week 5 CLED835: Organizational Theory and Development (B01)

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H o w C u l t u r e B e g i n s a n d t H e r o l e o f   t H e   f o u n d e r o f o r g a n i z a t i o n s

To fully understand cultural evolution and the role of leadership in that evolution, we have to begin with a bit of group theory. Culture is ultimately a characteristic of a group, just as personality and character are ultimately characteristics of an individual. Just as personality theory is relevant to understanding individuals, group dynamics theories and models are rele- vant to understanding culture. Founders of groups and organizations may not be aware of the dynamic issues they are grappling with, but those issues are there and need to be considered as determinants of the kind of culture that ends up being created.

A Model of How Culture Forms in New Groups

Groups have been studied intensively throughout history, but it is only in the post–World War II years that social psychologists led by Kurt Lewin in the United States and Wilfred Bion of the Tavistock Clinic in the United Kingdom began to formulate concepts that could be applied widely to all kinds of new and old groups (Lewin, 1947; Bion, 1959). In the United States this model of the stages of group evolution was well summarized by Bennis & Shepard (1956) and was then later described “poetically” by Tuchman (1965) as forming, storming, norming, and performing. The under- lying psycho-dynamic logic is discussed in the following subsections.

Stage 1, Forming: Finding One’s Identity and Role

The group is brought together for some purpose such as “learning” as in the groups referred to in the previous chapter or performing some task. There is a convener, leader, and founder unless environmental circumstances or

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some crisis like an accident throws a group of people together into a shared- fate situation.

The new members automatically face the questions of identity and role (Who am I to be in this group?); authority and influence (Who will con- trol whom in this group, and will I have my own influence needs met?); and intimacy (How will I relate to the other members of this group and at what level?).

These issues will preoccupy a new member no matter how structured the group is and no matter how much the convener assigns roles and states norms. However, the convener’s approach and style will determine the direction in which these issues are worked out by the members, as we will see in the case examples of founders creating companies. This stage can be as short as a pre-meeting lunch or as long as years if there is no informal time provided for building relationships. In any case, it will overlap with the inevitable next stage.

Stage 2, Storming: Resolving Who Will Have Authority and Influence

To sort out their identity, role, influence, and peer relationships, group members begin by explicitly or implicitly confronting and testing each other. That testing inevitably starts around the issue of authority and influ- ence and will show up in confronting the convener and any emergent leader. The convener can “bury” the issue by being a strong chair or relying compulsively on Robert’s Rules of Order, but the issue will then surface around disagreements and challenges on the task work itself. It is for this reason that it is not wise to give a brand-new group a task; the members will work out their own identity issues around the task without paying enough attention to the task itself.

The convener or founder can freeze the group at Level 1, leave the door open for spontaneous personalization to arise in the group, or stimulate Level 2 immediately by being more personal himself or herself. Entrepreneur founders will have an enormous influence at this stage according to how they present themselves to the people they recruit, hire, and train as well as the kinds of formal systems they create for how work will be done. This matter is covered in detail in the subsequent chapters.

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Analytical Comment. If you are an observer of a new group, the pro- cess to focus on is what happens right after someone makes a confron- tational remark, challenge, or proposal that requires some response from the group. If someone makes a move to influence the group, does the group ignore, waffle, fight, or accept? Who does what? What does the formal leader do? If the explicit or implicit fighting continues, how does the group move forward?

What the observer will see is that not everyone has the same needs to influence and some members’ personalities are less concerned about whether or not they are the leader. The members who are less conflicted about authority will at some point identify the fighting process and name it, thereby forcing some resolution. This enables the group to deal with it explicitly and reach some consensus on how it wants to be led and how it wants to make decisions. With this consensus often comes a feeling of relief, success, and the illusion that the group can now get to work because it believes itself “to be a great group in which everybody now likes each other.”

However, as the group tries to work, especially if it is competing with other groups, members discover not only that they don’t all like each other but that under the pressure of time and competition some members become more active and others are ignored or shut down, revealing that some mem- bers are seen as contributing more than others, that there has grown up a status system within the group. Recognizing this reality moves the group into the next stage of dealing with how the members will treat each other and how personal and intimate the group will become.

