Contending that it's possible to gauge the likely impact of an organization'sculture on the success of its future business strategies,the authors explain how to go about . . .
Matching Corporate Cultureand Business Strategy
Howard SchwartzStanley M. Davis
hich are the well-run companies? Are theythe star performers so often referred to in ar-ticles about good management and organiza-tion—GE, GM, IBM, Texas Instruments?Not to mention the Mitsubishis, Sonys, ICIs,Phillipses, and Siemenses of the world?Whatever your list, a discussion of whatmakes these firms tops will involve notionsof their strategic sense, their clear organiza-tion, their management systems, and theirexcellent top people. Even then, a descrip-tion generally ends up with statements aboutsome vague thing called corporate "style" or"culture." Apparently, the well-run corpora-tions of the world have distinctive culturesthat are somehow responsible for their abili-
ty to create, implement, and maintain theirworld leadership positions.
Coca-Cola and Pepsi, Hertz andAvis, Mars and Hershey are direct competi-tors within their industries. No doubt theirstrategies differ significantly. No less doubt-fully, so do their companies' cultures. Allone has to do to get a feel for how the dif-ferent cultures of competing businesses man-ifest themselves is to spend a day visitingeach. Of course there are patterns in thetrivia of variations in dress, jargon, andstyle —but there is something else going onas well. There are characteristic ways ofmaking decisions, relating to bosses, andchoosing people to fill key jobs.
American Management Associations. All rights reserved. 0090-2616/81/0014-0030/$02.00/0
These mundane routines buried deepin companies' cultures (and subcultures) maybe the most accurate reflections oi whythings work the way they do, and of whysome firms succeed with their strategieswhere others fail. And if we can get at theway in which these minutiae determine anorganization's ability to create and to carryout strategy — that is, if we can learn how toevaluate corporate culture — we can alsolearn a great deal about how to manage alarge organization through a period of stra-tegic change.
There are many examples of cor-porate cultures that, though once a source ofstrength, have become major obstacles tosuccess. In 1978, for instance, AT&T an-nounced that it was making a major strategicshift — from a service-oriented telephoneutility to a market-oriented communicationsbusiness. Chairman J.D. deButts went onintracompany TV to announce to everyemployee that "we will become a marketingcompany." To implement this new strategy,AT&T has had to undertake the largest orga-nizational transformation in the history ofU.S. industry. One out of every three of theone million jobs in AT&T will be changed.Despite the major changes in structure, inhuman resources, and in support systems,there is a general consensus both inside andoutside AT&T that its greatest task in mak-ing its strategy succeed will be its ability totransform the AT&T culture. It will prob-ably be a decade before direct judgmentsshould be made as to its success. In themeantime, however, we are concemed withhow to get your hands around an organiza-tion's culture.
One man who tried was WalterSpencer, the former president of Sherwin-Williams Company, For six years Spencertried to turn around a firm that suffered froman overabundance of unprofitable productsthat could not, it seemed, be cut; from anti-
quated plant and equipment that could not bewritten off; and from a deeply entrenchedmanufacturing bias on the part of the boardof directors, who were sitting in the capital-goods-oriented city of Cleveland. Speakingof his attempt to transform Sherwin-Wil-liams from a production-oriented companyto a marketing-oriented one. Spencer said,"When you take a 100-year-old companyand change the culture of the organization,and try to do that in Cleveland's traditionalbusiness setting —well, it takes time. Youjust have to keep hammering away at every-body." After six years oi such "hammeringaway," Spencer resigned, saying the job wasno longer any fun. He had dented but notchanged the culture.
Corporate cultures impose power-ful influences on the behavior of managers.As the examples given above suggest, abusiness that is shifting its strategic directionmay find its culture a source of strength or ofweakness. It is possible to evaluate this elu-sive aspect of organization that appears to beso intimately linked with strategic success orfailure. One can gauge the likely impact anorganization's culture will have on thechances for success of future business strate-gies, and it is the aim of this article to showhow to do so.
STRATEGY AND ORGANIZATION
Most people realize intuitively that cor-porate organizations designed to implementstrategy are a lot more than the boxes andlines on an organization chart. Despite thisawareness, managers often behave as thoughorganizing a business to execute a new stra-tegy is primarily a question of redrawing theboxes. In such a situation they frequentlyask "What is the right structure for dividingand coordinating work?"
Executives are generally aware, 31
Howard M. Schwartz is a vice-president in theCambridge office of Management AnalysisCenter, a general management consulting firm,where he specializes in organizational design,planning, and control systems work. He re-ceived an M.B.A. from the Hansard BusinessSchool and a B.S. in industrial engineeringfrom Lehigh University. In his 15 years as amanagement consultant, Mr. Schwartz has ledmany client engagements with leading corpora-tions in the banking and financial services.petroleum, chemicals, electronics, communica-tions, and paper industries. His work on cor-porate culture reflects his particular interestand experience in advising major corporationson the effective implementation of changes instrategic direction.
32
however, that a corporation's managementsystems, and the skills and experience of itspeople, are as much a part of its organizationas its structure. Organizations cannot func-tion without some degree of regularized, for-mal information flows, policies, procedures,and meetings through which the essentialtasks of the business are carried out. Organi-zations are also built upon the skills, experi-ence, and needs of the people who composethem. It has also become clear that corpora-tions have distinct cultures.
