George & Jones - Organizational Culture and Ethical Behavior

7/30/2019 George & Jones - Organizational Culture and Ethical Behavior

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CHAPTER PAR T 3Organizational Processes

ORGANIZATIONAL CULTUREAND ETHICAL BEHAVIOROVERYIEWWHAT Is ORGANIZATIO.'1.U. CUI.TUltE'!How Is AN OK(;ANllATION'S CULTUKt: TRANSMITrUI TO IT s !\1UIIH:HS?FACTORS SIIAI'IN(; ORGANIZATIONAl. CUI.TUKt:VALUES FROM TilE NATIONAl. CUI.TURt:CREATI] '; ( ; AN ETHICAL CULTURESUMMAR\'OR(;ANIZATION,\L Ih:IIA\'IOR IN ACTION

Learning ObjectivesAfter reading this chapter, you should be able to:

Distinguish between values and norms and discuss how they are the bui lding blocks of organizational culture.Appreciate how a company's culture is transmitted to employees through itsformal socialization practices and through informal Honthe-job" learning.Discuss five main factors that shape organizational culture and explainwhy different organizations have different cultures.Appreciate how differences in national culture affect the culture of organizations within a particular society.Understand the importance of bui lding and maintaining an ethical organizational culture.


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3M " i m ~ to achieve al leaSI 25 percenl of ilsgro"th each year from new productsocveloped by ii, employees in thc previousfive years. To accomplish this I( hasocveloped an oq;ani1ational cuhun: based ,mvalue, and 1l0nllS (lUll stress the need foremployees to be inn,,,"ati,,e and nealive

Opening CaseOPENING CASE HOW TO BUILD A CREATIVE CULTUREHow does 3M's culture affect innovation?

M is a company known worldwide fo r its organizational skills thatpromote creativity and the innovation of new products. 3M aims to

achieve at least 25 percent of its growth each year from new productsdeveloped by its employees in the previous five years. To promote thecreativity of its employees, 3M has developed cultural values and normsthat strongly emphasize the need fo r employees to feelempowered, to experiment, and to take risks to come up withnew product ideas. The company has many famous storiesabout employees who charged ahead and pursued their ownproduct ideas-even when their managers doubted the successof their efforts. Take the case of Scotch tape.!The story of Scotch tape began when Dick Drew, a 3Mscientist, visited an auto body shop in St. Paul, Minnesota.1Twotone cars were popular then, and Drew watched as paint-shopemployees improvised a method to keep one color of paint frombeing over sprayed onto the other using a paint shield made upof a combination of heavy adhesive tape and butcher paper. Asthey pulled their shield off when the paint was dry, however, itoften took the other color paint with it. Employees joked withDrew that it would be a good idea if 3M could develop a productto make their task easier.Dick went back to his boss and explained his idea for a newproduct-a tape with a weaker glue or adhesive, one that wouldnot pull the paint off. His boss was not convinced this was a viableproject, he told him to go back to work on developing an improvedheavy-duty glue as he had been. Drewwent back to his lab butdecided that while he pursued his assigned project, he would alsopursue his new idea. Over time, he began to divert more and moreresources to his project and made repeated attempts to invent aweaker glue. Word of his efforts spread throughout 3M's labs, buthis boss decided to turn a blind eye to his efforts; other people at3M had done the same thing and they had had success. Within two years,Drew perfected his glue and developed "masking" tape. It was an instant

success with paint-shop employees.His boss realized they had a potential winner. Once it hi t the market i tsoon became clear that masking tape had potentially thousands of otherapplications. Drew was now an organizational hero. He was given control ofa major lab and the resources he needed to develop new kinds of tape fo rthese varied uses. In 1930, fo r example, he invented clear cellophane tape;"Scotch" tape became one of 3M's most successful products.3The fact that employees spend their time on projects of their ownchoosing is the source of many of 3M's cultural values and its success. 3M, fo rexample, developed an informal norm that its researchers should spend 15 percent of their time to develop projects of their own choosing. It was this normthat brought about the development of other new products such as Post-Itnotes. To encourage more innovation and risk taking, 3M was careful to


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ORGANIZATIONALCULTURE

The ,


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568 PART 3 ORGANIZATIONAL PROCESSES

EXHIBIT 17.1Terminal andInstrumental Values inan Organization'sCulture

Organiz.;orional Val"".

)------'1'--------1T.. .minal Valu

D. . ired and s tat.. oro",com. .(._g_. ~ i g ~ quality"".llenc.)

JInstru"",,,,aI Values

D.,ir.d mod. , of beha,,;or(. g., bemg hdpfiJl, working h.,dj

TERMINAL VALUESA


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Former Southwest A i r l i l l e ~ CEOHerb Kdkhcr Icm hissecond in command. Coli",,"Barretl. set "ut to dC'vel,,!,terminal and instrumental \'aluesthat would provide low-",)s!.high-(juality airline service to


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and increased employee tumover.t6 Clearly, an organization's culluml values are importantshapers of members' behaviors,17 Shared eulluml values pruvioc a common refereoce pointand smooth intemCiions among organizational members, People who share an organization'svalues may come to idcntify strongly with the organiz-1lTion, and feelings of self,wol1h mayflow from their membership in it.18 Employees o f Southwest Airlines, for ell


