week 6 Organizational Theory And Development (B01)

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In the previous chapters we saw how founders of organizations start the culture-formation process by imposing their own beliefs, values, and assumptions about how things should be done on their followers and employees; we then reviewed all the external and internal issues that have to be addressed in creating an organization. A culture is now well on its way to being formed. If the founders or their successors believe that they are on the right track in how they have solved the external and internal issues, how do they consolidate and embed the new structures, processes, beliefs, and values? Founders and subsequently appointed or promoted leaders have available to them many mechanisms and processes to articulate and embed the culture they have created.

How will founders and formal leaders know whether or not to aggres- sively embed their beliefs, values, and assumptions? The main short- run criterion is the external one of whether or not the organization is succeeding. But many of the beliefs, values, and assumptions have long- range consequences. How should those be assessed? Should a leader who believes in teamwork impose team processes, team incentives, and team rewards? The primary internal criterion both for founding some- thing new and then embedding it in the organization’s structures and processes should be to examine the degree to which those beliefs, values, and assumptions are in alignment with the macro cultures in which the new organization must function.

Every culture is nested in some larger culture and can do only what the larger culture affords, tolerates, or supports. For example, I don’t believe it is accidental that the communes that were created in the 1960s and 1970s all eventually failed because they were nested in a fundamentally non-communal culture. Religious groups like the Amish or the Hutterites

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succeed because they are nested in a larger religious macro culture and iso- late themselves as much as possible from the immediate macro culture that would challenge some of their beliefs and values.

If the founder or leader does not consider how the new beliefs, values, and assumptions will fit into the macro culture, they will not be adopted. I witnessed a striking miscalculation along these lines in a large U.S. mul- tinational that decided to adopt a performance improvement program that depended on regular, direct face-to-face feedback from the superior to the subordinate. Several years of training for managers at all levels were pro- vided by the human resource (HR) department through its training arm. I happened to be at an executive development program in Hawaii that was attended by a team of managers from the Japanese subsidiary. One of the program’s designated outside speakers was the head of international HR of this company. She had been invited to describe this program as an example of effective performance management. She not only described the program but used the occasion to announce with great pride that the face-to-face feedback component had now been officially accepted worldwide as a key element of the company’s culture.

That evening I had dinner with several of the executives of the Japanese subsidiary and asked them whether they had had the training and how it was working out. They had all been trained, had politely pre- tended to go along, but as to doing it in Japan with their subordinates, they all said, “Of course we don’t do that, it would not work in our culture, we have other ways of getting things across to our subordinates, never direct face-to-face!”

Assuming that the organization is succeeding and that the founder or new leader has considered the fit between the new culture and the macro culture in which it is nested, what are the primary mechanisms for embed- ding the new? The simplest explanation of how leaders get their message across is that they do it through “charisma,” that mysterious ability to cap- ture the subordinates’ attention and to communicate major assumptions and values in a vivid and clear manner (Bennis & Nanus, 1985; Conger, 1989; Leavitt, 1986). Charisma is an important mechanism of culture cre- ation, but it is not, from the organization’s or society’s point of view, a reli- able mechanism of embedding or socialization because leaders who have it are rare and their impact is hard to predict.

Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-08-24 15:57:35.

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Primary Embedding Mechanisms

The six primary embedding mechanisms shown in Exhibit 10.1 are the major “tools” that leaders have available to them to teach their organiza- tions how to perceive, think, feel, and behave based on their own conscious and unconscious convictions. They are discussed in sequence, but they operate simultaneously. They are visible artifacts of the emerging culture and they directly create what would typically be called the “climate” of the organization (Schneider, 1990; Ashkanasy et al., 2000; Ehrhart et al., 2014).