Anthropologist Clyde Kluckhohnhas usefully defined culture as "the set ofhabitual and traditional ways of thinking,feeling, and reacting that are characteristic
of the ways a particular society meets itsproblems at a particular point in time." Acorporation's culture, similarly, is reflectedin the attitudes and values, the managementstyle, and the problem-solving behavior ofits people.
Organizational theorists and ex-ecutives agree that the best answer to thequestion, "How should we organize to pur-sue a particular strategy?" depends on a com-plex set of trade-offs among structure, sys-tems, people, and culture. No organizationwill perform well in a competitive environ-ment unless these four dimensions of organi-zation are internally consistent and fit thestrategy. While a great deal is known aboutmanaging the first three dimensions —struc-ture, systems, and people —there is littlemore than an intuitive sense about how tomanage the fourth dimension of organiza-tion—culture—and we will therefore limitourselves in this article to matching cor-porate culture and business strategy.
WHAT CORPORATE CULTURE IS
(AND ISN'T)
Most executives with whom we have dis-cussed corporate culture are comfortablewith the idea that their companies have sucha dimension. They are unsure, however,about what the word means in a businesscontext and what use they could make of abetter understanding of their own organiza-tion's culture. It was suggested earlier thatan understanding of culture might reduce therisk of failure. Before describing how, it isimportant to clarify what we mean by cul-ture and to illustrate how a company'sculture can be usefully understood.
One way to understand culture isto understand what it is not. Many large cor-porations, for instance, periodically under-
Stanley M. Davis is professor of organizationbehavior, business policy, and internationalbusiness. Boston University. Before taking thatposition, he was on the faculty of ColumbiaUniversity for two years and the HarvardBusiness School for 11 years. He is the authorof several articles and numerous books, in-cluding Matrix (with Paul Lawrence). Addison-Wesley, 1977, Professor Davis is an activebusiness consultant with several large corpora-tions and is a director of Management AnalysisCenter, a faculty-based consulting firm head-quartered in Cambridge, Massachitsetts He iscurrently working on managerial and organiza-tional issues in large service-based corpora-tions. A future issue of OrganizationalDynamics will carry an article explainingsome of his approach.
take chmate surveys to "take the tempera-ture" of their organizations. But climate isnot culture. Climate is a measure of whetherpeople's expectations about what it shouldbe iike to work in an organization are beingmet. Measurements of climate can be veryhelpful in pinpointing the causes of pooremployee motivation, such as unclear orga-nizational goals, dissatisfaction with com-pensation, inadequate advancement oppor-tunities, or biased promotion practices.Action to address these sources of dissatis-faction tends to improve motivation. Im-proved motivation ought to result in im-proved performance, and by and large theevidence suggests that it does.
Culture, on the other hand, is a pat-tern of beliefs and expectations shared by theorganization's members. These beliefs and ex-pectations produce norms that powerfullyshape the behavior of individuals and groupsin the organization. So, while climate mea-sures whether expectations are being met,culture is concerned with the nature of theseexpectations themselves.
For example, Douglas McGregor'searly notions about management style.Theory X and Theory Y, were reflections oftwo distinct views of life leading to two dif-ferent managerial cultures. Theory X wasbased on the belief that employees were in-herently unwilling to work, and this led to aset of attitudes and norms that emphasizedcoercive controls and hierarchy. Theory Yassumed that employees were self-actualiz-ing and produced a culture that emphasizedself-control and collaboration. In either casethe climate could be "good" or "bad," de-pending on whether the employee's ownview of life fit the prevailing managerialculture.
What climate really measures,then, is the fit between the prevailing cultureand the individual values of the employees.If employees have adopted the values of theprevailing culture, the climate is "good." Ifthey have not, the climate is "poor," andmotivation and presumably performancesuffer. If, for example, the culture includesthe belief that individuals should knowwhere they stand, but the performance ap-praisal process does not allow for this,climate and motivation will very likelysuffer.
While climate is often transitory,tactical, and manageable over the relativelyshort term, culture is usually long-term andstrategic. It is very difficult to change. Cul-ture is rooted in deeply held beliefs andvalues in which individuals hold a substan- 33
Figure 1
CULTURE DEVELOPMENT IN AN ORGANIZATION
34
tial investment as the result of some process-ing or analysis of data about organizationallife. (Technically speaking, these beliefs andvalues are manifestations of the culture, notthe culture itself.) These beliefs and values
create situational norms that are evidencedin observable behavior. This behavior thenbecomes the basis for the fonnation ofbeliefs and values out of which norms flow.This closed circuit of culture development.
which is illustrated in Figure 1, accounts formuch of the tenacity that organizationalcultures exhibit, ln most groups, individualswho violate these cultural norms are pres-sured to conform and may be ostracized un-less norms change to accommodate thosewho deviate from them.
Culture Reflects What HasWorked in the Past
Recent research by Richard F. Vancil, whichwas aimed at understanding the behavior ofdecentralized profit-center managers, sug-gests that the primary influence on theirbehavior is top-management behavior,"which, in turn, reflects their Itop manage-ment's] philosophies of management andstyle of leadership." While top-managementtasks may be similar in most decentralizedfirms, their approach to these tasks may bequite different. The choices senior managersmake about their approach to managementtasks, about how they spend their time, andabout the structure of their relationshipswith each other and with their subordinateswill "clearly produce different behavior onthe part of profit center managers in . . . dif-ferent firms." Such choices were found to be"the single most important determinant of aprofit center manager's perception of his [orher] autonomy."