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CHAPTER 17 ORGANIZATIONAL CULTURE AND ETHICAL BEHAVIOR 571

sell its products. How docs Dell socialize its new cmployees so they Icam thc vales :lIldsnorms of its culture? In a very specific way: Just like the :mny. Dell has a "boot camp" towhich it sends ils employees for tmining.20 For four weeks employees go to a Dell truining(;enler outside Austin. Texas, where they are educaled about the basil: software Ihat operatcs Dell's products: MS oflkc. WindowsNT, and Visual basic. the main programming language installed on the machines, are among the programs they study. At the end of the bootC:lOlp there is a Irnni projed in which 6 to 9 people arc given a real business problem facingDell. They must arrive at a solution to the problem and thcn present their findings to apancl of instructor-;. During this tmining process ncw cmployees al so learn thc basic val uesand nOnllS that guide Dcll cmployees: they are also taught how to provide excellent customer service. Employees form many common bonds because tltey are all sociahzedtogether and trained in such a focused. concentrated way.2I

After "boot camp." a wed of shadowing is rcquired: Thc new hirc observes an expcrieneed Dell employee performing the tasks that comprise his or her organil.a1ional role.The new hire is able to ask questions :md absorb infommtion quickly


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S72 PART 1 ORGANIZATIONAL PROCESSES

prohlems. Technical languages arc used hy the military. spons teams. in hospitals. and inmany other specialized work contexts.The concept of organizational language encompasses not only spoken language butalso how people dress. the offices Ihey occupy. the company cars they drive. and how theyfonnally addrcss one another. In Microsoft and some othcr organizations casual dress is thcnorm. Indeed. in the last decade many I;lrge companies that used to emphasize conservativebusiness-Iype clothing like Ford and IBM now ellcountge -'business casual"- c10lhing and"dress-down" days where employees can wear whatever Ihey fl"ClmoSI comfortable in.Like socialization pntcticcs. organi7.ational language. ccrcmonies. and stories helppeople "Icam thc ropes" aud the organization's cultural values. As the following OB Todayshows. \Val-Marl uses many of these means to socialize its employees and enhance Itsorgauizmional culture,

OB TodaySam Walton and Wal-Mart's Culture

To cnCOUnll!c \Val-Marl'S cmployccs or "associ"t"," to develop workbehaviors focused on providing 'lual ily cu,tomcr ,crvicc . Waltonestablished ,trong cultural valucs and norms fur his company,

Wal-Mart, headquartered in Bentonville, Arkansas, is the largest retailer in the worldIn 2003, it sold over $250 billion worth of productsn A large part of Wal-Marl's successis due to the nature of the culture that its founder, the late Sam Walton. established forthe company, Walton wanted all his managers and workers to take a hands-on approachto their jobs and be totally committed to Wal-Marl's main goal. which he defined as totalcustomer satisfaction, To motivate his employees, Walton created a culture that gaveemployees at all levels, who are called associates, continuous feedback about their performance and the company's performance.

To involve his associates in the business and encourage them to develop work behaviorsfocused on providing quality customer service, Walton established strong cultural values andnorms for his company,

Some of the norms associates are expected to follow indude the "ten-footattitude." The ten-footattitude encourages associates, in Walton's word,to "promise that w h e n ~ever you come within10 feet of a customer,you will look him in theeye, greet him, and ask

. _ ~ . . . . _ ~ him if you can help him,- - The "sundown rule"states that employeesshould strive to answercustomer requests by

sundown of the day they are made. The Wal-Mart cheer ("Give me aW. give me an A," andso on), is used in all its stores28

The strong customer-oriented values that Walton created are exemplified in the storiesits members tell one another about Wal-Mart's concern for its customers. They indudestories like the one about Sheila, who risked her own safety when she fumped in front of


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CHAPTER 17 ORGANIZATIONAL CULTURE AND ETHICAL BEHAVIOR S73

a car to preyent a little boy from being struck, about Phyllis, who administered CPR to acustomer who had suffered a heart aHack in her store; and about Annette, who gaye upthe Power Ranger she had on layaway for her own son to fuifililhe birthdaywish of a customer's son.t9 The strong Wal-Mart culture helps to control and motiyate employees toachieYe the stringent output and financial targets the company has set for itselPO

A notable way Wal-Mart builds its culture is at its annual stockholders' meeting, anextr


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Factors Shaping Organizational CultureNow thaI you have seen ,,'hal organizmional l:ulture is and how ml.'mocn; learn and becomepan of an organi7,mion's culture. some difficult queSlions can be addressed: Where docsorganizalional culture come from'! Why do differenl companies have differenl eul1ures?Why might a cullure that for many years helps an organization achieve its goals suddenlyharmthc organization?

Organizalional culture is shaped by the illleraction of four main factors: lhc personaland professional eharacterislics of people within lhe organizalion. organiwlional ethics.the lwture of the employmenl relationship. and the design of its organizmional stna:1Ufe(scc Exhibit 17.3). Thcse factors work logether to produce differem cultures in differl.'lllorganizations and cause changes in culture over lime_Characteristics of people Within the OrganizationThe ultinwte sourceof organiwliollal culture is the people who nwke up the organization. [fyou wam 10 know why cullllres differ. look at their memocrs. Organizatiolls A. B. and Cdevelop dislinctly different cultures because they mtmc\, select, and retain people who havedifferem vnlues. personalities. and elhics.35 Recall the allraction-selection-atlrilion modelfrom Chapter 2. Pt"Qple mny be nllmcled to an organization whose values mntch theirs: similarly. an organization seleCls p


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Complilcrs arc nOl just toys asthi, picturc of a powerfulAlienwarc dcslaop gamingCQmpuler ,uggeslS. AI ienwme,which was 'Iequircd by Dell in2C06, cQntinue, to push Ihclimits of high-pcrfonnancecQmpming for gamel' in the organization. One cxample of how Gates's policy has worked to Microsoft's advantage occurredwhen the company started its Internet sen'ice. MSN. The comp111lY believed the popularilYof its Windows platform WQuid allow il to cQnlrol the future development of the Intentet.even though Netscape had introduced a popular bmwser. Two cOiKerned Microsoft pmgranum'l'< working in its Imernet division wrote a memo to top managers arguing thatMicrosoft would end up wilh I/O control over the 11lIemet. givell the pace at which il wasdevelopmg. They also argut'i.l that Netscape's browser would Ix:come the dominant waypeople would access the Interne\. The programlllers argued that to nlfllpete with Netscape.Microsoft should rush to develop its own web browser.