Stage 3, Norming: Resolving at Which Level of Relationship We Want to Operate

How does such “recognition” come about? It is again a matter of making explicit what has been going on implicitly by naming it. Some member will say, “Why are we always ignoring what Mary is trying to say,” or “Let’s just get this done, Joe seems to have the right direction,” or “Do we all have to participate equally?” If the group is relatively open, someone might even say, “For this task I think we should let Helen be the leader, because she knows the most about it, but when we need quick action, Pete always seems

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to get us there faster.” “Do we all want to stay task focused and efficient [Level 1], or do we want to get to know each other a bit [Level 2]?”

It is again the persons who are least conflicted about the issue of close- ness that will see and name the issue. The convener or leader is also in a critical position to do this by pointing out that the members are all dif- ferent and have different talents and needs, and that the strength of the group is in the variety rather than the homogeneity. That insight makes it possible for members to replace the illusion of “we all like each other” with the reality that “we can all understand, accept, and appreciate each other.” This insight creates Stage 4.

Stage 4, Performing: The Problem of Task Accomplishment

Only when this stage is reached can the group really use its resources to work effectively. Unfortunately, many groups get stuck either at stage 1, with members continuing to struggle for influence and power, or at stage 2, believing they are great and all like each other. In both cases the members are still thinking about themselves and their role in the group and are, therefore, unable to give full attention to the group’s task.

The leader now has to ensure that consensus is reached on what the task is and how best to tackle it, especially with regard to the problem- solving methods, the decision processes, and the assessment method the group should use to track its progress. With this general model in mind, let’s now examine how organizations are created and how this creates culture.

The Role of the Founder in the Creation of Cultures

The several cases presented in this chapter illustrate how organizations begin to create cultures through the actions of founders who operate as strong leaders. The cases of Amazon, Facebook, Netflix, and Google can be analyzed the same way, but I did not have enough first-hand information to tell their stories. Sometimes the company tells its own story, but these are generally just the espoused beliefs and values and cannot easily be checked against actual behavior to determine whether they reflect basic assump- tions (Schmidt & Rosenberg, 2014).

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I am not suggesting that leaders consciously set out to teach their new group certain ways of perceiving, thinking, and feeling (though some lead- ers probably do precisely that). Rather, it is in the nature of entrepreneurial thinking to have strong ideas about what to do and how to do it. Founders generally have well-articulated theories of their own about how groups should work, and they most often select as colleagues and subordinates people who they sense will think like them.

New organizations begin with someone wanting to do something differ- ent. If it works out for the group, a new culture is born. Ken Olsen created DEC because he wanted to build small interactive computers that did not exist in the early 1950s. Ciba-Geigy came about because several leaders in Basel saw the potential of joining a film company with an industrial chemi- cal company. The EDB and the Singapore miracle came about because Lee Kuan Yew and his colleagues wanted to change a moribund British colony into a viable third-world city-state economy.

The histories of Apple, Microsoft, Facebook, Google, Hewlett–Packard, Intel, and Amazon all reveal single founding leaders or small groups of founders that wanted to do something different. Another way of saying this is that leadership creates changes; if those changes produce success for a group and the leader’s vision and values are adopted, a culture evolves and survives. If someone wants to do something different and either does not get anyone else to go along, or if they go along but the group does not suc- ceed, then we have “failed leadership” and usually never hear about it. We call it leadership only when it succeeds.

When leaders produce a whole new organization, a new political party, or a new religion, we hold them up as “models” of great leadership. However, those founding acts always are nested in macro cultures that already exist so we have to be careful not to overlook the existing cultural conditions that make certain changes possible or necessary. Leadership is necessary, but it succeeds only when the new way fits what was needed.

Founders usually have a major impact on how the group initially defines and solves its external adaptation and internal integration prob- lems. Because they had the original idea, they will typically have their own notion, based on their own cultural history and personality, of how to ful- fill the idea. Founders not only have a high level of self-confidence and determination, but they typically have strong assumptions about the nature

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of the world, the role that organizations play in that world, the nature of human nature and relationships, how truth is arrived at, and how to man- age time and space (Schein, 1978, 1983, 2013). They will, therefore, be quite comfortable in imposing those views on their partners and employees as the fledgling organization fights for survival, and they will cling to them until such time as they become unworkable or the group fails and breaks up (Donaldson and Lorsch, 1983).

Example 1: Ken Olsen and DEC Revisited

The culture of DEC was described in detail in Chapter 3. How did DEC’s founder, Ken Olsen, create a management system that led eventually to that culture. Olsen developed his beliefs, attitudes, and values in a strong Protestant family and at MIT, where he worked on Whirlwind, the first interactive computer. He and a colleague founded DEC in the mid-1950s because they believed they could build small interactive computers for which there would eventually be a very large market. They were able to con- vince General Doriot, then head of American Research and Development Corp., to make an initial investment because of their own credibility and the clarity of their basic vision of the company’s core mission. After some years the two founders discovered that they did not share a vision of how to build an organization, so Olsen became the CEO (Schein, 2003).