Anthropologist C. S. Ford has de-fined culture as "composed of responseswhich have been accepted because they havemet with success." The choices top managersmake reflect their view of reality —the values,beliefs, and norms that served them and thecompany well during their own rise to power.It is these choices that continually reaffirmthe corporation's culture and reinforce theexpected behavior across the organization.
Many executives have learned thehard way that reaching the top rungs of theirorganizations does not necessarily confer a
license to violate the corporate culture.Studies of small-group behavior tell us thatgroups tend to choose as leaders those whomost embody tbe norms of the group. Oneof the dilemmas of leadership in a changingbusiness environment is the need to violatethe norms on which the leader's selectionwas based. Deep resentment and resistancenearly always result.
The former chairman of a large oilcorporation, for example, led his companythrough a major restructuring to prepare itfor a world of reduced crude oil margins,less-favorable tax treatment, and the possi-bility of forced vertical divestiture. Othersteps he took included a major commitmentto strategic planning, an influx of outsideprofessionals to staff the planning effort, at-tempts to change marketing from its tradi-tional obsession with volume to a focus onprofit contribution, turnover in many keyexecutive posts, and emphasis on diversifica-tion outside the energy field.
To many of his former peers, thisexecutive's behavior was an unfathomableviolation of the cherished beliefs on whichthe corporation's culture was based. Herealized, however, that the effect of thefirm's culture was to place restrictive limitson the strategic options the executive groupwould consider and to seriously hamper thefirm's ability to execute a new strategic direc-tion. Predictably, as soon as he resigned, thecompany's leadership group returned to thetime-tested patterns of action that had servedthem and the company well in the past.
As this oil executive discovered,culture is capable of blunting or significantlyaltering the intended impact of even well-thought-out changes in an organization. Alack of fit between culture and plannedchanges in other aspects of organization mayresult in the failure of a new measure to takehold. All too often the result is, "We triedbut it didn't work the way we thought it 35
Figure 2
CORPORATE CULTURE MATRIX
Tasks
Innovating
Decision making
Communicating
Organizing
Monitoring
Relationships
Companywide Boss-subordinate Peer
Appraising and rewarding
Interdepartment
36
would." Something has to give. In this case,either the culture is changed to fit the strate-gy or the strategy is changed to fit theculture.
MEASURING CULTURAL RISK
Most attempts to define organizationalculture leave managers who have tried it at aloss. The usual product is a list of eight orten phrases describing the informal rules thatgovern the interaction of management teammembers. This may appear useful until anattempt is made to judge from the listwhether a proposed strategy will find thatthe culture is amenable to its execution.
Such efforts have been disappoint-ing because managers have had no methodfor thinking through the relationship be-tween culture and the critical success factorson which strategy is contingent. The way tofathom this relationship is to recognize thatthe four components of an organization —
structure, systems, people, and culture —determine important managerial behavior.They influence the way in which major man-agement tasks are carried out and criticalmanagement relationships formed.
An organization's culture can alsobe described by its management in terms ofthe way their tasks are typically handled inthe context of these key relationships (seeFigure 2). Then, once culture and the otherorganizational dimensions have been definedin similar terms, their compatibility can besystematically assessed.
In figure 2, each of the lines is tobe filled in to describe how a particulartask is handled in the context of a particularrelationship. The table serves as a checklistand a way to spot interaction between thecultural characteristics of each level of rela-tionship and between the various managerialtasks. The richness of the analysis is par-ticularly useful for identifying the underly-ing patterns that must be understood in anyattempt to change aspects of the culture or in
seeking the means to manage around it.This framework is helpful in
assigning meaning to the anecdotes in whichmuch of the data about organizationalnorms are stored. We have also found ituseful to help interpret what we see in man-agement meetings and to analyze records ofhow executives and managers spend theirtime. As is true when any management toolis used for the first time, internal support ser-vices and/or external consultants are oftenhelpful.
Figure 3 is a simplified presenta-' tion of the results of a cultural analysis.^Adding across the rows of the table in Figure2 will provide a composite portrait of howthe organization tends to handle particularkinds of tasks. Adding down the columnswill portray the way in which each type ofrelationship is typically structured. For easeof communication, we have displayed onlythe results of the rows and the columns, notthe material in each cell.
The degree of control that man-agers have over culture is very limited incomparison with the degree of control theyhave over structure, systems, and people'sskills. Indeed, most of the risk surroundingorganizational shifts arises from the relativeimmutability of the organization's culture.Because an organization's current culture isrelatively fixed, it is most useful for amanager who wants to effect a strategicchange to ask: How compatible with theexisting culture are the other organizationalelements —structure, systems, and people —through which a shift in strategic direction isto be implemented?
It is then possible to highlight thosetask/relationship areas where major prob-lems exist. If these problems involve task re-lationship areas that would be critical to thesuccess of the new strategy, they representsources of cultural risk that must commandmajor management attention.
DOES THE CULTURE FIT
THE STRATEGY?