After reading Iheir memo, Gates convened a major organization-wide meetillg. Topmanagers listened while all of the Issues were aired and adnllUed they were wrong. Thecompany then diverted most of its human talent to devclop its oWn bmw>cr as quit'kly aspossihle. Within one year. the first version of Internet Explorer was ready. and Microsoftel'en went so far 1lS 10 gil'e il away free to users. This posed a major challenge for Nelseape.which had been l:harging u.>t:rs for Nelscape Navigator.Successful companie, like Microsoft certainly need a strong set of terminal I'aluescmphasizing innOl'ation and hard work. Howcl'cr. they need to Ix: careful their very success doesn't lead members to Ix:lieve their company will always Ix: Ihe "best" inlhe business, or "invincible:' Some companies have made this mistake. The old IBM Qflhe 1980sIx:lieved its control of the mainframe market made it invilKihlc: J B ~ ' l employees laughedo!Tthe potential threat personal computers posed, The CEO of another dominant computerm1lker at Ihat time. Digital Equipmenl. reportedly commenled that "personal computers arejust toys." Within a few yean;. Digital Equipment was experiencing huge losses.

The "pcople make the place" I'iew of organizational culture explains how an organization del'elops the shared cultuml values that can have such as powerful effect on Ihe ".-orkattitudes and Ix:haviors. The "people make lite place" view also implies the culture of anorganization muSI be managed by the people who contml il \() ensure that it docs not leadto p r o b l e m s . ~ 2 ro r thi, reason. some experts advocate that a company should have. a boardof independent-minded dire


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ORGANIZATIONAL ETHICS1lIe moral ,alue" bel ",f" andrulc' thul e'tabli,h th


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However, while some companies (Iih" Johnson & Johnson and Mcrck) are well known fortheir ethical cultures. many organizations nonetheless ,lct illegally. immorally. and unethic:llly. These organizalions frequenlly do little tu del'elop ethic,ll values fur Iheir employeesto follow.Professional ethics. Profession,ll ethics are the moral values that a group of similarlytrained people develup to control their performance of a task or use their resources.4SPeoplc intcrnalize thc values and norms of their professions just as they do thc values andnorms of Iheir societies. Generally. Ihey follow these norms when deciding how tobehave.49 Some organizations have many types of professionals wurkmg for t h e m ~nurses. lawyers. researchers. doctors. and accountants-whose behavior is governed byprofessional ethics. These ethics Ilclp shape the organizations culture and dcterminc howmembers denl with other people and groups. Medical ethics. for example. control howdoctors and nurses do Iheir jobs and help establish the l:ultun: of the organizations theywork for. Profes,ional ethic,. for example. encourage d(Ktors to act in best intcrests oftheir patients: perfonning unnecessary medical p r ~ K e d u r c s for one's own financial benefit.for example. is considered unethical. Similarly, companies like Merck and Johnson &Johnson. prufessional ethics induce SCIl:ntlsts and tel:hnil:ians to beha\e ethically whenpreparing and presenting the results of thcir research.

Most professional groups have the authority to enforce the ethical standards of thc-irprofession. Doctors and lawyers. for example. can be barred from pnlcticing Iheir profession if they violate professional rules.Individual ethics, Individual cthics are the personal moral values that people usc tostructure their interactions with Illher people. In Illany instances, personal ethics mirrorsocietal ethics and originate in the law. But personal ethics are also the result of anIIldividual"s upbringing. They Illay stem from his or her family. friends. or membership ina churl:h or other sodal organization. Bel:ausc personal ethics influeol:e how a pen;on willact in an organization, an organization's culture is strongly affected by the people who arcin a position to establish its ethical values. As we S ~ I W earlier, the founder of allorganization plays a particularly important role when il comes 10 eSlablishmg the ethicalnorms and value, of the organization.The Employment RelationshipA thi rd factor shaping organizat ional culture is the natu re of the employment relationship acomp,my establishes with its employees via its human resource policies and practices,Rccall frum Chapter 8 our diseussiun of the changing empluyment relationships betwccnorganizations and their employees: Human reSUllfl:e policies. like a l:ompany's hiring. promotion, and layoff policies along with pay and benefits, can influence how hard employeeswill work to achieve the orgnniwtiOll's goals, how allached they will be 10 it. and whetheror not they wiJl buy into its valucs and norms. 50

Whelle\'er p


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Before Bimlxl.lrn:. employees porcha.scd ,hares in their eompnny,rhey merely followed m a n a g e ~ ' orders. Nnw these ,amc cmployeest h i n ~ owners. Tenmwork and innovalion have dramaticallyimpro,cd the aluminum


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company had !\No groups of employees: managers who made the rules and workers who car-ried them oul. Workers rarely made suggestions and generally just obeyed orders. Now. cross-functional teams composed of managers and workers meet regularly to discuss problems andfind nlW ways to improve quality These teams also meet regularly with customers to bettermeet their needs

Because of the incentives provided by the new ESOP. management and workers havedeveloped new working relationships based on teamwork to achieve excellence and highquality. Each team hires its own members and spends considerable time socializing nMemployees in the nM culture of the organization. The new cooperative spirit In the planthas forced managers to relearn their roles They now listen to workers and act as advisersrather than superiors.