Exhibit 10.1

How Leaders Embed Their Beliefs, Values, and Assumptions

Primary Embedding Mechanisms • what leaders pay attention to, measure, and control on a regular basis • How leaders react to critical incidents and organizational crises • How leaders allocate resources • deliberate role modeling, teaching, and coaching • How leaders allocate rewards and status • How leaders recruit, select, promote, and excommunicate Secondary Reinforcement and Stabilizing Mechanisms • organizational design and structure • organizational systems and procedures • rites and rituals of the organization • design of physical space, façades, and buildings • stories about important events and people • Formal statements of organizational philosophy, creeds, and charters

Historians can look back and say that certain people had charisma or had a great vision. It is not always clear at the time, however, how they transmitted the vision. However, leaders of organizations without charisma have many ways of getting their message across. and it is these other ways that form the focus of this chapter. Exhibit 10.1 shows 12 embedding mechanisms divided into primary and secondary sections to highlight the difference between the most powerful daily behavioral things that leaders do and the more formal but less powerful mechanisms that support and reinforce the primary messages.

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What Leaders Pay Attention to, Measure, and Control on a Regular Basis

The most powerful mechanisms that founders, leaders, managers, and par- ents have available for communicating what they believe in or care about is what they systematically pay attention to. This can mean anything from what they notice and comment on to what they measure, control, reward, and in other ways deal with systematically. Even casual remarks and ques- tions that are consistently geared to a certain area can be as potent as formal control mechanisms and measurements.

If leaders are aware of this process, then being systematic in paying attention to certain things becomes a powerful way of communicating a message, especially if leaders are totally consistent in their own behavior. However, if leaders are not aware of the power of this process or they are inconsistent in what they pay attention to, subordinates and colleagues will spend inordinate time and energy trying to decipher what a leader’s behavior really reflects and will even project motives onto the leader where none may exist. This mechanism is well captured by the phrase “you get what you settle for.”

It is the consistency that is important, not the intensity of the atten- tion. To illustrate, at a recent conference on safety in industrial organiza- tions, the speaker from Alcoa pointed out that one of the company’s former CEOs, Paul McNeill, wanted to get across to workers how important safety was and did this by insisting that the first item on every meeting agenda was to be a discussion of safety issues. In the Alpha Power Company that I will be discussing subsequently, supervisors start every job with a job briefing that includes a discussion of the safety issues they might encounter that day. The organization has many safety programs, and senior managers fre- quently announce the importance of safety, but it is the questions they ask on a daily basis that get the message across.

Douglas McGregor (1960) tells of a company that wanted him to help install a management-development program. The president hoped that McGregor would propose exactly what to do and how to do it. Instead, McGregor asked the president whether he really cared about identifying and developing managers. On being assured that he did, McGregor pro- posed that the president should build his concern into the reward system

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and set up a consistent way of monitoring progress; in other words, he should start to pay attention to it. The president agreed and announced to his subordinates that henceforth 50 percent of each senior manager’s annual bonus would be contingent on what he or she had done to develop his or her immediate subordinates during the past year. He added that he himself had no specific program in mind, but that in each quarter he would ask each senior manager what had been done.

One might think that the bonus was the primary incentive for the senior managers to launch programs, but far more important was the fact that they had to report regularly on what they were doing. The senior managers launched a series of different activities, many of them pulled together from work that was already going on piecemeal in the organiza- tion. A coherent program was forged over a two-year period and has con- tinued to serve this company well. The president continued his quarterly questions and once a year evaluated how much each manager had done for development. He never imposed any program, but by paying consis- tent attention to management development and by rewarding progress, he clearly signaled to the organization that he considered management development to be important.

At the other extreme, some DEC managers illustrated how incon- sistent and shifting attention causes subordinates to pay less and less attention to what senior management wants, thereby empowering the employee by default. For example, a brilliant manager in one technical group would launch an important initiative and demand total support, but two weeks later he would launch a new initiative without indicating whether or not people were supposed to drop the old one. As subordinates two and three levels down observed this seemingly erratic behavior, they began to rely more and more on their own judgment of what they should actually be doing.

Some of the most important signals of what founders and leaders care about are sent during meetings and in other activities devoted to planning and budgeting, which is one reason why planning and budgeting are such important managerial processes. In questioning subordinates systematically on certain issues, leaders can transmit their own view of how to look at problems. The ultimate content of the plan may not be as important as the learning that goes on during the planning process.

Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-08-24 15:57:35.

