Research

Podcast: 'Culture eats strategy for breakfast'

Companies that attempt strategic change without considering organizational culture risk failure, according to management Professor Angelo Kinicki of the W. P. Carey School of Business. When culture is not aligned with strategy, he explains, culture wins every time. Herb Kelleher, former CEO and current chairman of the board of Southwest Airlines, has been quoted saying that culture is the most important focal point for leaders. In this podcast, Kinicki describes how to identify your corporate culture, and how to manage it.

2007-11-21

Companies that attempt strategic change without considering organizational culture risk failure, according to W. P. Carey Management Professor Angelo Kinicki. When culture is not aligned with strategy, he explains, culture wins every time. Herb Kelleher, former CEO and current chairman of the board of Southwest Airlines, has been quoted saying that culture is the most important focal point for leaders. In this podcast, Kinicki describes how to identify your corporate culture, and how to manage it.

Transcript:

Knowledge: Business leaders are increasingly becoming aware that culture is not just something that happens outside of a business. Companies large and small have their own cultures as well. A culture can happen spontaneously within a company, and managers can learn how to harness its power or be overpowered by it.

Managers can also take an active part in shaping an organizational culture, to try to ensure that it benefits the company's goals and its employees. Here to discuss how organizational cultures can be created and managed is Angelo Kinicki, a professor and Weathurp/Overby Chair in Leadership at the W. P. Carey School of Business.

Angelo Kinicki: I got interested in the topic of organizational culture when I was doing a consulting project with a large technical firm. The project I was working on was, in one sense, quite simple and was good for the organization. I was hired to help them come up with a vision for the organization and a set of strategic goals which then we were going to cascade down through the organization. And this is an organization, essentially a large IT group, and they had about 2,000 people working in it.

So when I started the project, we went on site and created the vision and strategic goals. And then they said, "OK, let's cascade them down the organization." And as I started doing that, one of the first things I found as I'm going to these sessions of goal setting is these systems development people would say, "You can't measure what I do." And, "You can't figure out what I'm doing."

And I'd say, "Well, sure we can. We can come up with goals. Let's do this together; it's good for the company." And the long and short of it is, we'd tried to cascade these goals and it didn't work. So the second year, the senior vice-president who hired me said, "OK, Kinicki, this isn't working. We've got to try something different." So I tried a couple of different approaches and we tried cascading the goals again and found out that this time we got about halfway through the organization.

It actually took us three years to get the job done. And by the time we got the job done, the biggest thing I'd learned was the reason it took so long to get it done is simply that the organizational culture was contrary to what we were trying to do. What we were really trying to do was to create a way of managing built around measuring performance indicators. And in this organization, they were not accustomed to doing that. In fact, this is a very successful organization, and they didn't want to be measured, the employees didn't. Because if you can measure people, it leads to holding them accountable.

So what it lead me to understand is, when organizations implement strategic change or any kind of change, if the organizational culture is inconsistent with the change effort, it won't work. And so that's how I got interested in it, and after that I began to study and read up on it. Now, whenever I do change efforts or work with organizations to talk about their strategic plan, I always consider the role of organizational culture within it.

So anyway, that's it. And sort of the long and short of it is: if the culture is inconsistent with the goals and strategies a company is pursuing, the culture wins out. Or another way of saying it is: culture eats strategy for breakfast. They have to be consistent.

Knowledge: But how would managers even know if their organizational culture is the right one? It's kind of hard to be able to see these things when you're right in the middle of it.

Kinicki: You know, it absolutely is true. And in fact — when you talk about, "How do I know what a culture is?" — there are various ways to look at cultures. But what we know is that they actually exist on three levels, and these three levels vary in their abstraction. Culture exists on the observable level. On the observable level, we call that "observable artifacts." That would be things like the way the office is decorated, the dress, the awards, the stories that are used. And so managers on one level of sort of getting an idea of what the culture is, you look at the observable artifacts.

The next level that culture exists at is what we call "espoused values." And these are the values that the organization says that they care about. Most organizations have a set of values, and what's important in these values is that you want employees to behave according to them and you want management to behave according to them. So when management does not behave according to those espoused values, employees then get cynical and they won't endorse change efforts because they don't believe management is walking the talk.