Olsen’s assumptions about the nature of the world and how one discov- ers truth and solves problems were very strong at this stage of DEC’s growth and were reflected in his management style. He believed that good ideas could come from anyone regardless of rank or background, but that nei- ther he nor any other individual was smart enough to determine whether a given idea was correct. Olsen felt that open discussion and debate in a group was the only way to test ideas and that one should not take action until the idea had survived the crucible of an active debate. One might have intuitions, but one should not act on them until they had been tested in the intellectual marketplace. Hence, Olsen set up a number of commit- tees and internal boards to ensure that all ideas be discussed and debated before they were acted on.

Olsen bolstered his assumptions with a story that he told frequently to justify his thrusting issues onto groups. He said that he would often refuse

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to make a decision because, “I’m not that smart; if I really knew what to do I would say so. But when I get into a group of smart people and listen to them debate the idea, I get smart very fast.” For Ken Olsen, groups were a kind of extension of his own intelligence, and he often used them to think out loud and get his own ideas straight in his head.

Olsen also believed that one cannot get good implementation of ideas if people do not fully support them and that the best way to get support is to let people debate the issues and convince themselves. He often told the story, “I remember making a decision once; I was walking down that road and turned around, only to discover that there was no one else there.” Therefore, on any important decision, Olsen insisted on a wide debate, with many group meetings to test the idea and sell it down the organiza- tion and laterally. Only when it appeared that everyone wanted to do it and fully understood it would he “ratify” it. He even delayed important decisions if others were not on board, though he was personally already convinced of the course of action to take. He said that he did not want to be out there leading all by himself and run the risk that the troops were not committed and might disown the decision if it did not work out.

Olsen’s theory was that one must give clear and simple individual responsibility and then measure the person strictly on that area of respon- sibility. Groups could help to make decisions and obtain commitment, but they could not under any circumstances be responsible or accountable. The intellectual testing of ideas, which he encouraged among individuals in group settings, was extended to organizational units if it was not clear which products or markets should be pursued. He was willing to create overlapping product and market units and to let them compete with each other, not realizing, however, that such internal competition eventually undermined openness of communication and made it more difficult for groups to negotiate decisions.

Recognizing that circumstances might change the outcome of even the best-laid plans, Olsen expected his managers to renegotiate those plans as soon as they observed a deviation. Thus, for example, if an annual budget had been set at a certain level and the responsible manager noticed after six months that he would overrun it, he was expected to get the situation under control according to the original assumptions or to come back to senior management to renegotiate. It was absolutely unacceptable either

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not to know what was happening or to let it happen without informing senior management and renegotiating.

Olsen believed completely in open communication and the ability of people to reach reasonable decisions and make appropriate compromises if they openly confronted the problems and issues, figured out what they wanted to do, and were willing to argue for their solution and honor any commitments they made. He assumed that people have “constructive intent,” a rational loyalty to organizational goals and shared commitments. Withholding information, playing power games, competitively trying to win out over another member of the organization on a personal level, blam- ing others for one’s failures, undermining or sabotaging decisions one has agreed to, and going off on one’s own without getting others’ agreement were all defined as sins and brought public censure.

This “model” of how to run an organization to maximize individual cre- ativity and decision quality worked very successfully in that the company experienced dramatic growth for over 30 years and had exceptionally high morale. However, as the company grew larger, people found that they had less time to negotiate with each other and did not know each other as well personally, making these processes more frustrating. Some of the paradoxes and inconsistencies among the various assumptions came to the surface. For example, to encourage individuals to think for themselves and do what they believed to be the best course for DEC, even if it meant insubordination, clearly ran counter to the dictum that one must honor one’s commitments and support decisions that have been made. In practice, the rule of honoring commitments was superseded by the rule of doing only what one believes is right, which meant that sometimes group decisions would not stick.

DEC had increasing difficulty in imposing any kind of discipline on its organizational processes. If a given manager decided that for organiza- tional reasons a more disciplined autocratic approach was necessary, he ran the risk of Olsen’s displeasure, because freedom was being taken away from subordinates and that would undermine their entrepreneurial spirit. Olsen felt he was giving his immediate subordinates great freedom, so why would they take it away from the levels below them? At the same time, Olsen recognized that at certain levels of the organization, discipline was essential to getting anything done; the difficulty was in deciding just which areas required discipline and which areas required freedom.