So far, changing the company's property rights system has paid off, Both its sales andemployment have doubled, Bimba has expanded to a new, larger facility, and it hasopened facilities in both Europe and Asia, Furthermore, workers have repaid the entireloan they took out to finance the employee stock purchase.s3 In thewords of one worker,the ESOP has led to "an intense change in the way we look at our jobs. "54 It has totallychilnged Bimba's corporate culture and the commitment of its work force,

Organizational StructureAs the Bimba story illustr


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contact betwcen functional specialists in tcams forces those teams (() quickly developshared values and e0l111110n responses to problems.

Whether a company is centralized or deeeniralized also leads to the d e \ ' l ~ l o p l l 1 e n l ofdifferent kinds of cullural valucs. By dcccntralizing amhority and cmpowering employecsan organization can cstablish valucs that encoumgc and reward creativity or innovation. Indoing thi s. an organ iZ..llt ion signaIs them that it"s "okay" to be innovative 111ld do things theirown way-as long as their actions are cOnsi,lent with the good of the o'1;ann:ltion.

Conversely. in some organizations. it is imponant that employees do nm makc dcdsiolls on their own and that their actions be open to the scrutiny of superiors. In cases likethis. centralization can be used to create cultural values that reinforcc obedicnee andaccounlability. For cxample. in nuclear power pl:mls. values that promote stability. predictability. and obedience to lIuthority are deliberately fostered to prevent disastcrs.55'11roUgh norms and rules. employees are taught the imponance of bchaving consistentlyand honestly. and they Icarn that sharing infomlation witll supervisors. especially information about mistakes or errors. is the only acceptable foml of bchavlor. 56

Adaptive Cultures versus Inert CulturesAdaptive cultures arc Ihose whose v,llue, and flOrms help an organization build momentum. grow. and chauge as IK'Cded to ac,hieve its goals and be effceti\"e. Inert cultures arcthose thm lead 10 values and norms that fail to motivate or inspire employees: thcy lead tostagnation and often f:,ilure over timc. What leads to an adaptive or inert culture',>Researchers have found thai organizations with strong adaplivc cultures like Whirlpool.GE. Toyota. Googlc. and IBM invest in their employees. They adopt human rcsourcc practices that demonstratc thcir commitmClll to their members by. for example. emphasizingthe long-term nature of the employment relationship and trying 10 avoid layoffs. Thesecompanies devclop long-term career paths for Iheir employces and invcst hcavily in tminiug and dcvclopmcm tomilkc them more v.. luable to thc organization. In Ihese ways. tcrminal and in,truillental v.. lues penaining to the worth of the people working wilhin thcorganization encourage the del'elopment of supportive work attitudes ,tod behaviors.

In adaptivc cultures. employces oftcn reecive rewards linkcd diredly to thcir performance and to the performance of the cnmp.. ny as a whole. Sometimcs. employee stockowncrship plans arc developed. In an ESOP. workers as a group are allowed to buy asignific:H\l percentage of lheir company's stock. Workers who are owners of the companyhavc an inccntivc to dcvelop skills improving thcir performancc levcls. These cmployccsarc also morc likcly to search anively for way' to improvc quality. cfficicncy. and performance. At Dell. for example_ employees arc able to buy Dell stock at a steep (15 percent)discount and build a sizable st


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affect one ; m o l h e r . ~ 7 Often. a majur reorganizalion is necessary for a cultural change 10occur. as we discuss in Chapler 18. The way Googlc creales aculture Ihal makes il easy 10adapl and change. and which encourages ongoing leaming and crealivily. is discussed inlhe following OB Today.

DB TodayHow Goggle's Founders Created a Groovy Culture

Pietu ....-d are Sergey Brin and Larry P


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technology Even when Google moved into more spacious surroundings at its modernistic"Googleplex" headquarters building, staffers continued to work in shared spaces and soits team atmosphere was perpetuated

Google also designed its building so that staffers are constantly meeting each other inGoogle's funky lobby, in the Google Cafe where everyone eats together, in its stateof-the-art recreational facilities. and in its "snack rooms" equipped with bins packed withcereals, gummi bears, yogurt, and, carrots, and, of course make-your-own cappuccino.They also created many opportunities for employees to gather together at informal eventssuch as a TGIF open meeting and a twice-weekly outdoor roller-hockey game wherestaffers are encouraged to bring down the founders. s9

All this attention to creating what Just might be the "grooviest" company headquarters in the world did not come about by chance. Brin and Page knew that Google's mostimportant strength would be its ability to attract the best software engineers in the worldand motivate them to perform well. Common offices, lobbies, cafes and so on bring allstaffers into close contact with each other, develop collegiality, encourage them to sharetheir new ideas with their colleagues, and encourage them to constantly improve its webbased applications and find new products to grow the company. Google also continuallysearches for new ideas emerging in the INWW, and in 2005 it bought a company thatspedalizes in developing web-based personal word processing and storage. It will use theskills of these newcomers to develop products that will compete directly with Microsoft'sPC-based software.