And the third level of organizational culture, which is clearly unobservable, is what we call "basic underlying assumptions." And these are the basic assumptions that employees come to learn by working in an organization and that influence their behavior. For example, at a company like Southwest Airlines, I'm certain that one of their basic underlying assumptions is that employees matter more than making profit. And the management behaves in that way. And when employees come to believe in those basic underlying assumptions, it forms the culture.

So, how does management know? Well, one thing is that you can look at these three layers of organizational culture and try to make conclusions about what the culture is. But better than that, there are two or three dominant ways that academics use to measure organizational culture. And I want to caution anyone listening to this about one thing. A lot of consultants may sell instruments to measure culture, and I don't know about the validity of them. But what I do know is, in the scientific world, there are two or three ways that have been validated to measure organizational culture.

And the one that I like to use is a measurement device based on a model of culture that's called the "competing values framework." And the competing values framework is based on the following assumption. The assumption is that when organizations make decisions and decisions very often are value-based, those decisions therefore form the culture. And so the title of the framework is called "competing values," and what it means is that there are some consistent values that exist that when managers make decisions according to those values, it influences their culture.

So there's two continua that decisions vary on. The first continuum is the extent to which an organization makes decisions that are internally focused or externally focused. So those are two ends of a continuum. And internally focused organizations would be those that make decisions that concentrate on the employees, the people, and internal processes.

Organizations that make decisions that are externally focused would be organizations that care more about external factors like market share or profitability or stock price. And so we have that continuum. Now that continuum is crossed — if you look at that as a horizontal continuum — it's crossed by a vertical continuum that reflects the extent to which organizations make decisions that value flexibility and discretion versus the opposite end, organizations that value stability and control.

Well, if you cross those two continuum of external versus internal versus the flexibility and stability, you come up with four types of cultures. One type of culture is called the "clan," and a clan culture is a company very much like Southwest Airlines that has an internal focus — they care about their people and they care about morale — and they value flexibility. That would be a clan culture.

Another culture would be called an "ad hocracy." And this type of culture is one that also values flexibility, but it also has an external focus. Intel would be an example of that. A culture that is driven around ad hocracy is one that is adaptable, creative, and focuses on innovation. And as you know, Intel is a company that innovates, and that's how they get some of their market leadership.

A third type of culture is called the "hierarchy." And a hierarchy is a culture that focuses on the internal side, things like process control, measurement, reliability, efficiency. So they focus on the internal side, and they value stability and control. And an example of that would be the nuclear power plant at Palo Verde that APS owns. In that kind of a culture, you want stability, you want efficiency, because that's important.

And the final kind of culture is called a "market" culture. And a market culture is one that cares about stability and control, but this time they have an external focus. And market cultures are those that tend to focus on competition. They are customer-focused, they care about productivity, and they are really worried about enhancing competitiveness. General Electric would be an example of an organization like that.

So, what organizations can do is they can measure these four cultural types with a survey, giving them an idea of what type of culture you have. And by the way, when you do that you would find that these three layers of culture that I previously discussed would show themselves in terms of those four types of cultures. So my advice to managers is, you would use a survey to measure those four types, and it would tell you what your culture is today.

Now even more important than that is, once I can measure it and I know what it is, the real question is: what should it be? What is the right culture for my organization going forward? And there is no one right culture. For example, whereas Southwest Airlines would be an organization that is high in clan and probably high in market, General Electric would probably be a company that is higher in market and higher in ad hocracy.

A culture type is not better than another. What's important is, the culture must match the strategy and the vision that the organization is trying to pursue, and when that culture matches the strategy, we believe that the organization is more likely to be successful.

Knowledge: So, you're able to measure organizational culture, but what exactly to the rank and file — the front-line managers — what can they do with that information?

Kinicki: Well, once they have that information, the next thing you really have to educate or teach managers about, particularly on the front levels, is, "How can I as an individual influence culture?" And my personal belief on this is as follows: I believe that organizational culture is a summary of the individual actions that all the employees in the organization exhibit. In other words, our behaviors constitute the culture.

