference group—the group to which members compare themselves—outside the organization in their respective occupational communities. Thus, for engineers and other organizational designers it is the design profession that dictates many of the values and assumptions they live by. They are likely to share assumptions that perfect designs are free of people and that it is people who make mistakes and should be engineered out of processes as much as possible. The subculture of engineering and design, then, is potentially in conflict with various operator, line, and sales units that depend on people and teamwork for effective performance.

In the case of CEOs, it is their board, the financial markets, the analyst community, and fellow CEOs in the industry that define their environment and thereby create some of the assumptions that CEOs learn to live by. However much they believe that people are important, their job demands primary attention to the financial affairs of the organization; inevitably, people come to be seen as a cost factor. In practice, the CEO subculture is also out of sync with the engineering subculture because of the latter’s desire to build the most elegant system, which is usually too costly. Hence the degree to which these occupational subcultures are aligned with each other is a major determinant of how well the organization as a whole functions.

In your role as a leader you have to understand that each of these subcultures is necessary for the total effectiveness of the organization and, therefore, that they must be aligned with each other. Effective evolution, in this case, requires the nurturing of each of these subcultures. It does not help the organization if each subculture believes the others are dysfunctional. Your job as a culture change agent in a young and growing organization is to develop meetings and events in which enough mutual understanding can arise among them to enable each to flourish and grow. Some of the processes that have to be used in multinational cross-cultural groups apply here as well, and these will be described in greater detail in Chapter Ten.

When DEC was small a hardware engineer could go to the software department and ask whether the supporting software would be ready in six months so that the product could be launched. The software manager would say, “Sure.” The hardware manager would then tell me that he “knew” that this meant nine months because “he is always a bit optimistic but he will get it done, so I can plan accordingly.” As DEC became large and more differentiated, the same scenario would no longer produce the same result. The software manager would again say, “Sure,” but the hardware manager would tell me that he was unsure whether that meant six months, nine months, twelve months, or never, because some other priorities might bump his project. The software manager was now a stranger, embedded in other organizational units, someone with an unknown personality. The hardware manager now had to resort to getting a written commitment so that he could hold the software manager to it. Bureaucracy was born.

As deals have to be negotiated with strangers, trust levels erode, and political processes begin to replace teamwork in pursuit of common goals. The subunits become power centers, and their leaders become barons with an increasingly local agenda. Echelons of supervision, midlevel management, and senior management develop their own norms and force the communications going up and down the hierarchy into certain forms. For example, engineers learn that they have to put their design ideas into cost-benefit language to get middle management to look at proposals, and middle management learns that it has to show the benefits of the project in terms of the particular financial issues the CEO is grappling with at the time.⁴

For as long as the founders or founding families retain ownership and control, they can function as the integrating force and use some of the basic assumptions of the culture as the primary integrating and control mechanisms. Charismatic founder-owners can continue to be the glue by articulating the values and principles they expect organization management to follow. But with continuing success, the impact of size and age makes this form of coordination harder to implement. The inability of founders to let go increases the danger that dysfunctional elements of the culture will be perpetuated and that new managers with adaptively appropriate assumptions and values will not be permitted to gain power. How succession is managed then becomes a major issue for the survival of the organization.

The first-and often most critical-of these processes is the shift from the founder to the next CEO, whether a family member or an outsider. Even if this person is the founder’s son, daughter, or other trusted family member, it is in the nature of founder-entrepreneurs to have difficulty giving up what they have created. In extreme cases, founders may be unconsciously willing even to destroy their organization to prove to the world how indispensable they were. On the other hand, some entrepreneurs whose passion is to keep creating new ventures find it easy to go public and step down or turn successful ventures over to friends and colleagues.

During the transition phase, conflict over which elements of the culture employees like or do not like reflects what they do or do not like about the founder, since most of the culture is likely to be a playing out of the founder’s personality. Battles develop between “conservatives,” who like the founding culture, and “liberals” or “radicals,” who want to change the culture (partly because they want to enhance their own power positions). The danger in this situation is that feelings about the founder are projected onto the culture and, in the effort to displace the leader, much of the culture comes under challenge. If members of the organization forget that the culture is a set of learned solutions that have produced success, comfort, and identity, then they may try to change the very things they value and need.