To illustrate how cultural risks can be identi-fied and managed in an organization, it isuseful to look at the strategy and culture ofthe international banking division of a majormoney center bank. (This example was de-veloped as a composite of the strategies andcultures of several such banks.) The interna-tional division has developed a strategy togrow its off-shore correspondent bankingbusiness. Many months were spent in creat-ing a sound, market-based plan.
In the arcane world of internationalcorrespondent banking, profits are earnedby U.S. multinational banks through the col-lection and issuance of letters of credit, for-eign exchange trading, loans and loan par-ticipations, and other banking services pro-vided to foreign banks. Income is taken asfees, interest payments, and as spreads earnedon deposit balances.
To succeed in this business, the ser-vices of numerous foreign branches must becarefully coordinated with those in NewYork, Chicago, London, and other globalmoney centers. Operational support formoney transfer and other services must be ofhigh quality. Response time to customer in-quiries must be short. A high level of callingofficer quality and customer contact is neededto add value to what is otherwise a com-modity-like service. It is also important tohold costs to a minimum.
Implementation of a new strategicplan in the international division postulatedthese eight major changes:
Structure
1. Dedicate an organization to the foreigncorrespondent banking market. (Previouslythis market had been managed by each geo-graphic area.) 37
Figure 3
SUMMARY OF CULTURAL RISK ASSESSMENT
(international banking division)
Relationships
Companywide
Boss-subordinate
Peer
Interdepartment
Culture Summary
Preserve your autonomy.Allow area managers to run the business as long as they meet the profit
budget.
Avoid confrontations.Smooth over disagreements.Support the boss.
Guard information; it is power.Be a gentleman or lady.
Protect your department's bottom line.Form alliances around specific issues.Cuard your turf.
Tasks
Innovating
Decision making
Communicating
Organizing
Monitoring
Appraising and rewarding
Culture Summary
Consider it risky.Be a quick second.
Handle each deal on its own merits.Gain consensus.Require many sign-offs.Involve the right people.Seize the opportunity.
Withhold information to control adversaries.Avoid confrontations.Be a gentleman or lady.
Centralize power.Be autocratic.
Meet short-term profit goals.
Reward the faithful.Choose the best bankers as managersSeek safe jobs.
38
2. Establish a matrix structure between thenew line of business organization andthe geographic areas.3. Place predominant decision-ma king au-thority with key correspondent banking per-sonnel rather than leaving it with geographicmanagers.4. Use an intergroup team (both correspon-dent bankers at headquarters and local of-fices in the field) to improve internationalmoney transfer.
Systems
5. Coordinate closely with other bankoperations units.6. Develop a management information sys-tem to measure account profitability.
People
7. Increase continuity in client relationships.8. Attract superior personnel from withinthe bank to this new line of business organi-zation.
In any industry or company that isimplementing major strategic shifts, successdepends on successfully combining the cul-ture with changes in organizational struc-ture, management systems, and people toproduce desired behavior. Where changes inany of these three aspects of organization areaimed at behavior that is crucial to success,the risk that performance will suffer in-creases if the culture rejects or alters their im-pact. Can the proposed strategy be success-fully implemented in the international divi-sion culture? What are the cultural risks?What is their source?
Figure 3 is a summary of the cultureof the international banking division of ourcomposite money center bank. It was actual-ly developed through a series of individualand small group interviews in several suchbanks. Executives and managers were askedto describe the survival rules (that is, "the
way the game is played") as if they werecoaching a new member of the organization.The result was a collection of simply statedimperatives that are the norms implicitly ac-cepted by the group. These statements weresummarized into patterns that represent theprincipal shared expectations about be-havior, and the summaries were fed back tosmall groups of managers to develop agree-ment among them on definitions of the cen-tral norms in the culture of the internationaldivision.
The categories used, which reflectthe language and meanings within the divi-sion, were chosen to help the managersorganize their impressions. Relationshipswere defined from each manager's point ofview and included those between bosses,subordinates, and peers within the division;between the international banking divisionand other banking divisions, such as domes-tic corporate banking; and with the bank'stop management.
The resulting summary of the inter-national banking division culture character-ized individual area managers as feudalbarons. Each had been in place from five toseven years. As long as their profit contribu-tion goals were met, they operated withalmost complete autonomy. To preservethat autonomy, their concern for short-termperformance was paramount. Planning anddecision making were undisciplined, ex-cessively personalized, and focused on eachindividual deal. Subordinates were highlyaverse to taking risks. So many people wereinvolved in signing off on a loan decisionthat it was difficult to hold anyone truly ac-countable for results.
There was, furthermore, a veneerof mannerliness and colleagueship that inhi-bited frank and honest confrontations toresolve conflicts in the bank's best interest.Information, jealously guarded, was used tomanipulate and control adversaries. Political 39
intrigues abounded, with advancement oftengoing to people most loyal to immediatesupervisors. As a result of these culturalaspects of our composite division, innova-tion was risky and received little support.Anything the area manager decided to ad-dress was quickly picked up by subordi-nates. Opportunism was more importantthan strategy. Not surprisingly, the organi-zation very quickly fell into second placebehind more innovative, effective com-petitors.
The international division's culturedescribed in this analysis appears on the sur-face to be an obstacle to the successful im-plementation of the eight-point correspon-dent banking program. But it is equallyunrealistic either to forge ahead; to launch adifficult, expensive, and time-consuming ef-fort to change the culture; or to abandon thestrategy as unworkable. What is needed is acareful analysis to determine the degree andsource of cultural risk involved. Then policymakers can make decisions about which spe-cific aspects of culture might be changed andhow the strategy might be modified to in-crease the chances of success.
strategy? How compatible is each approachwith the division's current culture?