So if I'm a manager, and let's say that I want to make my culture more of a clan culture, then what I want to do is behave in a way that supports that. Now that brings up the question: are there any common techniques that managers can use to shape a culture or to embed it in the direction that I would prefer it? And the answer is yes. There are actually 10 techniques that can be done, and I'll just quickly list them.

The first of them is, you can print and publish formal statements of the organization's philosophy, mission, vision and values. So organizations at a large level can do that. The second thing is — and this would certainly fit at the lower levels — is the design of the physical space of the work environment. So as managers have people working in their organization, the way the physical layout is set up affects the culture.

For example, if you're in an open environment or there's no walls, that's very different than if you work in an environment where everyone has their own office with four walls that go ceiling to floor. The third way you can touch a culture is by using slogans and language and acronyms and sayings. For example, the dean of the business school at the W. P. Carey School, Robert Middlestadt, he has a saying that he's promoting, "We want to be a top-of-mind business school."

And that's a saying we use to get employees within the organization to do things that are consistent with that vision. The fourth way managers can affect culture is by being role models, and that's very important. Again, all the behaviors that managers exhibit, employees watch. That modeling sends messages about the culture. The fifth way is the use of rewards and status symbols.

So when organizations or managers reward people for individual behavior, that recognition of a certain kind of behavior really is a cultural statement. The sixth way: stories, legends or myths about people. Many organizations have lost the art of telling stories, but stories are a good way to reinforce the culture that you want.

For example, if an employee does a really great job and goes out of their way to provide good service, you want to make sure that management recognizes that, repeats that story, and people can repeat is to others, thereby reinforcing a culture of being service-oriented.

The seventh way would be the activities, processes or outcomes that leaders pay attention to. And this is very important. For example, at JPMorgan Chase, Jamie Dimon — the CEO there — is very big on having pay-for-performance metrics. So he makes sure that he measures people, and they tie people's pay to those measurements, sending the message that, "We are a performance-oriented culture." So what leaders pay attention to or don't pay attention to is another way they influence culture.

Eighth: leaders reactions to critical incidents. Again, if you use the example of Mark Hurd, CEO of Hewlett Packard, when he responded to the crisis in this last year involving an investigation of press leaks, his reaction and his behavior sends a message about culture. So leaders need to be very careful in a time of crisis, how they behave. And they want to make sure they behave in a way that's consistent with the desired culture.

Ninth would be the organizational structure. Structure is a very big way that organizations embed and send signals about their culture. One of the things I find as a consultant, that a lot of organizations have inconsistently done, is they say, "I want innovation and I want teamwork," and they create a very hierarchical structure. Well, those are inconsistent. If you want collaboration and teamwork, what you need is a flatter organizational structure. So the ninth way is the way that the organization or department is structured.

The final way has to deal with organizational systems and procedures. And this has to relate to the kind of things organizations do to run the business on an on-going basis, the procedures that are used in the systems. And again, they send messages. So, yes, managers can influence culture. Senior-level managers can influence it in a bigger way.

But even on the front-line levels, the individual behavior of managers sends a message about the type of culture that you want to have, and employees will watch that behavior, and if managers behave in ways that are inconsistent with the desired culture that the company wants, it confuses employees. Therefore, it reduces the competitiveness, or I should say that it reduces the fact that culture can be a competitive weapon, like it is at Southwest Airlines.

Knowledge: How important do you think organizational culture is in terms of creating competitive advantages for a company?

Kinicki: I think it's tremendously important. When you think of companies like Southwest Airlines, GE, SAS, Intel, these are companies that have cultures that are consistent with their strategies, and they use culture to create competitive advantage. One of the sayings that I've heard Herb Kelleher say — the former CEO of Southwest Airlines and now chairman of the board — about culture, is he said, "It should be one of the most important things that all leaders pay attention to."

And I can't agree enough. I think that some people view culture as this soft, fuzzy thing that can't be managed, and it can be. It can be nurtured, managed and it should be nurtured and managed in the direction that the organization desires to help it meet its goals. And if you do that, you'll have competitive advantage, just like Southwest Airlines does.

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