Beyond the Corporate Looking Glass: Understanding Corporate Culture
by Daniel J. O’Connor & Karen Sella of FutureSense, Inc.
From strategic planning to product innovation to talent retention, every decision made and action taken in a corporation is shaped by its culture. When business leaders lack valid information about their corporate cultures, they don’t really understand their business. And if they don’t really understand their business, they simply won’t succeed.
Yet, many business leaders assume they know everything they need to know about culture. Ask about their corporate culture and they will tell you all about their mission, vision, and values. They will gladly explain the strategic intent and core competencies that set their companies apart from the competition. And they may even regale you with stories of legendary founders, time-honored traditions, and the high performers who ensure a bright, bullish future.
The simple truth is that business leaders’ perspectives on culture are often limited to their own special blend of hype and hope—corporate ideals frequently promoted but rarely practiced. Craft a mission statement, have a company retreat, throw in some teambuilding, and call it “culture.” Better yet, publish a best practices manual, polish some sound-bytes, and issue a press release. While these ideals and endeavors are all legitimate indicators of a corporate culture, they generally fail to reconcile the underlying tension between what is desired and what is realized. To appreciate why, we need to develop a better understanding of corporate culture.
What is Corporate Culture?
Corporate culture may be defined as a pattern of shared values that the directors, officers, and other employees of a corporation have learned over time while working among themselves and navigating the markets in which they do busines.1 While all corporations may share certain elements of a common business culture, each corporation has its own unique pattern of shared values that help individual members respond appropriately to the specific challenges of the workplace and the marketplace.
In contrast to those values that are proudly espoused throughout the organization, the values that actually govern the organization are often subconscious or tacit values just beneath the awareness of those who hold them. These tacit values represent taken-for-granted ways of perceiving, thinking, feeling, and acting that have been so successful in meeting past challenges that they are now assumed to be the best ways to conduct business. Accordingly, they exert a tremendous amount of influence on the strategic and tactical decisions being made each day.
Consider, for example, a manufacturer with a successful track record of product innovation. Such a corporation may gradually institutionalize a pattern of shared values that includes such assumptions as: our engineers are the best in the industry, our customers care more about product features than price, and our marketing department has the easiest job in the world. When combined with other assumptions that support, say, a strong preference for quantitative over qualitative information and consensus decision making by those with the requisite expertise, this corporate culture would generate a rather distinctive approach to strategy and organization.
But will this culture prove successful in the years ahead? Will product innovation always trump price and service in the eyes of the customer? If the product becomes more of a commodity, will the dominant engineering culture welcome a more influential marketing department? Will their emphasis on quantitative information undermine their capacity for organizational change? Perhaps most importantly, will consensus decision making be effective when a decisive change of direction is required? Only time will tell.
As an alternative, consider a new competitor that has quickly established itself through a series of acquisitions and strategic alliances with suppliers of essential components and major customers that sell to end-users. This corporation might develop a culture that assumes: revenue growth is more important than high margins and long-term alliances will prove more important than technological innovation. If these shared values were combined with a preference for centralized decision making and a ruthless disregard for ethics, this culture would certainly support a very different approach to business. Whether or not this corporation will prove more successful than its competitor will depend upon the degree of alignment between each culture and the challenges it must face, as well as the degree of awareness that corporate leaders bring to this adaptive process.
Culture provides the members of a corporation with a legacy of tacit values that help them make sense of challenging situations, take action to achieve their desired results, and learn from experience in order to improve their performance. Culture helps an executive team map the strategic landscape and evaluate new market opportunities. It also helps a marketing team position a new brand in relation to the competition. It can even offer employees, both new and old, with unambiguous guidelines regarding who should make this decision, what information they need, and how they should measure success. Without a corporate culture, people would be forced to deal with every business situation as if it were a completely new set of circumstances.
Nevertheless, corporate culture can also limit the way people respond to business challenges. While their particular culture may support the pursuit of certain market opportunities, it may also blind them to the existence of even better opportunities. It may encourage them to analyze the return on investment for a new marketing strategy, while discouraging them from considering its moral implications. And their culture may do such a fine job of preserving and disseminating itself that it actually undermines the critical self-reflection and dialogue that is necessary for organizational learning and strategic innovation. 2
Therefore, corporate culture can be a double-edged sword, tacitly supporting current performance while tacitly thwarting even better performance, both within the workplace and throughout the marketplace.
Looking In… Understanding Workplace Culture
To begin to understand corporate culture, business leaders must discover the underlying shared values alive in their workplace. Much of what defines a company’s workplace culture lives deep within the collective memory, current experience, and future aspirations of its members. Without this valuable knowledge, business leaders will have a difficult time preserving and improving their corporate cultures.