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When the company was small and everyone knew everyone else, when “functional familiarity” was high, there was always time to renegotiate, and basic consensus and trust were high enough to ensure that if time pressure forced people to make their own decisions and to be insubordinate, others would, after the fact, mostly agree with the decisions that had been made locally. In other words, if initial decisions made at higher levels did not stick, this did not bother anyone—until the organization became larger and more complex. What was initially a highly adaptive system ideally suited for innovation began to be regarded by more and more members of the organization as disorganization—chaotic and ill adapted to a more mature market.

The company thrived on intelligent, assertive, individualistic people who were willing and able to argue for and sell their ideas. The hiring practices of the company reflected this bias in that each new applicant had to be approved by a large number of interviewers. Over the course of its first decade, the organization tended to hire and keep only people who fitted the assumptions and were willing to live in the system even though it might at times be frustrating. The people who were comfortable in this environment and enjoyed the excitement of building a successful organiza- tion found themselves increasingly feeling like members of a family, and they were emotionally treated as such. Strong bonds of mutual support grew up at an interpersonal level, and Ken Olsen functioned symbolically as a brilliant, demanding, but supportive and charismatic father figure.

Analytical Comments. Ken Olsen is an example of an entrepreneur with a clear set of assumptions about how things should be, both at the level of how to relate externally to the environment and the level of how to arrange things internally within the organization. His willingness to be open about his theory and his rewarding and punishing behavior in sup- port of it led to the selection of others who shared the theory and to strong socialization practices that reinforced and perpetuated it. Consequently, the founder’s assumptions were reflected in how the organization oper- ated well into the 1990s. DEC’s economic collapse and eventual sale to Compaq in the late 1990s also illustrates how a set of assumptions that worked under one set of circumstances may become dysfunctional under other sets of circumstances.

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This story raises the whole question of how organizations transition out of the influence of their founders, because the presence of the founder stabilizes the culture and makes it “sacred” in the sense that symbolically changing the culture would be destroying the father figure. That, in turn, raises the issue of who “owns” the company and has the power to replace the founder with a different leader who may have different beliefs and val- ues that are more in line with the new economic and technological realities in the environment. Olsen pretty much chose his own board of direc- tors and listened seriously only to General Doriot, the original investor. Unfortunately Doriot died in 1987 so that when things began to go badly in the late 1980s and early 1990s neither he nor Gordon Bell who had been Olsen’s highly respected chief technical adviser were around to influence what had become a dysfunctional economic entity. Bell had a heart attack in 1983 and retired from DEC shortly thereafter. We will return to why and how DEC became dysfunctional in the next chapters when we discuss cultural evolution in organizational midlife.

Example 2: Sam Steinberg and Steinberg’s of Canada

Sam Steinberg was an immigrant whose parents had started a corner gro- cery store in Montreal that became Steinberg’s in 1917. His parents, par- ticularly his mother, taught him some basic attitudes toward customers and helped him form the vision that he could succeed in building a successful enterprise. He assumed from the beginning that if he did things right he would succeed and could build a major organization that would bring him and his family a fortune. Ultimately, he built a large chain of supermarkets, department stores, and related businesses that became for many decades a dominant force in Quebec and Ontario.

Sam Steinberg was the major ideological force in his company through- out its history, and he continued to impose his assumptions on the company until his death in his late seventies. He assumed that his primary mission was to supply a high-quality, reliable product to customers in clean, attractive surroundings and that his customers’ needs were the primary consideration in all major decisions. There are many stories about how Sam Steinberg, as a young man operating the corner grocery store with his wife, gave custom- ers credit and thus displayed trust in them. He always took products back if

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there was the slightest complaint, and he kept his store absolutely spotless to inspire customer confidence in his products. Each of these attitudes later became a major policy in his chain of stores and was taught and reinforced by close personal supervision.

Sam Steinberg believed that only personal examples and close supervi- sion would ensure adequate performance by subordinates. He would show up at his stores unexpectedly, inspect even minor details, and then—by personal example, by stories of how other stores were solving the problems identified, by articulating rules, and by exhortation—would “teach” the staff what they should be doing. He often lost his temper and berated sub- ordinates who did not follow the rules or principles he had laid down. Sam Steinberg expected his store managers to be highly visible, to be very much on top of their own jobs, to supervise closely in the same way he did, to set a good example, and to teach subordinates the “right way” to do things.

