A strong culture in terms of core elements continues to be an advantage, but strength across all the many elements of the culture is now not only difficult to define but of questionable value. A more appropriate principle might be that the core elements of each subculture must be strong; but the notion of total corporate culture strength ceases to have meaning as the functioning of the organization increasingly depends on all of its different elements being effective in their own local environments. In fact, subculture diversity itself becomes a strength in that it affords different adaptive paths as the environment changes.

In this chapter we have to confront the further question of what happens when with growth and age strong core assumptions of the corporate culture become dysfunctional.

First, the organization may no longer able to grow because it has saturated its markets and/or the industry has excess capacity. Ciba-Geigy faced this issue in its industrial chemicals market, forcing dramatic downsizing.

Second, patents may run out creating new economic conditions for the organization. As Ciba-Geigy’s patents ran out, it discovered for the first time some of its inefficiencies in their production methods, forcing a dramatic cost-cutting program.

Third, the market standardizes on a commodity version of the products, causing all the producers to have to compete on price; the cost of innovation now becomes a major issue, as DEC discovered when the number of customers who were willing to pay for innovative products shrank in relation to the rapid growth of turnkey users.

Fourth, technological innovations can make the products obsolete and the core culture may not value the kinds of adaptive innovations that would be needed to stay viable.

Fifth, new leaders come into the organization who do not share or value the core assumptions on which the organization was built. This can result either from the departure of the key culture carriers and the inability to find replacements with the same values and assumptions, or because the board wants to change the core culture and deliberately brings in outsiders with different values and assumptions.

If the core or more central elements of the culture become dysfunctional, normal or even managed evolution of the kind described in the last chapters becomes irrelevant because at this stage senior leaders are themselves emotionally resistant to accepting the need for change. It takes unusually strong disconfirming forces to shake this emotional resistance and denial. Often it is only outside forces from economic downturns, scandals, legal actions, or board activity that breaks through and starts a change process. What then can be done?

The size of the organization does not matter, but age and developmental history do matter because they determine the strength of the core cultural elements. If an organization has a long history of success with certain assumptions about itself and the environment, it is unlikely to want to challenge or reexamine them. Even if those assumptions are brought to consciousness, the members of the organization are likely to want to hold on to them because they justify the past and are a source of pride and self-esteem. Such assumptions now operate as filters, making it difficult for key managers to understand and/or accept alternative strategies for survival and renewal.

A current example is the as-yet-unclear situation of the U.S. auto industry. It is evident that one of the core assumptions driving General Motors’ culture was financial—one must always maximize the profit margin. Cars such as the Saturn or the electric car that moved toward better gas mileage were abandoned in favor of higher-margin SUVs. No amount of disconfirming data about the success of more fuel-efficient Japanese cars was accepted as requiring a change. Also at the core was the assumption that the only way to build cars was with a tight command-and-control structure. The Saturn experiment showed that a car could be efficiently built on a much more collaborative model, resembling the Scandinavian models of autonomous work groups, but this experiment never migrated to other parts of the organization.

Interestingly, in the 1970s we tested various groups of managers on their commitment to Theory Y (see the discussion of McGregor’s theory in Chapter Four). Managers from U.S. auto companies had some of the lowest scores on this dimension, reflecting high Theory X scores (an assumed lack of faith in human desire to work and to commit to organizational goals). A study of organizational learning in one of the other major car companies showed that a design team organized more collaboratively could speed up the design and cut the costs by a very large amount, yet senior management neither understood the process innovations that the team had adopted nor tried to reproduce this model in other projects.¹

The main point is that, if the disconfirming data challenge core cultural assumptions, those data tend to be ignored, denied, and/or rationalized away. Outside consultants can be brought in to show how the present culture will no longer be viable and to propose clear alternatives. But no matter how clear and persuasive the consultant tries to be, some alternatives are not even understood if they do not fit the core elements, the DNA of the culture. Even if they are understood, they will be denied or rationalized away because they create too much learning anxiety. This seems paradoxical because the disconfirmation produces a lot of survival anxiety. But if core elements of the culture are disconfirmed, the real problem is either the inability to even imagine what some genuinely new way of working might be or the outright rejection of it as undoable or undesirable.

As previously cited, a vivid example in DEC was its inability to develop a product to compete effectively with the IBM PC. All of senior management recognized that DEC should be in the PC market, but they tacitly assumed that the sophisticated user was their prime target. This assumption, in combination with the core assumption that “the market should decide,” led to building three versions of the PC, all of them too elegant, too expensive, and still too complicated to use. The engineers were completely embedded in their traditional assumptions about the nature of computers and the marketplace. They believed they were designing a truly competitive product and were surprised that all three versions failed in the marketplace.