Imagine, for example, that you are an investor in a middle-market company with about a thousand employees and a 20-year history of success in a typical competitive environment. Now imagine what would happen if we replaced, overnight, all the employees with an equal number of new recruits who, despite being very bright, qualified businesspeople, have no prior experience in this particular company. Mind you, the mission statement hasn’t changed, the strategic plan is still on every manager’s bookshelf, and the operational infrastructure is still in place. Furthermore, for just a few more minutes, all the other stakeholders of this company—from investors to customers to suppliers—remain unaware of the dramatic change that just occurred.
Now, setting aside considerations of insider trading, would you prefer to buy, hold, or sell shares in that company before news leaks of the change? If you’ve got a pulse, you would certainly prefer to sell every share you own. But why is this the obvious answer? Because the critical difference between the company today and the company yesterday is that yesterday there was a culture that supported performance. Absent that culture, the new employees will have to learn for the first time much of what the previous employees took for granted about how to make this business successful. Such learning takes a great deal of time and the markets in which this business must survive are not likely to grant the new employees the time they need to figure out how to create the sort of value that these markets take for granted.
As this thought experiment suggests, a company’s culture is extremely valuable and impossible to replicate. The very notion of total turnover, even with exceptional new talent, makes most of us uncomfortable with our investment in the company. Despite the company’s history of successful performance and the assurance of formal strategic and operational continuity, we realize that the original employees left with more than their individual talents. The company’s culture just walked out the door with them, and we understandably have doubts about whether this new group of talented individuals will be able translate the same context into successful performance. The fact that this valuable, complex thing we call culture can make or break a company is precisely why it is so important to understand.
As we have noted previously, corporate culture is rooted in tacit values or deeply held assumptions that people have learned over time in their day-to-day experience of working together. How work gets done, what behaviors get rewarded, who makes the decisions, what gets communicated to whom, and how change is handled are just a few examples of cultural assumptions and values at work. Consider Douglas McGregor’s classic theory of motivation: Theory X / Theory Y. As you may recall, his research supported the idea that certain fundamental assumptions about human nature underlie all management practices. Thus, whether employees are believed to be hardworking, self-directed, trustworthy people (Theory Y) or lazy, irresponsible, incompetent sods (Theory X) determine the difference between more authoritarian or more egalitarian management practices.3 Likewise, as many other researchers have discovered, assumptions about the value of independent achievement versus teamwork can be the difference between compensation and incentives based on competitive individual ranking or those based on collaborative team performance.
To further complicate matters, particularly within more mature organizations, the assumptions held within different functions (e.g. engineering vs. human resources), within different levels (e.g. executive management vs. line management), or across geographical locations (e.g. national vs. international) of the organization can vary. Whether executive committees, boards of directors, departments, project teams, silos, skunk-works, unions, or communities of practice, people who work together more frequently over time tend to establish their own unique subcultures with their own assumptions about what matters and what doesn’t, who’s in and who’s out, how things should and shouldn’t be done.4 Moreover, these subcultures may or may not be aligned with the prevailing corporate culture, as evidenced by the off-hand references to “corporate” or “headquarters” by those within corporate subcultures.
As a corporation grows in size and complexity, it is increasingly important that its leaders understand how their workplace culture is evolving, for better and for worse. Those who decide to take a deeper look at culture must expect to do more than simply validate what they already know. They must be prepared to topple some sacred cows. After all, companies, like people, rarely live up to their aspirations without taking a good hard look at themselves and making some tough decisions. There is an inevitable, dynamic gap between corporate ideals and corporate reality. Exploring workplace culture could be the difference between short-term glory and long-term success—the difference between falling into the gap and building a strong bridge for the company’s future.
Looking Out… Understanding Marketplace Culture
Most efforts to understand corporate culture begin and end with an internally-focused analysis of those values governing the way people communicate and collaborate within the workplace. This workplace culture is certainly essential to any cultural assessment. But it is just as important to extend the analysis externally into the realm of marketplace culture, uncovering the shared values that shape the way corporate directors, officers, and other employees engage with the various markets in which they do business. These values represent the difficult lessons learned over many years of surviving and thriving in the changing marketplace. They are perhaps most prevalent in the process of strategic decision making, subtly influencing people’s perspectives on what business they are in, how they create value, what distinguishes them from the competition, and to whom they are accountable outside the corporation.
Imagine, once again, that you are an investor in a middle-market company with about a thousand employees and a 20-year history of success in a typical competitive environment. Now imagine what would happen if we replaced, overnight, all the people who currently do business with this company—such as customers, suppliers, and investors—with different people whose demands for this business are entirely novel. As before, the mission statement hasn’t changed, the strategic plan is still on every manager’s bookshelf, and the operational infrastructure is still in place. Moreover, all the original employees are filing into the workplace, prepared to make the best of the situation.