Significant risks result from organi-zational approaches that are highly impor-tant to the success of the proposed strategybut not compatible with the existing culture.Each organizational approach under consid-eration was therefore reviewed. The resultssuggested where the implementation planshould be changed to manage around theculture, or where efforts to change theculture might be necessary. There are timeswhen it is better to manage around the cul-ture than to attempt to change it, and thereare times when the strategy itself should bemodified or abandoned.
Figure 4 shows management'sjudgments about the cultural risks involvedin implementing the strategic plan. The pro-posed matrix organization and the attractionof outstanding personnel were judged to bethe most troublesome aspects of the plan.Each was found to be particularly importantto the success of the growth strategy objec-tives, yet each was highly incompatible withthe current culture of the banking group.
CULTURAL RISK ASSESSMENT
Each of the eight organizational approachesoutlined in the international division's imple-mentation plan is aimed at influencing thetasks and relationships of managers, creditofficers, and bank operations personnel. Ap-proaches that run counter to the culturalnorms of the international banking divisionwill encounter resistance. Others, more com-patible with the culture, will be more readilyaccepted. Some of the behavior sought isparticularly crucial to the success of thestrategy. The degree of cultural risk, there-fore, depends on the answers to these twoquestions: How important is each orgar\iza-
40 tional approach to the success of the
IMPORTANCE TO STRATEGY
The importance of each organizational ap-proach to strategy is relatively easy to assessif the strategy itself has been well thoughtthrough. An organizational approach, suchas dedicating an organization to the offshorecorrespondent banking market, is importantto strategy if the intended behavior affects acritical success factor. In this case it is dif-ficult to see how a key competitive edge (thatis, closer coordination between foreignbranches and domestic headquarters) couldotherwise be achieved.
The proposed matrix structure isaimed at achieving a balance between theresource claims of the correspondent bank-ing line of business and the other corporate
Figure 4
ASSESSING CULTURAL RISK
Importance to StrategyHigh
Medium
Low
Account-profitabilitymeasurement
Money-transfertask team
Dedicatedorganization
Client-relationshipcontinuity
Operationalcoordination
Superiorpersonnel
Matrixstructure
Decisionauthority
High MediumLevel of Culture Compatibility
Low
Unacceptable riskManageable risk i INegligible risk I I
and personal banking businesses the bankoperates in each area. It is essential to thebank's long-term performance that thesetrade-offs be made with the bank's total in-terests in mind. Top people must be re-cruited to gain the credibility necessary towin the cooperation required from other de-partments in the bank.
In assessing the importance of eachorganizational approach to strategy, wehave found it useful to ask:
1. What specific behavior is the or-ganizational approach designed to encour-age? (How will key management tasks be af-fected? How will important relationships beaffected?)
2. How is this behavior linked tocritical success factors? (What specific cus-tomer needs or requirements is the behaviorintended to satisfy? What competitive ad-vantage will be gained in the marketplace?What impact will such behavior have on 41
costs? What impact will this behavior haveon such external factors as government, reg-ulatory agencies, the financial community,public opinion, prospective employees?) Thediscipline of this approach forces plannersand executives to think hard about the rela-tionship between a business plan and theorganization designed to carry out that plan.
Cultural Compatibility
The planned matrix structure and the attrac-tion of top people to the correspondentbanking business were both judged to havelow compatibility with the internationaldivision culture. The lack of open resolutionof conflict apparent in the culture, combinedwith the division's customary deal-orienteddecision making and the subjectivity withwhich the reward system operated, made thesuccess of the matrix structure unlikely with-out major cultural change.
Attracting top people to staff thematrix was a key success factor. In this cul-ture, advancement by association ratherthan by performance had been the rule.Status and prestige were conferred on thosewho managed the largest corporate clientrelationships. Correspondent banking hasnever been a place to go to get ahead. Turn-arounds more often failed than succeeded. Insuch an environment, what was the likeli-hood that top talent could be attracted intomajor jobs to turn around an internationalcorrespondent banking business?
To determine the plan's compatibil-ity with the culture, we asked: How muchchange is involved in key tasks and relation-ships? How adaptable is the culture? Howskilled is the management?
In this example, the amount ofchange envisioned seemed unrealistic giventhe current culture. Perhaps if the culturevalued adaptability, as in some high-tech-
42 nology firms where organization is con-
tinuously forming and reforming, suchchange could be accommodated. In any case,strong leadership, skilled at managing acomplex organization through change, wouldbe necessary. In the bank's case, both adap-tability and leadership experienced at man-aging change were lacking.
The case of the international bank-ing division is not unusual. Many months ofstudy and hundreds of thousands of dollarsin consulting fees were spent in devising atightly woven, well-documented strategythat would be responsive to customer needs,and in making good use of the bank's com-petitive strengths in a very attractive mar-ket. The organization plan fit the strategy,but it did not fit the culture. For that reasonit was almost certain to fail, unless adjust-ments—either to strategy or to culture —were made.