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Leader Emotional Outbursts. An even more powerful signal than regular questions is a visible emotional reaction—especially when leaders feel that one of their important values or assumptions is being violated. Emotional outbursts are not necessarily very overt, because many managers believe that one should not allow one’s emotions to become too involved in the decision-making process. But subordinates generally know when their bosses are upset and many leaders do allow themselves to get overtly angry and use those feelings as messages.

Subordinates find their bosses’ emotional outbursts painful and try to avoid them. In the process, they gradually come to condition their behavior to what they perceive the leader to want, and if, over time, that behavior produces desired results they adopt the leader’s assumptions. For example, Olsen’s concern that line managers stay on top of their jobs was originally signaled most clearly in an incident at an executive committee meeting when the company was still very young. A newly hired chief financial offi- cer (CFO) was asked to make his report on the state of the business. He had analyzed the three major product lines and brought his analysis to the meeting. He distributed the information and then pointed out that one product line in particular was in financial difficulty because of falling sales, excessive inventories, and rapidly rising manufacturing costs. It became evident in the meeting that the vice president (VP) in charge of the prod- uct line had not seen the CFO’s figures and was somewhat embarrassed by what was being revealed.

As the report progressed, the tension in the room rose because everyone sensed that a real confrontation was about to develop between the CFO and the VP. The CFO finished, and all eyes turned toward the VP. The VP said that he had not seen the figures and wished he had had a chance to look at them; because he had not seen them, however, he had no immediate answers to give. At this point Olsen (CEO) blew up, but to the surprise of the whole group he blew up not at the CFO but at the VP. Several members of the group later revealed that they had expected Olsen to blow up at the CFO for his obvious grandstanding in bringing in figures that were new to everyone. However, no one had expected Olsen to turn his wrath on the product-line VP for not being prepared to deal with the CFO’s arguments and information. Protests that the VP had not seen the data fell on deaf ears. He was told that if he were running his business properly he would

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have known everything the CFO knew, and he certainly should have had answers for what should now be done.

Suddenly everyone realized that there was a powerful message in Olsen’s outburst. He clearly expected and assumed that a product-line VP would always be totally on top of his own business and would never put himself in the position of being embarrassed by financial data. The fact that the VP did not have his own numbers was a worse sin than being in trouble. The fact that he could not respond to the troublesome figures was also a worse sin than being in trouble. The Olsen blowup at the line manager was a far clearer message than any amount of rhetoric about delegation, account- ability, and the like would have been.

If a manager continued to display ignorance or lack of control of his own situation, Olsen would continue to get angry at him and accuse him of incompetence. If the manager attempted to defend himself by noting that his situation either was the result of actions on the part of others over whom he had no control or resulted from prior agreements made by Olsen himself, he would be told emotionally that he should have brought the issue up right away to force a rethinking of the situation and a renegotiation of the prior decision. In other words, Olsen made it very clear, by the kinds of things to which he reacted emotionally, that poor performance could be excused but not being on top of one’s own situation and not informing oth- ers of what was going on could never be excused.

Olsen’s deep assumption about the importance of always telling the truth was signaled most clearly on the occasion of another executive com- mittee meeting, when it was discovered that the company had excess inventory because each product line, in the process of protecting itself, had exaggerated its orders to manufacturing by a small percentage. The accu- mulation of these small percentages across all the product lines produced a massive excess inventory, which the manufacturing department disclaimed because it had produced only what the product lines had ordered. At the meeting in which this situation was reviewed, Olsen said that he had rarely been as angry as he was then because the product-line managers had lied. He stated flatly that if he ever caught a manager exaggerating orders again, it would be grounds for instant dismissal no matter what the reasons. The suggestion that manufacturing could compensate for the sales exaggera- tions was dismissed out of hand because that would compound the problem.

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The prospect of one function lying while the other function tried to figure out how to compensate for it totally violated Olsen’s assumptions about how an effective business should be run.

Both Steinberg and Olsen shared the assumption that meeting the cus- tomer’s needs was one of the most important ways of ensuring business suc- cess, and their most emotional reactions consistently occurred whenever they learned that a customer had not been well treated. In this area the official messages, as embodied in company creeds and the formal reward system, were completely consistent with the implicit messages that could be inferred from founder reactions. In Sam Steinberg’s case, the needs of the customer were put ahead even of the needs of the family, and one way that a family member could get in trouble was by mistreating a customer.