The freedom Google gives its staffers to pursue new ideas is a clear signal of itsfounders' desire to empower them to be innovative and to work to make Google the software powerhouse in the next decade. Also, to motivate staffers to innovate importantnew software applications, Google's founders reward their achievements by giving themstock in the company, which effectively makes staffers its owners as well. So successfulhave they been in designing Google's culture that in the mid-2000s, alienated by thegrowing bureaucracy at Microsoft, and the lack of opportunity to make real wealth(Microsoft no longer offers stock options but gives employees stock based on performance), Google has been attracting away many of its top software engineers who welcome the challenge of working for the visionary company.Google's founders understand that building and maintaining a strong organizationalculture is a prerequisite for successful, ongoing innovation.60 In August 2004, Gogglewent public and its shares, which were sold at $85 a share, were worth over $100 by theend of the first day of trading and rose to as high of $475 by January 2006. This madeBrin and Page's stake in the company worth billions, and many of its employees are nowmultimillionaires. When Google went public. its founders also created two classes ofstock, an ordinary class, and a special class that gives them the voting rights and power tocontrol the future of their company No outside company can take over Google. Its futureis in their hands and those of its staffers, and what the company will become is somethingWidely debated inside the company and beyond.

Traits of Strong, Adaptive Corporate CulturesSc\'cml s->holars havc allCmplCd to uncover thc common tmits that strong alld adaptive eorpor-HC cultures share and to filld out whether there is a particular set of valucs tlwI dOllllnatcs ad"plivc culturcs that is missing from weak Of incn OIlCS. An c"r1y. but still influential. allcmpt is T. J. PcteTS and R. H. Waterman's account of thc valucs and normschanleteristic of succcssful organiZ,Hions lind their cultures.61 They argue Ihm organizations with ~ I r o n g cultures are chamctcril.ed by three common \'alue sels.First. successful compan ies have v"lues promot ing a bidS fo r (le/io/!. The empha,is ison autonomy and entrepreneurship. and employees are encouraged to take risks-for


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example. to create new products-even though there is no assurance that these productswill be winners. Managers are closely involved in the day-to-day operations of the company .md do nOI simply make slralegie decisions isol.Hed in some Ivory tower. and employees have a "hands-on. value-driven approach:The second set of values stems from the lUuure of /111" OYK(IIliza/;ol1 \' missiOIl. Thecompany must stick with what it docs best and maintain control over its core ~ l c t i v i t i c s .

A company can e;lsily gel sidetracked into pursuing activities outside ils area of expertisejust because they seem to promise a quick rctum, Management should cultivate values sothat a company sticks to its knitting. which means staying with the businesses it knowsbest. A company must also establish close relationships with customers as a way ofHnprovmg its competitive position. After all. who knows more about a company's pcrform;lllce than those who usc its produns or services'! By emphasizing customer-oriented values. organizations arc able to leam customers' needs and improve their ability to developprooucts and seTvices customers desire. All these managemem values are strongly represented in companies profiled in this chapter. such as 3M. Wal-Mmt. ;llld Google: they arealso found in companies like IBM. Dell. and Toyota. which arc sure of their mission andtake constant Sleps to maintain it.

The third set of values bears on Iwlt' to vperlll(' /11t, orXUllbllivlI. A comp,llly shouldtry to establish an organizational design that will moti"ate employees to do their best.Inherem in this set of values is the belief that productivity is obtained through people andthat respc>:t for thc individual is the primary mcans by which a company can aeate th{"right atmosphere for productive behtwior. A simihtr philosophy perv,ldes the culture ofJapanese companies. as we diseuss in the following paragraph.62 Many U.S. companies.such as 3M and Google pay this kind of attention to their employees. An emphasis on{"ntreprcncurship and respc>:t for tltc cmployc{" leads to thc establishmcnt of a strueture thatgives employees the latitude to make decisions and motivates thcm to su>:>:eed. Because asimple struc1ure and a lean staff beSt fit this situatton. the organization should be designcdwith only the number of managers and hier..trchicallevds that arc neccssary to get the jobdonc. The organi7ation should also be sufficicntly deeentrali7cd to permit employccs' participation but centralizcd enough for management to make sure that the >:ompany pursuesits mission and that cul1uralv;llues are closely followed.

The,se three main scts of values arc at the hean of;t strong organi7ational culture. andmanag{"mcnt transmits and maintains them through transformational and ethical leadcrship. Managers need to establish the values and nonns that will help them bring their organizations into the future, Whcn this is accomplished, only those people who lit the valuesare recruited into the organization. and, through training, they bc>:ome a pan of the organization .s culture.

Values From The National CultureThe \';llues ;lnd nOTIllS of a nalion ha\'e (I pTofound imp'lct on Ihe eul1ure of ea>:h andevery organization operating or hcadquartercd within it. Culture. whethcr organizationalor national. is a product of the values and norms that people usc to guide and control their behavior. On a national Ic"el. a eOUll1ry's values and norms detcrminc whalkinds of altitudes and behaviors are acceplable or 'lppropTiale. Members of a parti>:ularnation,tl culture arc instilled with these values as they gro'" lip. Norms and sodal guidelines dictate the way they .should behave toward one another and. often. toward peopleof different cultUTeS.