Most of the founding group in this company consisted of Sam Steinberg’s three brothers, and one “lieutenant,” who was not a family member, was recruited early and became, in addition to the founder—the main leader and culture carrier. He shared the founder’s basic assumptions about “vis- ible management” and set up formal systems to ensure that those principles became the basis for operating realities. After Sam Steinberg’s death this man became the CEO and continued to perpetuate those same manage- ment practices.

Sam Steinberg assumed that one could win in the marketplace only by being highly innovative and technically in the forefront. He always encouraged his managers to try new approaches, brought in a variety of consultants who advocated new approaches to human resource manage- ment, started selection and development programs through assessment centers long before other companies tried this approach, and traveled to conventions and other businesses where new technological innovations were being displayed. This passion for innovation resulted in Steinberg’s being one of the first companies in the supermarket industry to introduce bar-code technology and one of the first to use assessment centers in select- ing store managers.

Steinberg was always willing to experiment to improve the business. His view of truth and reality was that one had to find them wherever one could; therefore, one must be open to one’s environment and never

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take it for granted that one has all the answers. If things worked, Sam Steinberg encouraged their adoption; if they did not, he ordered them to be dropped. He trusted only those managers who operated by assumptions similar to his own and he clearly had favorites to whom he delegated more authority.

Power and authority in this organization remained very centralized, in that everyone knew that Sam Steinberg or his chief lieutenant, Jack Levine, could and would override decisions made by division or other unit managers without consultation and often in a very peremptory fashion. The ultimate source of power, the voting shares of stock, were owned entirely by Sam Steinberg and his wife, so that after his death his wife and his three daughters were in total control of the company. Though he was interested in developing good managers throughout the organization, he never shared ownership through granting stock options. He paid his key managers very well, but his assumption was that ownership was strictly a family matter, to the point that he was not even willing to share stock with Jack Levine, his close friend, and practically co-builder of the company. Because he was nested in a macro culture in which family was sacred, he wanted only his children to inherit ownership.

Sam Steinberg introduced several members of his own family into the firm and gave them key managerial positions. As the firm diversified, family members were made heads of divisions, often with relatively little man- agement experience. If a family member performed poorly, he or she would be bolstered by having a good manager introduced under him or her. If the operation then improved, the family member would likely be given the credit. If things continued badly, the family member would be moved out, but with various face-saving excuses.

Though he wanted open communication and a high level of trust among all members of the organization, he never realized that his own assump- tions about the role of the family and the correct way to manage were, to a large degree, in conflict with each other. He did not perceive his own conflicts and inconsistencies and hence could not understand why some of his best young managers failed to respond to his competitive incentives and even left the company. He thought he was adequately motivating them and could not see that for some of them the political climate, the absence of stock options, and the arbitrary rewarding of family members made their

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own career progress too uncertain. Sam Steinberg was perplexed and angry about much of this, blaming the young managers while holding onto his own assumptions and conflicts.

Several points should be noted about the description given thus far. By definition, something can become part of the culture only if it works in the sense of making the organization successful and reducing the anxiety of the members. Steinberg’s assumptions about how things should be done were congruent with the kind of environment in which he operated, so he and the founding group received strong reinforcement for those assumptions.

Following Sam Steinberg’s death, the company experienced a long period of cultural turmoil because of the vacuum created by both his absence and the retirement of several other key culture carriers, but the basic phi- losophy of how to run stores was thoroughly embedded and was carried on by Steinberg’s chief lieutenant. After he retired, a period of instability set in, marked by the discovery that some of the managers who had been developed under Sam Steinberg were not as strong and capable as had been assumed. Because none of Sam Steinberg’s daughters or their spouses were able to take over the business decisively, various other family members con- tinued to run the company. None of them had Sam Steinberg’s business skills, so an outside person was brought in to run the company. This person failed because he could not adapt to the culture and to the family.

After two more failures with CEOs drawn from other companies, the family turned to a manager who had originally been with the company and had subsequently made a fortune outside the company in various real estate enterprises. This manager stabilized the business for a time because he had more credibility by virtue of his prior history and his knowledge of how to handle family members. Under his leadership some of the original assump- tions began to evolve in new directions, but disagreement among the three daughters caused new turmoil, lawsuits, and the eventual sale of the com- pany in 1989, as was documented in a published family history (Gibbon & Hadekel, 1990).