Inferences from What Leaders Do Not Pay Attention To. Other power- ful signals that subordinates interpret for evidence of the leader’s values are what leaders do not react to. For example, in DEC, managers were fre- quently in actual trouble with cost overruns, delayed schedules, and imper- fect products, but such troubles rarely caused comment if the manager had displayed evidence that he or she was in control of the situation. Trouble was assumed to be a normal condition of doing business; only failure to cope and regain control was unacceptable. In DEC’s product design depart- ments, one frequently found excess personnel, very high budgets, and lax management with regard to cost controls, none of which occasioned much comment. Subordinates correctly interpreted this to mean that it was far more important to come up with a good product than to control costs.

Inconsistency and Conflict. If leaders send inconsistent signals in what they do or do not pay attention to, this creates emotional problems for sub- ordinates, as was shown in the Steinberg case. Sam Steinberg valued high performance but accepted poor performance from family members, caus- ing many competent non-family members to leave. Ken Olsen wanted to empower people but he also signaled that he wanted to maintain “paternal” centralized control. Once some of the empowered engineering managers developed enough confidence in their own decision-making ability, they were forced into a kind of pathological insubordination—agreeing with Olsen during the meeting but then telling me as we were walking down

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the hall after the meeting that “Ken no longer is on top of the market or the technology so we will do something different from what he wants.” A young engineer coming into DEC would also find an organizational incon- sistency in that the clear concern for customers coexisted with an implicit arrogance toward certain classes of customers because the engineers often assumed that they knew better what the customer would like in the way of product design. Olsen implicitly reinforced this attitude by not reacting in a corrective way when engineers displayed such arrogance.

The fact that leaders may be unaware of their own conflicts or emotional issues and therefore may be sending mutually contradictory messages leads to varying degrees of culture conflict and organizational pathology (Kets de Vries & Miller, 1987; Frost, 2003; Goldman, 2008). Both Steinberg’s and DEC were eventually weakened by their leaders’ unconscious conflicts between a stated philosophy of delegation and decentralization and a pow- erful need to retain tight centralized control. Both intervened frequently on very detailed issues and felt free to go around the hierarchy. Subordinates will tolerate and accommodate contradictory messages because, in a sense, founders, owners, and others at higher levels are always granted the right to be inconsistent or, in any case, are too powerful to be confronted.

The emerging culture will then reflect not only the leader’s assumptions but also the complex internal accommodations created by subordinates to run the organization in spite of or around the leader. The group, sometimes acting on the assumption that the leader is a creative genius who has idio- syncrasies, may develop compensatory mechanisms, such as buffering lay- ers of managers, to protect the organization from the dysfunctional aspects of the leader’s behavior. In those cases the culture may become a defense mechanism against the anxieties unleashed by inconsistent leader behav- ior. In other cases the organization’s style of operating will reflect the very biases and unconscious conflicts that the founder experiences, thus causing some scholars to call such organizations “neurotic” (Kets de Vries & Miller, 1984, 1987). At the extreme, subordinates or the board of directors may have to find ways to move the founder out altogether, as has happened in a number of first-generation companies.

In summary, what leaders consistently pay attention to, reward, control, and react to emotionally communicates most clearly what their own priori- ties, goals, and assumptions are. If leaders pay attention to too many things

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or if their pattern of attention is inconsistent, subordinates will use other signals or their own experience to decide what is really important, leading to a much more diverse set of assumptions and many more subcultures.

Leader Reactions to Critical Incidents and Organizational Crises

When an organization faces a crisis, the manner in which leaders and oth- ers deal with it reveals important underlying assumptions and often creates new norms, values, and working procedures. Crises are especially significant in culture creation and transmission because the heightened emotional involvement during such periods increases the intensity of learning. Crises heighten anxiety, and the need to reduce anxiety is a powerful motivator of new learning. If people share intense emotional experiences and collec- tively learn how to reduce anxiety, they are more likely to remember what they have learned and to ritually repeat that behavior to avoid anxiety.