Recall from Chapter I Ih;lt nat ional cu Iture IS the parti>:ul;lr set of eeonomi>: . pol It ieal.and Slx:ial valucs that exist in a panicular country, U.S. national cuhure, for example. isbased on capitalistic economic values. democratic political valu{"s. and individualistic.wlllpetitive social values-all characterize the way people in the Unitcd StaleS livc andwork, The culture of a U.S. company is distinct from the cultures of Japanese. French. orGerman companies. for example. because thc valucs of these countries differ in signili


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Hofstede's Model of National CultureResear\:hers have spent considerable time and effort idenlifying similarities and differences between the cultural values and norms of different coulllries. A model of nationalculturc den'loped by Gcert Hofstede argues that diffcrences in the values and norms of different countries arc c:tplurcd by five dimensions of cullurc.63

Individualism versus collectivism. The dimension that Hoi&tede called individualismversus \:olIedivism focuse, Oil the values that govern the relatiollship betwL"C1J individual,and groups. [n coulHries whcre individualism prevails. values of individual achievemelll.freedom. and competition are stressed, In eOUll1ries where eollcctivism prevails. values ofgroup harmony. coheSiveness. and consensus arc very strong. and the imporl.lI1\:e ofcooperation and agrcement between individuals is ,tressed. In colle


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organizations. for cxmnplc. admire the cntreprcneurial drh'e of U.S. managers and thcArnl."fiean work ethic but treat their managers and workers in different ways than do U.s.organizalions. French and Germ.m organiwtions are far less concerned with issues ofequity and oppofllmity in their hum:m resource policies. In Pmnce. for example. socialclass still determinl."s the gendl."r, ethnicity. and background of l."mployees who wi II successfully climb the organizational ladd('r. 1I.10f('over. German and French COlllpaniesemploy far fewer foreign nalionals m theIr managemenl mnks Ilwn do U.s. companies. Inthe Unites States, the mosttalentl."d employees are likely to be prumOled regardless of theirnationalorigin.66long-term versus shor t- te rm or ienta tion. The last d imension that Hofstedcidentified concerns whether citizens of a country have a long- or a shorHl."nn orientationtoward life .lJld \\'ork.61 A long-term orientation is likely to be Ihe result of values thatmdude thrift and peThistence, A short-term orientation is likely 10 be the result of valuesthat express a mncern for maintaining personal stahility or happiness and for living in thepresent. Countries with long-term orientations include Japan and Hong Kong. well knownfor their high rate of per c;lpita savings. TIle United States and France, which tend to spendmore ;md save less. have a short-term orientation.

Exhibit 17,5 lists the ways people in ten countrlcs score on Hofstedl."s five dimensionsof national culture.

National CUItUfCS v;lry widely, as do the values and nonns that guide the ways peoplethink and acl. When an organization expands into Foreign countries. it employs citizenswhose values reflect those of the national cu Iture, The fact that national cultu rc is a determinant of organizational culture poses some interesting problems for an organization seeking to manage its global opcmtions.611

EXHIBIT 17.5Culture Dimension Scores for 10 Countries

Achievement Uncertainty long-TermPower Distance Individualism Orientation Avoidance Orientation

United States L H H L LGermany L H H M MJapan M M H H HFrance H H M H LNetherlands L H L M MHong Kong H L H L HIndonesia H L M L LWest Africa H L M M LRussia H M L H LChina H L M M H

H .. top lhim )Nore: M" mede. '"Culw,a' COIl>lraim, in Manage"lCnl 'Theorie':' Aeillkm)' 'i fM",,,,gemmr E.n'Curi,.e. 7 (1993):91 ,


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586 PART 3 ORGANIZATIONAL PROCESS

If di!Terences in vJlues between coull1ries CC differences in Jllitudes Jnd behaviorsbetween workel'j in different subsidiaries, In organi:wtiotl will find it difficult to obtain thebenefils of g l o b ~ l l leJming. Different parts uf Ihe cump:my located III different countriesm


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Many Japaocsc spend their entire ...." O f ~ i n g lives at the s;lmc comlXlny.and historic'ally many Japaocsc companics ha,'C pu,",ucd a poli('Y ofIifctimc cmploymcnt. gnar


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that made Sony's technologies obsolete. Companies like Apple and Nokia came out with theiPod, smart phones, and tablet computers that better-fitted customer needs than Sony's"old-generation" prooucts such as the Walkman. One reason that Sony experienced majorproblems responding to these changes was that its culture had changed with its success. Thetop managers of its many divisions had become used 10 acting as if they had control of a fiefdom and, protected by the Japanese tradition of lifetime employment, they worked to protect their own division's interests, not their company's. This competition had increased Sony'sbureaucracy and slowed its decision making, something that made it much harder for Sonyto take a d ~ a n t a g e of its pipeline of newproduct innovations' At the same time, its researchwas becoming enormously expensive as divisions demanded more and more funds to create

i n n o v a t i ~ e rtW products.Sony's Japanese top managers were at a loss about what to do, sensing this was a

crucial turning point in their company's histolY they turned to agaijin-or a non-Japaneseexecutive to lead their company. Their choice was Sir Howard Stringer. a Welshman, whoheaded Sony's North American operations and had been instrumental in cutting costs andfinding ways to increase the profits of Sony's US, division,

Stringer cannot speak Japanese, but luckily for him many of Sony's top executives do.And, now that he is in command he faces the problem of reducing costs in Japan where,like many Japanese companies. Sony has a policy of lifetime employment. He has made itclear that layoffs will be forthcoming as Sony must reduce its high operating costs, He hasalso made it clear that the politicking going on between Sony's different products groupsmust stop and managers must prioritize new products and only invest in those that havethe highest chances of success, for it must reduce its huge R&D budget. Indeed, he wantsto make engineering, not management, the focus once again at Sony and eliminate thetall, bloated hierarchy that has developed over time-by, for example, downsizing corporate headquarters, In Stringer's own words, the culture or "business of Sony has beenmanagement, not making products. -72 However, he has to accomplish this in Japan,which has a national culture known for its collectivist, long-term orientation, and for itsdistrust of gaijen or foreign values. And these same values operate inside Sony, so Stringerwill have to be hard-headed and push Sony to make the best use of its resources,