Analytical Comments. One clear lesson from this example is that a strong culture does not survive if the main culture carriers depart and if the bulk of the members of the organization are experiencing some degree of con- flict because of a mixed message that emanates from the leaders during the

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growth period. Steinberg’s had a strong culture, but Sam Steinberg’s own conflicts became embedded in that culture, creating conflict and ultimately a lack of stability. Those conflicts could be attributed to his “personality,” but it is equally plausible to say that he was nested in his Jewish macro culture at a time when launching an enterprise from humble beginnings hinged on very tight family connections and efforts by all members of the family to make the enterprise work.

The unfortunate reality that none of his three daughters had either the inclination or the talent to take over the business also clearly influenced the outcome. I was involved for several years in an effort to “coach” one of the husbands who was being tried as CEO, but he also had neither the talent nor the motivation to function in this role. It is of incidental histori- cal interest that at the same time Steinberg’s was founded (1914), the Stop and Shop supermarket chain was being launched in New England by Irving Rabb, who also had only daughters. One of them, however, married a man who was a highly motivated and competent manager, leading to longer- range success for this organization.

Example 3: Fred Smithfield: a “Serial Entrepreneur”

After graduating from MIT’s Sloan School, Fred Smithfield built a finan- cial service organization, using sophisticated financial analysis techniques in an area of the country where insurance companies, mutual funds, and banks were only beginning to use such techniques. He was the conceptual- izer and salesman, but once he had the idea for a new kind of service orga- nization, he found others to invest in, build, and manage it. He believed that he should put only a very small amount of his own money into each enterprise because if he could not convince others to put up money, maybe there was something wrong with the idea.

Smithfield always started with the initial assumption that he did not know enough about the market to gamble with his own money, and he rein- forced this assumption publicly by telling a story about the one enterprise in which he had failed. He had opened a retail store in a Midwestern city to sell ocean fish because he loved it. He assumed that others felt as he did, trusted his own judgment about what the market would want, and failed. He realized that if he had tried to get others to invest in the enterprise,

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he would have learned that his own tastes were not necessarily a good pre- dictor of what others would want.

Because Smithfield saw himself as a creative conceptualizer but not as a manager, he not only kept his financial investment minimal but did not get very personally involved with his enterprises. Once he put together the package, he found people whom he could trust to manage the new orga- nization. These were usually people like himself who were fairly open in their approach to business and not too concerned with imposing their own assumptions about how things should be done.

His creative needs were such that after a decade or so of founding finan- cial service organizations, he turned his attention to real estate ventures; he became a lobbyist on behalf of an environmental organization, tried his hand at politics for a while, and then went back into business, first with an oil company and later with a diamond mining company. Eventually, he became interested in teaching, and ended up at a Midwestern business school developing a curriculum on entrepreneurship.

One can infer that Smithfield’s assumptions about concrete goals, the best means to achieve them, how to measure results, and how to repair things when they were going wrong were essentially pragmatic. Whereas Sam Steinberg had a strong need to be involved in everything, Smithfield seemed to lose interest once the new organization was on its feet and functioning. His theory seemed to be to have a clear concept of the basic mission, test it by selling it to the investors, bring in good people who understood what the mission was, and then leave them alone to implement and run the organization, using only financial criteria as ultimate perfor- mance measures.

If Smithfield had assumptions about how an organization should be run internally, he kept them to himself. The cultures that each of his enter- prises developed therefore had more to do with the assumptions of the people he brought in to manage them. As it turned out, those assumptions varied a good deal. Moreover, if one analyzed Smithfield Enterprises as a total organization, one would find little evidence of a “corporate” culture, because there was no group that had a shared history and shared learn- ing experiences. But each of the separate enterprises would have a culture that derived from the beliefs, values, and assumptions of their Smithfield- appointed managers.

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Analytical Comments. This brief case makes the point that founders do not automatically impose themselves on their organizations. It depends on their personal needs to externalize their various assumptions. For Smithfield, the ultimate personal validation lay in having each of his enterprises become financially successful and in his ability to continue to form creative new ones.

If we examine entrepreneurship in today’s innovation areas such as Silicon Valley, we see another pattern of culture creation that does not depend on the founder’s beliefs and values. It is similar to the Smithfield pattern except that it is the investors, functioning as owners, who decide when during the growth cycle to replace the founder with a professional manager. It is the new general manager who then begins to build the cul- ture around the founding values of the technical entrepreneur who had been fired.