It is not difficult to see why theproblem faced by the bank is so common toother firms and industries. In many in-dustries and in many companies, organiza-tional cultures do not value adaptability.Most executives and managers are not par-ticularly skilled or experienced at managingcomplex change. The cultural risks may besignificant even where the changes contem-plated do not represent an overwhelmingchallenge to the existing culture. A culturethat values the status quo over adaptability,as most do, and that is led by executives andmanagers who have limited experience withstrategic change, may find even modestchange deceptively difficult.
CULTURAL RISK CAN BE MANAGED
The case of the international banking divi-sion illustrated how a cultural risk analysiscan help management pinpoint where theimplementation of a proposed strategy islikely to encounter serious cultural difficul-
ties. One or more of the organizational ap-proaches planned may fall into the unaccep-table risk zone shown in Figure 4. If so, theoptions available to reduce the risks to man-ageable proportions should be reviewed.Anything that makes the implementationplan more compatible with the culture, orreduces the strategic significance of thebehavior sought, tends to reduce culturalrisk. Depending on the strategy chosen, thechoices open include the following; (1) Ig-nore the culture; (2) manage around the cul-ture by changing the implementation plan;(3) try to change the culture to fit the stra-tegy; and (4) change the strategy to fit theculture, perhaps by reducing performanceexpectations.
Can the impact of a company's cul-ture be safely ignored? The position taken topreserve established ways of doing businessis, nearly always, to maintain the status quo.We have argued that culture can seldom beignored when making informed managementdecisions.
Should ways be sought to managearound the culture? In certain circumstances,yes. Consider, for example, a multibillion-dollar industry leader facing several majorthreats to its record of outstanding growthand profitability. A study is launched toconsider restructuring around major mar-kets. After formally assessing the culturalrisks of such a move, the proposal is rejectedas too radical and too inconsistent with thecompany's functional culture to warrant therisk. As a positive alternative, a major in-crease in planning and coordination person-nel is begun.
To further illustrate the action im-plications of managing around a firm's cul-ture. Figure 5 outlines four typical strategiesthat companies might pursue and the "right"organizational approaches to implementthem. The third column summarizes a num-ber of central aspects of the cultures of each
of four companies. In each case none of the"right" organizational approaches is com-patible with the company's culture. In thefourth column alternative organizational ap-proaches that are more compatible with itsculture are suggested to accomplish the sameends for each firm.
Managers familiar with the situa-tion of each case, of course, are best equippedto determine the most appropriate options.Generally speaking, organization is aimed atachieving an appropriate degree of speciali-zation, coordination, and motivation. Alimited number of devices are available toachieve each objective, but in each case thereis likely to be more flexibility than we oftenallow ourselves to see. Thinking of an orga-nization as four components — structure,systems, people, and culture —helps keep thefocus on the results sought rather than on themeans chosen to get there. It is thus possiblefor corporations to evolve unique ap-proaches to management processes. Theymeet competitive challenges by finding moreculturally compatible ways to implementtheir strategies.
Should an attempt be made tochange the culture to fit the strategy? Al-though extremely difficult to accomplish,culture can, and in some instances must, bechanged. However, this is a lengthy processrequiring considerable resources, and shouldnot be entered into lightly. There are threeprerequisites for changing a culture. First ofall, the strategy and all its elements must beexplicitly stated. Second, the current culturemust be analyzed and made tangible. Final-ly, the strategy must be reviewed in the con-text of the culture to determine where therisks are.
An organization's culture is best al-tered by gradually reducing the perceiveddifferences between current norms and thenew behavior, increasing the value that theculture places on adaptability, and enhanc- 43
Figure 5
How TO MANAGE AROUND COMPANY CULTURE
Company A
Company B
Company C
Company D
Strategy
Diversify productand market.
Focus marketingon most profit-able segments.
Extend technol-ogy to newmarkets.
Withdraw gradu-ally fromdecliningmarket andmaximize cashthrow-off s.
ing the ability'of the managers involved toeffect the desired change. There are severalinterrelated management techniques utilizedin changing the culture. However, all stepsmust be prefaced by strong top leadershipcreating the pressure for change coupledwith new top-management behavior thatsets the example. It is also necessary to havea united front at the top for the sake of send-ing consistent messages to other managers.
The pivotal word is commitment — the com-mitment to initiate the cultural change andthe staying power to see it through.
Managers cannot be expected tochange the manner in which they approachtheir tasks and relationships unless they arefully aware of the behavior required to getthings done in the new culture, as well as toenhance their development and advance-ment in the firm. In short, they must know
how to behave and be rewarded for behav-ing properly. It may be stating the obviousto say that the culture change should becoordinated with other planned internalchanges in management systems and organi-zation structure. The result will be mutualand positive reinforcement of the overallstrategic change.
The company's management infor-mation and compensation systems are valu-able tools in effecting change, particularlywhen used in conjunction with an intensivemanagement education program. The latterboth stimulates the managers to change andgives them the tools to facilitate the changein culture. It is also useful to conduct pilotprograms for implementing key areas of thenew strategy under controlled conditions inan effort to create an environment of successand enhance the acceptance of the newculture.
In all these activities, it is impor-tant to set priorities that focus on issues thatare strategically significant, while concen-trating on those elements of the culturewhere change is important to success. Infact, it may not be desirable to totallychange the culture —only those parts of itthat demonstrate high cultural risk.