For example, a company almost went bankrupt because it over-engi- neered its products and made them too expensive. The company survived by hitting the market with a lower-quality, less expensive product. Some years later the market was ready for a more expensive, higher-quality prod- uct, but this company was not able to produce such a product because it could not overcome the anxiety based on its memories of almost going under with the more expensive high-quality product.

What is defined as a crisis is, of course, partly a matter of perception. There may or may not be actual dangers in the external environment, and what is considered to be dangerous is itself often a reflection of the culture. For purposes of this analysis, a crisis is what is perceived to be a crisis and what is defined as a crisis by founders and leaders. Crises that arise around the major external survival issues are the most potent in revealing the deep assumptions of the leaders.

A story told about Tom Watson Jr. highlights his concern for people and for management development. A young executive had made some bad decisions that cost the company several million dollars. He was summoned to Watson’s office, fully expecting to be dismissed. As he entered the office, the young executive said, “I suppose after that set of mistakes you will be wanting to fire me.” Watson was said to have replied, “Not at all, young man, we have just spent a couple of million dollars educating you.”

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Innumerable organizations have faced the crisis of shrinking sales, excess inventories, technological obsolescence, and the subsequent necessity of laying off employees to cut costs. How leaders deal with such crises reveals some of their assumptions about the importance of people and their view of human nature. Ouchi (1981) cites several dramatic examples in which U.S. companies faced with layoffs decided instead to go to short workweeks or to have all employees and managers take cuts in pay to manage the cost reduction without staff reduction. We have seen many examples of this sort during the economic crisis of 2009.

The DEC assumption that “we are a family who will take care of each other” came out most clearly during periods of crisis. When the company was doing well, Olsen often had emotional outbursts reflecting his con- cern that people were getting complacent. When the company was in dif- ficulty, however, Olsen never punished anyone or displayed anger; instead, he became the strong and supportive father figure, pointing out to both the external world and the employees that things were not as bad as they seemed, that the company had great strengths that would ensure future suc- cess, and that people should not worry about layoffs because things would be controlled by slowing down hiring.

However, Steinberg displayed his lack of concern for his own young managers by being punitive under crisis conditions, sometimes impulsively firing people only to have to try to rehire them later because he realized how important they were to the operation of the company. This gradu- ally created an organization built on distrust and low commitment, leading good people to leave when a better opportunity came along.

Crises around issues of internal integration can also reveal and embed leader assumptions. I have found that a good time to observe an organiza- tion very closely is when acts of insubordination take place. So much of an organization’s culture is tied up with hierarchy, authority, power, and influence that the mechanisms of conflict resolution have to be constantly worked out and consensually validated. No better opportunity exists for leaders to send signals about their own assumptions about human nature and relationships than when they themselves are challenged.

For example, Olsen clearly and repeatedly revealed his assumption that he did not feel that he knew best through his tolerant and even encour- aging behavior when subordinates argued with him or disobeyed him.

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He signaled that he was truly depending on his subordinates to know what was best and that they should be insubordinate if they felt they were right. In contrast, a bank president with whom I have worked publicly insisted that he wanted his subordinates to think for themselves, but his behavior belied his overt claim. During an important meeting of the whole staff, one of these subordinates, in attempting to assert himself, made some silly errors in a presentation. The president laughed at him and ridiculed him. Though the president later apologized and said he did not mean it, the damage had been done. All the other subordinates who witnessed the inci- dent interpreted the outburst to mean that the president was not really seri- ous about delegating to them and having them be more assertive. He was still sitting in judgment of them and was still operating on the assumption that he knew best.

How Leaders Allocate Resources

How budgets are created in an organization reveals leader assumptions and beliefs. For example, a leader who is personally averse to being in debt will bias the budget-planning process by rejecting plans that lean too heav- ily on borrowing and favoring the retention of as much cash as possible, thus undermining potentially good investments. As Donaldson and Lorsch (1983) show in their study of top-management decision making, leader beliefs about the distinctive competence of their organization, acceptable levels of financial crisis, and the degree to which the organization must be financially self-sufficient strongly influence their choices of goals, the means to accomplish them, and the management processes to be used. Such beliefs function not only as criteria according to which decisions are made but as constraints on decision making in that they limit the percep- tion of alternatives.