But are they really prepared for the new marketplace they must face? Will their culture help them adapt to a radically new competitive environment or will it consign them to a failing business model? Most importantly for you, as an investor, is whether you will prefer to buy, hold, or sell shares in this company. Need we ask?
Granted, a complete turnover in the corporation’s customer, supplier, and investor markets is even less likely than a complete turnover of employees within that corporation. But in some ways, this little thought experiment is suggestive of the sea change in marketplace culture that business leaders are likely to navigate in the years ahead. For there is another side to marketplace culture that business leaders must recognize: the culture of the markets themselves.
Every market, whether it’s a market of customers, suppliers, investors, or potential employees, can be defined by its participants. And those participants bring their own individual and shared values to bear on the market decisions they make each day. Many market participants are acting on behalf of organizations with their own distinct cultures. And even those who are not doing so may nevertheless be acting on behalf of much larger cultures that encompass millions of individuals sharing similar worldviews.
For example, one of the most interesting recent assessments of the American culture, conducted by Paul Ray, found three general subcultures, each of which reflected the shared values of tens of millions of people.5 According to his research, the Traditionals share such values as: family, church, and community; traditional roles for men and women; support for big government and particularly the military; a belief that rural and small-town life is more virtuous than big-city or suburban life; a belief that preserving civil liberties is less important than restricting immoral behavior; and a disdain for foreigners. The Traditionals make up about 25% of the American population and, although they are declining in number, their agenda is evidently quite influential in national politics.
The Moderns share what are generally considered to be mainstream values, such as: making or having a lot of money; climbing the ladder of success; being on top of the latest styles, trends, and innovations; supporting big business and big government; admiring the technical and scientific fields; and rejecting the values and concerns of native peoples, rural people, and all those who do not follow a Modern lifestyle. The Moderns account for nearly 50% of the American population and they are probably the dominant culture within the business world, setting the agenda for most large corporations.
There is, however, a third American subculture on the rise. These so-called Cultural Creatives share such values as: personal authenticity, ecological sustainability, social justice, corporate responsibility, and entrepreneurship that resolves economic, social, and ecological problems. They demand good information and have exceptionally good deception-detectors for ads and misleading corporate or political claims; make carefully researched purchases, regularly reading both the labels and the fine print; strive to balance economic growth with environmental protection; and believe that business and government don’t pay enough attention to our longer-term future. They account for about 25% of the American population and are the fastest growing subculture.
It is worth emphasizing that all three subcultures have their virtues as well as their limitations. But it is just as important to acknowledge the dramatic shift that is under way, with the Traditionals in rapid decline, the Moderns holding steady, and the Cultural Creatives in rapid ascent. It is entirely possible that within the first two decades of the 21st century, the Cultural Creatives will establish themselves as the dominant subculture in America, not only in numbers, but in social, political, and economic influence. If this should come to pass, then it stands to reason that the majority of business leaders in the not-too-distant future may be Cultural Creatives, or at least speak to these values as part of their enhanced cultural fluency. The key question is how many of today’s business leaders will survive the shift.
When considering the specific markets in which their corporations operate, business leaders must be aware of the evolution of such distinctive marketplace subcultures. After all, to mistakenly assume that all the investors, customers, or employees of a corporation belong to a single, homogenous, mainstream culture is to risk losing them as soon as viable alternatives become available. With this awareness, business leaders can begin to adapt their corporate cultures to the various subcultures in their marketplace.
In order to sustain success in the years ahead, business leaders will need both the courage and capacity to look beyond the surface of their corporate ideals and take a closer look at the cultural realities of their workplace and marketplace. The challenge for business leaders is clear: they must become conscious of their corporate cultures, thereby enhancing their capacity to lead, or they will be managed by their cultures in ways that undermine their credibility as leaders.6
1 Adapted from Edgar H. Schein (1992) Organizational Culture and Leadership, San Francisco: Jossey-Bass, p. 12.
2 Chris Argyris (1990) Overcoming Organizational Defenses: Facilitating Organizational Learning, Englewood Cliffs, NJ: Prentice Hall.
3 Douglas McGregor (1985) The Human Side of Enterprise, Boston: McGraw Hill.
4 Edgar H. Schein (1999) The Corporate Culture Survival Guide, San Francisco: Jossey-Bass, p. 106.
5 Paul H. Ray and Sherry Ruth Anderson (2000) The Cultural Creatives, New York: Harmony.
6 This last point paraphrases Edgar H. Schein (1992) Organizational Culture and Leadership, San Francisco: Jossey-Bass, p. 15.