There is no formula or program for this level of culture change. However, by looking at two examples in some detail, one can begin to infer some of the ways in which organizations can and do cope when core cultural assumptions are no longer viable. We will look first at a moderate change in Ciba-Geigy that preserved most of the elements of the culture while changing one critical element in the core and then look at a more drastic change, which destroyed several core elements and the organization itself, the case of DEC.

Making Pharma more efficient fell within the normal process of organizational improvement, but the downsizing of headquarters required the abandonment of a core cultural assumption in the human resources area, namely that C-G was a lifetime employer, totally committed to job security and would, therefore, never have a layoff. The prospect of having to lay people off was especially difficult in the headquarters city, where paternalism and nepotism had been accepted human resource practices.

The situation was defined by leadership as a “turnaround” but the actual three-year program also fits very well the managed change model described in the last chapter. A task force of senior managers functioning as a steering committee and a parallel system decided on twenty-five separate projects that would have to be done to achieve the vision of what the C-G of the future had to be. These projects covered all aspects of improvement of current processes, cost reduction, recombinations of technologies, and downsizing, especially in the chemical sector and in headquarters.

Small groups of senior executives then went to each of the units, explaining in detail what had to be done, and offering resources. At these meetings, the vision of the future ideal state was forcefully communicated and the personal presence of senior executives made it clear that the goals were nonnegotiable. This was to be a serious turnaround. Each project had a manager and linkage to a board member who monitored and oversaw the project. The steering committee met monthly to track progress and intervene where necessary. A three-year timetable was mandated for the changes to occur.

Each project group then had to design its own transformative change process to meet its objectives within the three-year time frame. For example, in a number of divisions it was observed that inefficient production processes had survived because of patent protection. As the patents ran out, production methods had to be drastically redesigned to become cost-competitive. In the pharmaceutical division, a major program in marketing and financial management was launched. Managerial thinking had to move from the assumption that R&D would always guarantee enough new drugs to enable the division to grow, to the assumption that in the future there would be very few new drugs so the emphasis had to shift to more competitive selling and tighter cost controls to protect profit margins. Most of the projects used a managed change process of the kind that was described in the previous chapter.

The task force that had the most difficult challenge was the one that had to confront the issue of lifetime employment and job security. In the chemical division and in the Basel headquarters organization, a major downsizing process had to be implemented immediately. This was accomplished by drawing heavily on other core elements of the culture, especially the principle of “we treat our people very well.” That cultural assumption was rationalized to be even more basic than “we never lay anyone off” and enabled the downsizing to be done in a caring and humane way.

The strong paternalistic culture led to a very sensitive, carefully designed layoff process in which each person was first talked to by the boss and senior management and given a full explanation of what had to be done and why. There would be no “categories” of layoffs or pink slips delivered in the mail. Managers were trained in how to handle the personal conversations so that each person would feel that his or her case was carefully reviewed.

Supplementing this personal explanation, C-G created programs of maximizing the use of early retirements, reduction through attrition wherever possible, generous severance packages, extensive career counseling to help people find new jobs, and, most important, opportunities for transitional consulting or part-time work. One of the senior people in the human resources area was released but was given an opportunity to do a research project for six months on a consulting basis that saved his self-esteem and provided an adequate economic transition.

Changing business practices, reducing costs, rightsizing, and so forth, do not necessarily involve total culture change. Rather, this case illustrates the lesson that one can solve the business problems and change some dysfunctional elements of the core culture by using other core elements of the existing culture to change whatever needs changing. The same cultural dynamics are visible in the case of Alpha Power, where we can see that peripheral elements of the culture were changed without too much culture strain. Becoming environmentally responsible did not challenge the core. On the other hand, becoming a safer organization runs into a core element of the employee/union subculture—“we do not rat on our peers.” Employees will tell each other how to do things safely, but they will not report unsafe practices by a fellow employee to supervisors. When part of the cultural core is a group norm held by a subculture that is integral to the performance of the organization, there is then no alternative but to create programs that involve the subculture in its own change processes toward more safety. I described some of those processes in the previous chapter, and we should recognize that safety will not reach desired levels until the union norms have changed to support employee monitoring of each other’s behavior.

The board typically empowers the new CEO to produce a major turnaround—and explicitly or implicitly states how long he or she has to produce better business results. The extreme version of this process is to bring in a known turnaround manager who promises to bring the company back into some kind of financial health by immediately taking whatever measures are necessary, usually massive firing of senior executives, reorganizing, selling off unprofitable units, breaking the union, merging with another organization, or preparing the organization to be sold.