Olsen’s budgeting and resource allocation processes clearly revealed his belief in the entrepreneurial bottom-up system. He always resisted let- ting senior managers set targets, formulate strategies, or set goals, prefer- ring instead to stimulate the engineers and managers below him to come up with proposals, business plans, and budgets that he and other senior executives would approve if they made sense. He was convinced that people would give their best efforts and maximum commitment only to

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projects and programs that they themselves had invented, sold, and were accountable for.

This system created problems as the DEC organization grew and found itself increasingly operating in a competitive environment in which costs had to be controlled. In its early days the company could afford to invest in all kinds of projects whether they made sense or not. In the late 1980s one of the biggest issues was how to choose among projects that sounded equally good but there were insufficient resources to fund them all. The effort to fund everything resulted in several key projects being delayed, and this became one of the factors in DEC’s ultimate failure as a business (Schein, 2003).

Deliberate Role Modeling, Teaching, and Coaching

Founders and new leaders of organizations generally seem to know that their own visible behavior has great value for communicating assumptions and values to other members, especially newcomers. Olsen and some other senior executives made videotapes that outlined their explicit philosophy, and these tapes were shown to new members of the organization as part of their initial training. However, there is a difference between the messages delivered by videos or from staged settings, such as when a leader gives a welcoming speech to newcomers, and the messages received when that leader is observed informally. The informal messages are the more powerful teaching and coaching mechanism.

Sam Steinberg, for example, demonstrated his need to be involved in everything at a detailed level by his frequent visits to stores and the minute inspections he made once he got there. When he went on vacation, he called the office every day at a set time and asked detailed questions about all aspects of the business. This behavior persisted into his semiretirement, when he would call every day from his retirement home thousands of miles away. Through his questions, his lectures, and his demonstration of per- sonal concern for details, he hoped to show other managers what it meant to be highly visible and on top of one’s job. Through his unwavering loyalty to family members, Steinberg also trained people in how to think about family members and the rights of owners. Olsen made an explicit attempt to downplay status and hierarchy in DEC by driving a small car, dressing

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informally, and spending many hours wandering among the employees at all levels, getting to know them personally.

How Leaders Allocate Rewards and Status

Members of any organization learn from their own experience with pro- motions, from performance appraisals, and from discussions with the boss what the organization values and what the organization punishes. Both the nature of the behavior rewarded and punished and the nature of the rewards and punishments themselves carry the messages. Leaders can quickly get across their own priorities, values, and assumptions by con- sistently linking rewards and punishments to the behavior they are con- cerned with.

I am referring here to the actual practices—what really happens—not what is espoused, published, or preached. For example, product managers in General Foods were each expected to develop a successful marketing program for their specific product and then were rewarded by being moved to a better product after about 18 months. Because the results of a market- ing program could not possibly be known in 18 months, what was really rewarded was the performance of the product manager in creating a “good” marketing program, as measured by the ability to sell it to the senior man- agers who approved it, not by the ultimate performance of the product in the marketplace.

The implicit assumption was that only senior managers could be trusted to evaluate a marketing program accurately; therefore, even if a product manager was technically accountable for his or her product, it was, in fact, senior management that took the real responsibility for launching expen- sive marketing programs. What junior managers learned from this was how to develop programs that had the right characteristics and style from senior management’s point of view. If junior-level managers developed the illusion that they really had independence in making marketing decisions, they had only to look at the relative insignificance of the actual rewards given to suc- cessful managers. They received a better product to manage, they might get a slightly better office, and they received a good raise, but they still had to present their marketing programs to senior management for review, and the preparations for and dry runs of such presentations took four to five months

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of every year even for very senior product managers. An organization that seemingly delegated a great deal of power to its product managers was, in fact, limiting their autonomy very sharply and systematically training them to think like senior managers.

To reiterate the basic point, if the founders or leaders are trying to ensure that their values and assumptions will be learned, they must create a reward, promotion, and status system that is consistent with those assump- tions. Although the message initially gets across in the daily behavior of the leader, it is judged in the long run by whether the important rewards such as promotion are allocated consistently with that daily behavior.