Should strategy be changed to onethat is more compatible with the existing cul-ture? A good example of this occurs whentwo organizations with distinctly differentcultures merge. The results may fall far shortof expectations. The Rockwell-NorthAmerican merger in 1968 was sought byboth firms for its synergistic potential. Rock-well, looking for new technologies and newproducts for commercial markets, saw NorthAmerican as a place where "scientific long-hairs" threw away ideas every day that couldbe useful to Rockwell. North American, inturn, was attracted to Rockwell's commer-cial manufacturing and marketing muscle.
Four years after the merger, some
markets failed to develop as expected, andthere were also problems in bridging the twocultures. As then-CEO Robert Anderson la-mented, the aerospace people weren't used tocommercial problems. "We kept beatingthem on the head to diversify, but every timethey'd try it, they'd spend a lot of money onsomething that, when all is said and done,there was no market for, or they overdesignedfor the market." The depth of the cultureproblem was foreshadowed by North Ameri-can President John Atwood, who saw op-portunity for improvement but felt that noneof it would do any good unless they con-tinued their basic line of business: aerospaceengineering. Rockwell's company culturelooked at the world as a rough-and-tumbleplace where profit margins dominate deci-sion making. North American's environ-ment was more noble. Some 60 well-paidPh.D.s, for example, spent only 20 percentof their time on company business and werefree to devote the rest as they chose to basicresearch. This was not compatible withRockwell's obsession about controlling costsand margins.
Over a decade has passed since themerger, and Rockwell continues to haveproblems with its strategy of capitalizing onNorth American's scientific strengths todevelop important new commercial busi-nesses. Put simply, the poor cultural fit ofthese two firms has restricted their ability toimplement the most desirable strategy forthe combined firms.
A strategy in serious cultural trou-ble is likely to require some combination ofthe three types of actions— that is, managearound the culture, change the culture, andmodify the strategy —to bring cultural riskinto the manageable zone. Any business de-cision involves a risk/reward trade-off. Cul-tural risk analysis is a means to clarify orga-nizational risks that frequently go unmanagedand result in unanticipated problems. 45
A Top-Management Perspective
We have discussed the management of cul-tural risk from the viewpoint of the generalmanager of a single business unit. The man-ager of a portfolio of businesses, such as agroup executive in charge of a number ofbusinesses or the chief executive officermanaging an entire corporation through aperiod of strategic redirection, can also use acultural risk analysis to identify priorities forfuture change. These executives need toknow:
• How much cultural risk is therein my portfolio of businesses, each with itsown strategy and approach to implementa-tion?
• How is this risk spread across mybusinesses?
• What are the specific sources ofcultural risk, and do any patterns emergeacross my portfolio?
• If too many important businessunits are at significant cultural risk, is thetotal corporate strategy endangered?
To answer these questions, a groupexecutive or CEO must know how manybusiness units in the group or corporationare faced with unacceptable cultural risk.The source of such risk anywhere within thecorporation must be understood; so must thepotential impact on corporate performance.
So far, corporate culture has beendiscussed in a post-strategy-formulation con-text. However, it is the perceptive managerwho elects to address the issue of culturebefore it becomes a barrier to making stra-tegy happen. There are several areas inwhich cultural analysis at the front-end canpay dividends later.
• Formulating strategy. Strategiesare built on management's assumptionsabout many external factors. But a corpora-tion's culture filters top management's per-
46 spective, often limiting the strategic options
they are prepared to consider seriously.Defining the central values of a company'sculture can remove old taboos that have un-necessarily constrained past strategic deci-sion making.
• Competitive analysis. As cultureconditions the direction of a company'sstrategic choices, a competitor's own cultureconditions its strategic decisions and theeffectiveness of their implementation. Under-standing a competitor's corporate culturecan provide useful clues to how that firmwill behave in the competitive environment.
• Managing cultural formation.Rapidly growing companies, such as high-technology firms, often find that the idealsand values of the founding group or indi-vidual are lost as the culture becomes institu-tionalized through formalized organizationalstructures, reporting systems, and controls.Managing the process of cultural formationin relationship to the more tangible aspectsof organization can help preserve theoriginal driving force of the company.
• Merger planning. The failure tosuccessfully integrate the disparate culturesof merging companies, as in the previouslycited North American-Rockwell example, isoften the cause of considerable problems inturnover and productivity. Early definitionof culture in both companies and the identifi-cation of cultural compatibility and culturalrisk facilitate a smoother transitional periodand the realization of the desired synergy.
• Installing a planning system. Ex-perience demonstrates that there is a longlead time (often four to five years) in achiev-ing good results from a formal planningsystem. One reason is the often dramaticchange in how managers are required to ap-proach their tasks and relationships. Thischange is frequently very stressful and,therefore, a natural inhibiting factor. Consid-ering culture's role in planning can shortenthe installation process to two or three years.
How TO PROCEED
It has been clearly demonstrated that everycorporation has a culture (which often in-cludes several subcultures) that exertspowerful influences on the behavior ofmanagers. For better or worse, a corporateculture has a major impact on a company'sability to carry out objectives and plans,especially when a company is shifting itsstrategic direction. Well-run corporationshave distinctive cultures that are somehowresponsible for their ability to create, imple-ment, and maintain their leadership posi-tions. Awareness and agreement within thecompany about the culture phenomenon andits effect is a vital point of departure for deal-ing with it. Although getting one's handsaround a company's culture is like puttingone's hands into a cloud, there is amethodology for capturing the effects ofculture and enabling management to dealwith it more effectively.