More measured versions of this process are exemplified by General Electric empowering Jack Welch, IBM bringing in Lou Gerstner, or Kodak selecting George Fisher. As of this writing the U.S. Congress is deciding what kind of leadership to require in the auto industry of the future in exchange for the loans that the industry is requesting. At the minimum the new “czar” of autos should be well acquainted with culture dynamics in an old and dying organization, recognizing how difficult it will be to change some of the core assumptions of the U.S. auto industry.

In the late 1980s and early 1990s, DEC faced an economic crisis of major proportions. For a variety of reasons that have been referred to throughout this book, during the 1980s DEC became slow and inefficient. Competition was stiffer, market windows were narrower, and DEC’s cost structure was out of line with those of its competitors.³ The core cultural emphasis on innovation became less relevant as computers became commodities. The managerial culture was perceived to be too egalitarian and the decision process too slow. The subunits had become too powerful and unwilling to integrate around any kind of central strategy. Ken Olsen’s efforts to focus were overridden by several engineering managers who felt they understood the market better, but they were in conflict with each other on the matter of what to focus on since each had his or her own pet solution to DEC’s difficulties. Conflict over strategic goals and the means to be used to achieve anything were rampant. A number of downsizing efforts were attempted, but they did not, in the board’s estimation, go far enough to make DEC viable and profitable.

In late 1992 Ken Olsen resigned under pressure and the board promoted the vice president of semiconductors, Robert Palmer, to take over as CEO. The choice of Palmer to succeed Ken Olsen appeared to be motivated by bringing in someone who understood DEC, as he had spent part of his career there, but who would be much more disciplined in his approach to fixing DEC’s problems. This change is an example of bringing in a hybrid manager from the subculture of semiconductors, which was built on very different assumptions, and charging him with creating a major turnaround.

If the new turnaround manager sees major barriers in the present culture, it is inevitable that a period of cultural destruction has to take place. Many managers have to evolve new ways of thinking and behaving very rapidly, or they have to be forced out of the organization and be replaced by managers who have different assumptions in the first place. In some instances (perhaps GE is a good example), a strong and charismatic leader can produce change in the existing cadre of executives. But as the case of DEC shows, the existing cadre often clings to the old culture that has made them successful and therefore has to be replaced before the business problems begin to be solved. We should have no illusions, therefore, about the possibility of major cultural transformation without massive human costs. For old cultural assumptions to be destroyed, the organization has to convert or get rid of the culture carriers.

The major changes instituted by Palmer over a period of several years were to centralize decision making, tighten discipline, shed unproductive units, and, most important, get rid of most of the carriers of the old culture. Some were fired, some retired, and many left because they could not work under the new regime. All agreed that the old DEC culture was being destroyed in favor of a more traditional autocratic and disciplined hierarchy. In their place, Palmer brought in a variety of outsiders with different experience, skills, and basic assumptions about how to run an organization. The turnaround produced a smaller and more efficient organization that was then bought by Compaq in 1998 and eventually merged into Hewlett-Packard when it acquired Compaq.

Employees who remained in DEC frequently lamented the destruction of the old culture, and many of them left to start new enterprises that would recapture the old culture. For many, the attachment to the old culture was so strong that they formed an “alumni association,” created a newsletter to stay in touch with each other, and have continued to have regular reunions. Those who went to other companies attempted to institute some of the principles they felt had worked well in DEC. Paradoxically, even though the DEC culture within DEC was largely destroyed, as a set of concepts of how to run a company, that same culture survived among various ex-DEC employees.

The important point to note in this case is that the culture change could not be accomplished with the present set of players at the senior level. They were too embedded in the old way of working since it had led to DEC’s success in the first place. To institute a new way of working, Palmer had to recruit another set of senior-management players. Whether this created a new culture or simply started DEC down a path of more transitions and changes is not clear, but it is obvious that DEC once again became economically viable enough to become an attractive target of acquisition for Compaq.

A second lesson comes from observations of failed turnarounds. The new outside leader must become familiar enough with the old culture to understand just what needs to be changed and what kind of resistance will be encountered. The hybrids as outsiders are in a much better position to figure this out. As I mentioned in the case of Jones Food (Chapter Seven), when severe crises followed the founder’s death and his lieutenant’s retirement, the company attempted to bring in strong outsiders; but the existing culture of this family firm was so strong that the first three failed. Only when the family brought in a person who had been in Jones Food before and who was recruited back after a period of independent success did they find someone who could manage the necessary culture change.