The culture that we eventually see in a mature organization may there- fore be the result of the work of several leaders over a long period of time. Without knowing the history we would potentially make erroneous attribu- tions, as the following examples illustrate.

Example 4: Steve Jobs and Apple

The story of Apple has by now been told many times in books and mov- ies, but some of the cultural issues bear repeating. Apple was founded in 1976 by Steve Jobs and Steve Wozniak. Both grew up in the “revo- lutionary” era of the 1960s in the San Francisco area. Jobs was the one with the strongest sense of a mission, of revolutionizing how people would use computers, whereas Wozniak provided much of the techni- cal talent. Their initial intention was to create products for children in the education market and products that would be fun and easy to use by “yuppies.” Their base was clearly technical, as in the case of DEC, and this showed up in the aggressively individualistic “do your own thing” mentality that I encountered there when I did some consulting in the early 1990s.

From its founding until 1983 the company had two other CEOs— Michael Scott, an experienced manager from another company, and Mike Markkula, an early investor and friend. Still, Jobs was clearly the

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“moral compass” in having the strongest feelings about how the company culture should evolve. When Apple attempted to become more market oriented, Jobs agreed in 1983 to bring in John Scully from PepsiCo. Scully was not able to impose himself while Jobs was still there and insisted on firing Jobs in 1985.

Jobs, embittered but not cowed, started another computer company, NeXT, and became involved with Pixar, the computer-animated film com- pany. Scully was initially successful but ended up in great difficulty, which led to his firing in 1993. It was said that Scully never earned the respect of the Apple technical community, suggesting that at the core of the Apple culture was technical creativity, simplicity, elegance, and aesthetic appeal, values that all seemed to derive from Steve Jobs.

Apple struggled with two more CEOs, Michael Spindler and Gilbert Amelio, but was near bankruptcy when the board decided to buy NeXT, thereby bringing Jobs back into the fold. He was installed as CEO in 1997, from which point the company rose to its imposing position today and was able to transition to its current CEO Tim Cook, an inside promotion.

Analytical Comments. The important culture question is, did Apple have the same culture throughout all this time, based essentially on the beliefs and values of its founders, even as it evolved through many other CEOs? It is significant that Apple eventually returned to its roots in bringing back Steve Jobs. If one observes the direction of Apple from 2009 on, one can see a return to those roots of creating products such as the smaller and lighter desktop and laptop computers, the iPhone, the iPod for music, and the iChat camera for video conferencing—products that are esthetically pleasing, easy to use, and fun. The attractive design of products and the proliferation of very attractive user-friendly stores to display them suggest that Apple now has very much a marketing orientation but that this orien- tation had to be combined with its technical skills, something that perhaps only Steve Jobs could push.

Apple now enjoys great business success, which has expressed itself in the decision to build a monumental circular headquarters building in Cupertino, CA. Apple is also now an old and very large company nested in a different and more complex international environment that will inevi- tably force its culture to evolve.

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Example 5: IBM—Thomas Watson Sr. and His Son

Many people point out that IBM did much better in its efforts to revitalize its business in the 1990s by bringing in an outside marketing executive, Lou Gerstner. Why might this have worked better than Scully in Apple? Part of the answer is cultural. Where Apple had technical founders and a whole series of CEOs, IBM was founded by Tom Watson Sr., a salesman in the National Cash Register Company, and was managed for its first 50 years by that founder and his son Tom Watson Jr. (Watson and Petre, 1990).

The insight that cultural analysis provides is that IBM was not founded by a technical entrepreneur and never built an engineering-based organi- zation in the first place. Tom Watson Sr. was a sales and marketing man- ager who thought like a salesman and marketer throughout his career, and his son, Tom Watson Jr., had the same kind of marketing mentality. Building a clear image with the public became an IBM hallmark, sym- bolized by its insistence on blue suits and white shirts, for all its sales- people. The sales organization met regularly and engaged in various kinds of bonding rituals including singing songs together and, in various other ways, forging a clear identity of who they were and why they were what they were.

Tom Watson Jr. clearly had the wisdom to become strong techni- cally, but the deeper cultural assumptions were always derived more from sales and marketing. Is it any surprise, then, that an outstanding mar- keting executive would be accepted as an outsider to help the company regain its competitive edge and that he would succeed, not by really changing the culture but by reinvigorating it around its original identity (Gerstner, 2002).