Step 1: Define the relevant cultureand subcultures in the organization. Use in-dividual and small-group meetings. Developa list of simply stated beliefs about "the wayit is" in the organization and of current im-peratives for how to behave. Feed these backuntil there is a consensus about the centralnorms in the culture.
Step 2: Organize these statementsabout the firm's culture in terms of managers'tasks and their key relationships. This proce-dure is spelled out in Figures 2 and 3; it pro-vides a matrix of tasks and relationships thatwill enable the evaluator to translate an un-differentiated list of culture traits into a toolfor pinpointing the specific traits that placethe business strategy at risk.
Step 3: Assess the risk that thecompany's culture presents to the realizationof the planned strategic effort. This is doneby first determining the importance of the in-tended organizational approaches and then
determining their compatibility with the in-tended strategy. The procedure is illustratedin Figure 4; it enables the evaluator to differ-entiate the risks of the corporate culture intothree categories: unacceptable risk, manage-able risk, and negligible risk.
Step 4: Identify and focus on thosespecific aspects of the company's culture thatare both highly important to strategic suc-cess and incompatible with the organiza-tional approaches that are planned. It willthen be possible to develop alternativeorganizational approaches that better fit theexisting culture, as well as to design plannedprograms to change those aspects of culturethat are the source of the problem. Theanalysis will at this point be moving intoareas that are beyond the scope of this arti-cle; it will have moved from an analysis ofcultural risk to the first steps in creating anew and better-matching culture for thefuture business.
To match your corporate cultureand business strategy, something like theprocedures outlined above should become apart of the corporation's strategic planningprocess. Remember, these steps can be takenin as sophisticated, or in as informal, a manneras you desire. External consultants or inter-nal staff support may be used, or the rele-vant executive from CEO on down may un-dertake these steps directly and informally.It has been our experience that baseline de-scriptions of the important aspects of cul-ture, especially in major business units ex-pected to make significant shifts in strategy,can be prepared by line managers with thehelp of strategic planning and human re-sources staff. An advantage of the approachoutlined here is to provide a more effectiveway to integrate human resources perspec-tives into the strategy formulation process.Over the last decade many firms have ac-knowledged that plans are frequently unre-alistic because of the inability of the people 47
to effectively execute them. Cultural riskanalysis can help surface "people problems"before a strategy is implemented, expandingthe options for dealing with the most impor-tant issues.
Strategic plan reviews should in-clude an explicit assessment of the imple-mentation problems likely to be encounteredand a discussion of the options to be con-sidered for their management. Finally, theresults should be summarized so that groupexecutives and CEOs can direct their atten-tion to the most strategically significantcultural risks across their portfolios ofbusinesses. Appropriate action to managearound the culture or to change it wouldthen be determined.
Changing a culture is a complex.
long-term undertaking that involves coor-dinated efforts by top leadership to changetheir own behavior and the signals they sendto their subordinates and others in the orga-nization. Such changes must be reinforcedby shifts in management processes, informa-tion and reward systems, reporting relation-ships, and people's skills. Major changes inmanagement personnel, including addingoutsiders as a source of new skills and newcultural patterns, are often necessary. Mas-sive management education may be required.A cultural risk analysis helps identify theneed for such costly and difficult decisionsand provides a practical way to evaluatecultural change options against possiblechanges in the strategy to create a bettermatch with the existing culture.
SELECTED BIBLIOGRAPHY
A number of authors have recognized that organi-zations do in fact have cultures. Several havefocused on identifying the elements that should beincluded in a definition of organizational culture.Andrew M. Pettigrew provides a useful compen-dium of these approaches in his article "On Study-ing Organizational Cultures" {AdministrativeScience Quarterly. December 1979). The recentwork of William G. Ouchi, Theory Z (Addison-Wesley. 1981) describes a Japanese-orientedmanagement philosophy as a better model for or-ganizational cultures in U.S. businesses. DouglasMcGregor's The Human Side of Enterprise(McGraw-Hill, 1960) describes the roots of thecurrent U.S. model.
The difficulty o( changing an organization'sculture and one way of systematically approach-ing the task is described by Stan SHverzweig andRobert F. Allen in "Changing the Corporate Cul-ture" {Sloan Management Review. Spring 1976).
48 The decisive impact that culture can have on man-
agerial behavior and business performance is dis-cussed by Richard F. Vancil in Decentralization:Ambiguity by Design (Dow Jones-Irwin, 1978).
Issues involving culture are frequently reportedin the business press, although the articles maynot specifically refer to culture as the problem.Examples include those we cite in the text: For theNorth American-Rockwell merger, see "NorthAmerican Tries to Advance Under Fire," BusinessWeek, June 3, 1967, and "Forget the MagicMergers," Forbes, July 15. 1972; for the AT&T ex-ample, see Bro Uttals 'Selling Is No LongerMickey Mouse at AT&T," Fortune, July 17, 1978;and for the Sherwin-Williams example, seeHarold Senekers "Why CEOs Pop Pills (AndSometimes Quit)," Fortune. July 12, 1978.
Finally, an excellent description of a major cor-poration's culture from the viewpoint of a formerinsider is provided in On a Clear Day You CanSee General Motors, by J. Patrick Wright (Avon,1980).