The story of Apple is somewhat similar in that John Sculley and then Gilbert Amelio were evidently not able to bring about some of the changes the company needed, so the board went back to Steve Jobs—who clearly understood the culture, having been one of its founders and architects. Jobs’s success in evolving Apple reflects several cultural themes. First, he went back to what was his first idea for products—“toys for Yuppies”—and extended the product concept to a broader population. Second, he clearly learned important business and managerial lessons outside of Apple in his other ventures, which he could then bring back to Apple to invigorate it.

Welch’s success in GE is undoubtedly related to his having grown up in the company, and Gerstner’s success in IBM is probably related to the fact that he was bringing back some of the marketing values that had so badly eroded with IBM’s growth. Although these cases are often perceived as turnarounds and major culture changes, they are, in fact, more like destruction of a few dysfunctional core elements and revitalizations of other cultural elements that had been eroded and were now needed for the organization to survive.⁴ The level of transformation in turnarounds of this kind has an organizational and financial logic all its own. It is unlikely that one can influence the dynamic very much from the point of view of planned change. If your organization finds itself in enough trouble to seek outside leadership, you must plan for a period of painful human dislocation.

In reviewing the various cases described in this book, it should be clear that only DEC really represents a case of destruction of the cultural core within the organization, and even then the assumptions lived on in ex-DEC members. In all the other cases, some cultural destruction took place but other core assumptions survived and were, in fact, the engine that motivated the changes that were made. Strong cultures die hard, if they die at all.

Change leaders can be thought of as persons who create enough disconfirmation in the organization to arouse motivation to change and who can then organize the processes needed to make the changes. Both things are needed, but they need not be in the same person. Change leadership should therefore have several characteristics if it is to arouse motivation to change and learn:

Once motivation is present, change agents (what I called earlier the “change team”) can proceed with developing various processes to make it happen. Points 4 and 5 above are especially important for change agents because the actual change process to be used must be congruent with the internal and external situation that the organization finds itself in. Too many change programs treat all organizational issues as the same, but we know that culture, like personality, has unique characteristics that must be taken into account if growth and learning are to take place. Just as the therapist has to work with the unique aspects of the client’s personality, so do the change leader and agent have to work with the unique aspects of organizational cultures and subcultures.

Change agents may or may not be the same persons as the change leaders. They do not need to be in positions of formal leadership; in fact, they often work more effectively as catalysts and facilitators rather than overtly as leaders (if there is already some source of motivation present). Their most important role is to implement the various steps described in the Figure 8.1 Map.

Change leaders can articulate new directions, new values, and new visions, but it is usually the change team, functioning as a temporary parallel system, that defines exactly what is required of the organization in terms of new thinking and behavior. The change team, then, must be able to function as process consultants, simultaneously diagnosing and intervening as they work through the stages of change.⁵

In terms of a principle for transformative change, motivation to learn the desired new behavior will only be present if survival anxiety is greater than learning anxiety; but a second principle is that the preferred way to achieve this state is to reduce learning anxiety by providing the learner psychological safety. In examining all the conditions needed to create psychological safety, it becomes clear why transformative change is difficult and time-consuming. Furthermore, if core elements of the culture need to be transformed, planned change processes may not work, leading change leaders to institute more drastic processes such as described in this chapter.

Second, we reviewed how in a planned change process a change team must become a temporary parallel system that manages the entire change process in terms of the stages identified in Figure 8.1. I emphasize that the change goal—the new way of thinking and behaving—must be specified quite concretely in order to determine how the present culture will aid or hinder the change process. The more one can use the culture as an aid, the easier it is to achieve the change. If cultural elements are found to be hindrances, then new change processes have to be designed to deal with them. Sometimes those processes are the drastic ones such as described in this chapter, but one should not automatically assume that every change is a culture change.

If basic assumptions are really to be changed without destroying and rebuilding the organization, transformations require anywhere from five to fifteen years or more. It takes time to construct the parallel system, learn new assumptions, and then design processes that allow the assumptions to be introduced into the original organization. Recall the Procter & Gamble example from Chapter One; it took fifteen years for all of the plants to convert to the new manufacturing system.

If you are the change agent, try not to short-circuit the above steps. The temptation to launch into immediate action and announce a “culture change program” is tremendous, but where culture is involved it is better to go slow initially and make sure you have figured out what the new way of thinking and working is, and how the culture can aid or hinder you before you launch major new initiatives. It is especially important to figure out how the culture can aid you—how you can build on the present culture to accomplish the needed changes.