Creating an Ethical CultureWc mention earlier that ethics-the moral values, beliefs. and rules that govern the way

o r g a n i z a t i o n ~ and their members should ~ l c t toward one ;mother and people outside theorganizmion-form an irnponant pan of an o r g a n i z a t i o n ' ~ cultural vaJues. In an era whenmost companies' actions arc being more illlensivcly scrutinized by customers. investors. andgovernmcnt agencies. organizMiOllS and their e m p J o y ~ ' C s cannot affonJ to engage in actionsthat will hann the cotnp;my"s reput,nion. Creating an ethic:ll organizationall:ulture has nowbecome a major priority for many comp;mies bel:ause failing to do so can be catastrophic.One of the most imponall1 effects of ethicaJ rules is to rC"gulate and control the pursuitof uobridled self-interest. To understand why self-interest needs to be regulated. considerthe "tragedy of the commons:' The tragedy of the l:om 1110ns holds that it is r,ltioo;ll for people \() maximize their usc of"l:omnx)IJ"land or resources (parks and open range are example);;) because it's free. For example. cattle owncrs will all want to graze their hcnJs on IhC"open rJnge to promote their individual intere>ts.As a result. the land will ahno>t cenainlybe overgrazed. and erosion will render it unusable. The ration


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Ethical values and rules control self-intcrested hehavior1hat might lhremen the collective interests of an organization and socicty in geneml. Ethical valucs establish dcsired cndstales-for ex:ul1ple. equitable or ""good" business practil:es-.md the modes of hehaviurnecded 10 achicvc Ihose end statcs. slll;h as being honest or being fair. Ethical valucs in anorgani7-'1tion's culture also reduce the need for people to always evaluate what is right orwrong. By automatically following an ethical rule. people are also more productivebel:;mse they spend less Ilme and effurt trymg to d(:cide wh


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590 PART 3 ORGANIZATIONAL PROCESSESdirection, it is easy {o unden;tand why une{hical organizational cultures develop. Managers atall levels buy into unethical acts. and {he view thai the endjuSlifies the means filten; lhroughthe ol"j;:m iwtion, II' the ul"j;aniz,uion 's members pu J\ togelher tu disguise their ullCthical actiuns,U1d pmll'


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Eth i c s in Ac t i onCorporate Governance at Walt DisneyIn the early 2000s, the performance of the Walt Disney Co. fell precipitously. By 2003,many analysts were wondering if Michael Eisner, who had been its CEO for the last 18years, was still the right person to run the company Eisner had a hands-on approach torunning the business: he wanted to be involved in every major business decision, and hekept a tight reign on his managers. He was also criticized because, although 60 and due toretire in 2006, he had not laid out a succession plan that indicated which managers wouldassume the top ro les at Disney after he stepped down. Such a plan is important becausemany companies flounder if a nevv CEO has not been groomed to take over the top Job.

In addition, Eisner was criticized for creating a weak, captive board of directors thatwas unwilling to scrutinize and question his business decisions, some of which were majorerrors Over the years, Eisner created a 16-member board of directors in the company, atleast 8 of whom had personal ties to him. This did not serve Disney's stockholders wellbecause Eisner's decisions often reduced the company's performance. For example, Eisnerpushed through the merger of Disney with Capital/ABC and since the acquisition thepoorly performing ABC network has dragged down Disney's stock price. In the meantime,over the 19 years he was CEO, Eisner received more than $800 mill ion in stock optionsfrom the company and enjoyed all the lavish perks-corporate jets, penthouse suites, allexpenses paid trips that most CEOs of large companies receive today.

With its performance falling, Eisner came under increasing criticism for his autocraticmanagement style, his lack of a succession plan for the company, and his creation of aweak board of directors, as well as the fact that that he is still paid vast sums of moneydespite his company's declining performance. Indeed, many analysts began to wonder ifEisner was behaving ethically as CEO, so in 2003 the company reorganized its board ofdirectors. Two new special outside directors were appointed, one of whom chairs twoboard meetings a year that Eisner-who normally chairs these meetings-was not be permitted to attend. The board now had more freedom to assess Eisner's performance.

Many analysts claimed these changes were not enough because the majority of theboard was still beholden to him. In 2004, Roy Disney, Walt Disney's nephew and a majorstockholder, began a campaign to remove Eisner from his position as CEO and he lobbiedboard members for a change in leadership. Although unsuccessful in removing Eisner, inthe fall of 2004 Eisner announced that he would not seek another term as CEO when hiscontract expires in 2006. The board then began an immediate search for Disney's next CEOand in 2005 named Robert Iger, Eisner's second in command and hand-picked successor,to be its next CEO when Eisner stepped down in September 2005, one year early.For a while it appeared likely that Eisner might become Disney's new chairman and soretain substantial control of the company. Once again analysts wondered, is this the ethicalthing to do?Wouldn't its shareholders be better served if Disney had an all-new team at thetop? In any event, in December 2005 Disney announced it was negotiating to buy Pixar, themovie animation studio started by Steve Jobs, CEO of Apple. Eisner and Jobs had had manypersonal run-ins, and Steve Job's election to Disney's board effectively meant that Eisner wasout of Disney for good. Indeed, some analysts started talking about Jobs being named CEOof Disney, and even a possible merger between Disney and Apple, Disney's performanceunder Iger has improved. however, and now that Jobs is on the board it is likely that theboard will actively oversee the performance of top managers and ensure issues such as succession are resolved in ways that support the interests of Disney's shareholders.