Often missing in this phase is understanding of what the culture is and what it is doing for the organization, regardless of how it came to be. Succession processes must therefore be designed to enhance those parts of the culture that provide identity, distinctive competence, and protection from anxiety. Such a process can probably be managed only from within, because an outsider could not possibly understand the subtleties of the cultural issues and the emotional relationships between founders and employees.

Preparation for succession is usually psychologically difficult both for the founder and for potential successors because entrepreneurs typically like to maintain a high level of control. They may officially be grooming successors, but unconsciously they may be preventing powerful and competent people from functioning in these roles. Or they may designate successors but prevent them from having enough responsibility to learn how to do the job—what we might call the Prince Albert syndrome, remembering that Queen Victoria did not permit her son many opportunities to practice being king. This pattern is particularly likely to operate with a father-to-son transition as was well illustrated in the history of IBM.⁵

When senior management or the founder confronts the criteria for a successor, cultural issues are forced into the open. It is now clear that much of the culture has become an attribute and property of the organization, even though it may have started out as the property of the founder. If the founder or family is still dominant in the organization, one may expect little culture change but a great deal of effort to clarify, integrate, maintain, and evolve the culture, primarily because it is identified with the founder. Companies that have made successful transitions often differentiate the essential elements of their cultures, the cultural DNA so to speak, from more peripheral elements and attempt to ensure that the core is preserved. This is why hybrids are often the best successors—they maintain the core but evolve the periphery, as was the case of Watson Jr. maintaining IBM’s marketing core but branching out into new areas of technology.

When the founder or family finally relinquishes control, formal management succession provides an opportunity to change the direction of the culture by finding the right kind of successor—a hybrid who represents what is needed for the organization to survive, yet is acceptable because he is “one of us” and therefore is also a conserver of parts of the old culture. In some companies, after several outsiders have failed as CEOs, someone is found who was with the company earlier and therefore perceived by the family to understand the company-even though he or she brought in many new assumptions about how to run the business, as was the case in the Jones company.

If the succession process is not managed effectively, founders and founding families lose power and are eventually replaced by formal means. If ownership becomes public, a board primarily made up of outsiders is created and a professional manager from outside the organization becomes the CEO. As family influence declines and the board goes on appointing CEOs, organizations enter what I think of as their mid-life. As we shall see, the culture issues in mid-life are quite different.

In terms of the change and learning model, the key issue is whether or not the young organization is able to perceive relevant disconfirming information. Because the culture is the glue and the source of identity, commitment to the culture also acts as a filter against disconfirming information. An example of this process in the case of DEC was the inability to perceive that the scientific market that valued DEC’s product innovation was shrinking in relation to the growing personal computer market that wanted simple turnkey commodity products. DEC kept “paying attention to its customers” but was not taking into account that this customer base was growing much more slowly than the other one. Therefore, DEC’s rationalization that “growth would take care of current areas of excess of people and projects” proved to be a fatal blind spot. The consequence was that DEC never launched a culture change project of the sort that would have been needed to change the economics of the firm. Instead, the culture of innovation was so highly valued and so strong that economic criteria were sacrificed.

The transition to mid-life is fraught with cultural issues because succession problems force cultural assumptions out into the open. Group members are likely to confuse elements of the culture with elements of the founder’s personality, and subgroups are likely to form for or against some of what the founder stands for. Cultural issues thus become salient during the transition of succession, but the change mechanisms are likely to be the same as the ones I have described, unless in the transition the company is sold or taken over by completely new management, in which case a new culture formation process begins.

The key issue for culture change leaders is that they must become sufficiently marginal in their own culture to recognize what may be its strengths worth preserving and its maladaptive assumptions requiring change. This demands the ability to perceive disconfirming information and to use it to define new kinds of behavior so that adaptive learning and change processes can be launched. This process is especially difficult for entrepreneurial founders because the early success of their organization is likely to make them believe that their own assumptions are ultimately the correct ones.