Example 6: Hewlett and Packard

What of HP? Dave Packard and Bill Hewlett both came out of Stanford with the intention of building a technical business, initially in measurement and instru- mentation technology (Packard, 1995). Computers were brought in only later as adjuncts to this core technology, and this led to the discovery that the kinds of people working in these technologies were different from each other, and to some degree incompatible. Ultimately this led to the splitting off of Agilent to

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pursue the original technology while HP evolved computers, printers, and various other related products.

HP’s growth and success reflected an effective division of labor between Hewlett, who was primarily a technical leader, and Packard, who was more of a business leader. Their ability to collaborate well with each other was undoubtedly one basis for “teamwork” becoming such a central value in the “HP way.” What we know of Packard’s managerial style contrasts strongly with Ken Olsen’s, in that HP formed divisions early on in its his- tory, put much more public emphasis on teamwork and consensus, even though individual competition remained as the deeper covert assumption. HP became much more dogmatic about standardizing processes throughout the company and was much more formal and deliberate than DEC, which made the computer types at HP uncomfortable.

HP’s and DEC’s views of teamwork illustrate the importance of defin- ing abstractions like “teamwork” very carefully in any cultural analysis. Teamwork in HP was defined as coming to agreement and not fighting too hard for your own point of view if the consensus was headed in a differ- ent direction In DEC, however, teamwork was defined as fighting for your own point of view until you either convinced others or truly changed your own mind. As I learned during some consulting with engineering managers in the computing arm of HP, the HP way required “being nice” and reach- ing consensus in group meetings, but “the decisions did not stick.” Instead, one had to follow up after the meeting and make individual deals with each of the people on whom one was dependent. The espoused values were “the HP way,” but the basic assumption was that as in other U.S. companies it was individual performance and competitive skill that produced results and that was, in the end, rewarded.

Subsequent to the splitting off of Agilent, the most significant event in the HP story is the introduction of an outsider, Carly Fiorina, as CEO. It appears that her strategy for making HP a successful global player in a variety of computer-related markets was to evolve the HP culture by the mega-merger with Compaq, acquiring in that process a large segment of DEC employees who had remained at Compaq. Because the computer mar- ket had become commoditized, becoming an efficient low-cost producer of commodities such as printers and ink became strategically advantageous but required the abandonment of some of the original values of the HP way.

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One can speculate that Fiorina was brought in as an outsider to start the change process, but that her replacement after some years by homegrown executives reflected a desire to keep parts of the HP culture even as some elements evolved. Under current CEO Meg Whitman, a further splitting of the company has occurred, suggesting that we are now dealing not with a single HP corporate culture but a set of subcultures reflecting the different products and services that HP now offers.

Summary and Conclusions

The goal of this chapter is to introduce the broad concept of cultural begin- nings by first showing a model of the basic issues that any new group has to deal with as it evolves its own culture, then showing how leaders in the role of founders start this process. Basically they impose some of their own beliefs, values, assumptions, and behavioral rules on their subordinates; if the organization is successful, they become taken for granted and a culture is born.

Founders are not likely to be conscious of the dynamic processes of group formation around the problems of authority and intimacy, but by the kinds of structures and processes they create, they are de facto dealing with those dynamics. In the following chapters we examine what happens with success, growth, and age.

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Suggestions for Readers

1. Think of one or two organizations that interest you and look up their histories on the internet.

2. If there are biographies of founders listed, consider reading those to deepen your understanding of how cultures form.

Implications for Founders and Leaders

The above stories and what we now know about the many start-ups and new companies that have been created in the last few decades suggest some important lessons that budding entrepreneurs and founders need to learn from.

Your new ideas have to fit in with existing needs in the macro cul- ture. Part of Ken Olsen’s motivation derived from the cold-war need to develop interactive computing so that missiles that might have been fired by the Soviet Union could be tracked in real time. Steve Jobs sensed that computer users were frustrated by complex interfaces and set about to sim- plify them, something that was once called creating “toys for yuppies.” Jeff Bezos created Amazon in a technological culture that was already rapidly evolving e-business and e-commerce, and in a consumer climate in which choice and rapid delivery were already high values.

Everything you say and do will be observed and will influence how the group will operate. Because a new group will be anxious, the members will be hypervigilant in observing your behavior. If you send conflicting signals, you will undermine the group’s capacity to function in the future.

Every group has to go through the growth stages around inclusion, identity, authority, and intimacy. Provide enough opportunities for reflec- tion, process analysis, and informal activities to allow these processes to occur before expecting total task engagement.

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