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EXHIBIT 17.6Creating an Ethical Culture at MCl/WoridCom

In order to create an ethical culture at the old WorldCom, MCI's new managers took the following steps: Recruited a new CEO who was not at the company during the events at issue, and who brought a

reputation for integrity and forthrightness in his leadership skills Recruited a new president and chief operating off icer from outside the company who has more than25 years of telecom experience Recruited a new chief financial officer, general counsel, and director of internal controls, all of whomcame from outside the company Replaced its entire board of directors who were present at the time the fraud was discovered, therebyremoving 100 percent of the directors who were participants in governance under the regime of theprior CEO Bernard J. Ebbers Recruited new and highly qualified independent directors Consented to the establishment (and continuation) of the Corporate Monitor program, which

represents an unprecedented level of independent oversight 01 management activity Closed the finance and accounting department located in the company's former Clinton, Mississippi,headquarters where most of the fraudulent activities were conducted Hired more than 400 new finance and accounting personnel Retained a new outside auditor and commissioned a complete reaudit of the years 1999-2002 todocument the company's actual performance as best as it can be reconstructed from available recordsand personnel Evaluated all corporate assets for value impairment wrote off all goodwill, and wrote down assetcarrying values for property, plant, and equipment to achieve a realistic balance sheet Initiated a widespread and intensive review led by three new directors to identify wrongdoing

that occurred and those who participated. Also funded a separate thorough investigation by thebankruptcy examiner and responded to his findings concerning wrongful actiVities of differenttypes Terminated dozens of employees, including a number of senior officers, who either participatedin inappropriate activities, who appeared to look the other way in the face 01 indications ofsuspicious activity, or who otherwise acted in a manner inconsistent with necessary standards of

conduct Agreed to abolish use of stock options in favor of restricted stock with full expensing of the value ofequity grants on the company's profit and loss statement Initiated a thorough review of internal controls to strengthen the company's systems and

procedures for capturing and reporting financial data and a widespread program to create a muchstronger system Put in place a new Ethics Pledge program pursuant to which senior officers Including the CEO pledge

to pursue ethics and integrity, compliance programs, and transparency and candor in financialreporting well beyond SEC requirements Established a new Ethics Office Commenced a training program for employees on their responsibilities under the federal securitieslaws, accounting issues that may signal inappropriate behavior or fraud. and ethical issues Consented to the Permanent Injunction Consented to a financial settlement with the SEC under which $500 mil lion in cash and $250 million

in stock will be paid into a trust for victimsSOIl"",: Academy ofManagemem E,erulive: The Thinking Manager', Source. Cop)o',lghl 1993 by Acad. of Mgml. Reproducetl ,,'1m permissionofAcad. of Mgnlc in the formal Telbooio: ,-Ill Cop)'riEht Clc.r.nc


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Finally. just as pressures from tho-;c at the top of Ihe organizmion can help preventunethical behavior. so can pressures from people and groups outside the company.77Government agencIes. l1Idustry councils, regulalory t.odies. and l:OnSUmer watchdoggroups all playa role when il comes 10 making sure corporations follow the rules. In thelast few years in panicular. government rcgulators have very actively prosecuted managersal companies like WorldCom and Enron. WorldColl1 (now renamed MCI) later brought innew top managers who look many of the steps JUSt discussed to rebuild thai organizalion 'sc1hicall:ulture. The steps arc summarized in Exhibil 17.6.78

In sum. there are many sleps that can bc taken to help strengthen managers' andemployees' commitment to behave ethically. When ethienl values are instilled, a strongadaptive l:ulture develops. which. inlum. helps organizations achieve their goals.

SummaryOrganizational culture is an im]Xlrtantmeans through which organizations coordinate andmOlivale the behavior of their members. An organization can shape work altitudes andbehaviors by the way it invests ill and rewards its employees OVCf time and by ils allemptsto encoumge values of excellencc. The chaptcr has made the following main points:I. Organizational culture is the set of shared values. beliefs. and norms Ihat influencethe way employees think. feel. and behave toward each other and toward people outside the organizalion.2. There are Iwo kinds of organizational values: temlinal (a desirctl outcomc) andinstrumental (a desired mOl.Il." of behavior). Itle:lIly. instrumental values hclp thc ol',;anization to nchic\'e its terminal values.

3. Culture is transmilled to nn organizalion's members by means of (a) SOCIalization antiIraining programs and (b) stories. ceremonies. anti I:mguage used by members of theorganization.

4. Organizational culture develops from the inWT3Clion of four factors: tlte personal andprofessional chantcterislics of people within the organizalion. organizationnl ethics,Ihe nalure of Ihe employmenl relationship belween a company and ils employees.and Ihe design of its organizational structure. These factors work together to producedifferent cultures in different organizations and cause changes in culture o\'er time.

5. Different orgamz:ltions have different kinds of cultures oc-cause they anrJCI. selcct.anti rclain dilferent kintls of people. Because an organization's founder is instrumental in initially determining what kind of people get selected. a founder can have a

1 0 n g ~ l a s t i n g effcct on an organizatioll's cuhure.6. Ethics are Ihe moral values. reliefs. and rules that establish the right or appropriate waysin whil'h one person or group shoold inleral:t ,utd deal with another person or group.Organizational ethics are a protluct of socictal. professional. and indi"itlual ethics.

7. nlC nature oftllC employment relationship between a company ,md its employees C,IUSCSlhe dcvelopnl

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George & Jones - Organizational Culture and Ethical Behavior

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