Most organizations espouse a variety of values, some of which are intrinsically contradictory, forcing new employees to figure out for them- selves what is really rewarded: customer satisfaction, productivity, safety, minimizing costs, or maximizing returns to the investors. Only by observing the actual behavior of senior managers and experiencing actual promotions and performance reviews can newcomers figure out what the underlying assumptions are by which the organization works.

How Leaders Select, Promote, and Excommunicate

One of the subtlest yet most potent ways through which leader values get embedded and perpetuated is the process of selecting new members. For example, Olsen assumed that the best way to build an organization was to hire very smart, articulate, tough, independent people and then give them lots of responsibility and autonomy. Ciba-Geigy, however, hired very well- educated, smart people who would fit into the more structured culture that had evolved over a century.

This cultural embedding mechanism is subtle because in most organiza- tions it operates unconsciously. Founders and leaders generally find attrac- tive those candidates who resemble present members in style, assumptions, values, and beliefs. They are perceived to be the best people to hire and are assigned characteristics that will justify their being hired. Unless someone outside the organization is explicitly involved in the hiring, there is no way of knowing how much the current implicit assumptions are dominating recruiters’ perceptions of the candidates. “Fitting in” becomes a value in its own right.

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Some Concluding Observations. These embedding mechanisms all inter- act and tend to reinforce each other if the leader’s own beliefs, values, and assumptions are consistent. By breaking out these six categories, I am trying to show the many different ways by which leaders can and do com- municate their assumptions. Most newcomers to an organization have a wealth of data available to them to decipher the leader’s real assumptions. Much of the socialization process is, therefore, embedded in the organi- zation’s normal working routines. It is not necessary for newcomers to attend special training or indoctrination sessions to learn important cul- tural assumptions. They become quite evident through the daily behavior of the leaders.

Secondary Reinforcement and Stabilizing Mechanisms

In a young organization, design, structure, architecture, rituals, stories, and formal statements are both culture creators and culture reinforcers. Once an organization has matured and stabilized, these same mechanisms come to be constraints on future leaders. In a growing organization these six mecha- nisms are secondary because they work only if they are consistent with the primary mechanisms discussed previously. When they are consistent, they begin to build organizational ideologies and thus to formalize much of what is informally learned at the outset. If they are inconsistent, they will either be ignored or will be a source of internal conflict. Such internal conflict will often be the primary source of subcultures that are not aligned with the organizational culture and thereby produce difficult integration problems for leaders, as we shall see.

All these secondary mechanisms can be thought of as cultural artifacts that are highly visible but may be difficult to interpret without insider knowledge obtained from observing leaders’ actual behaviors. When an organization is in its developmental phase, the driving and controlling assumptions will always be manifested first and most clearly in what the leaders demonstrate through their own behavior, not in what is written down or inferred from visible designs, procedures, rituals, stories, and pub- lished philosophies. However, as we shall see later, these secondary mecha- nisms can become very strong in perpetuating the assumptions even when new leaders in a mature organization would prefer to change them.

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Organization Design and Structure

How founders and early leaders design their organizations usually reveals high levels of passion and prejudice but not too much clear logic. The requirements of the primary task—how to organize to survive in the exter- nal environment—seem to get mixed up with powerful assumptions about internal relationships and with theories of how to get things done that derive more from the founder’s background than from current analysis. If it is a family business, the structure must make room for key family mem- bers or trusted colleagues, cofounders, and friends. Even in publicly held companies, the organization’s design is often built around the talents of the individual managers rather than the external task requirements. The management theories in which the founders are nested often domi- nate how the founder wants to organize rather than the requirements of the task.

Founders also have strong theories about how to organize for maximum effectiveness based on their own history and experience. Some assume that only they can ultimately determine what is correct; therefore, they build a tight hierarchy and highly centralized controls. Others assume that the strength of their organization is in their people and therefore build a highly decentralized organization that pushes authority down as low as possible. Still others, like Olsen, believe that their strength is in negotiated solu- tions; they hire strong people but then create a structure that forces such people to negotiate their solutions with each other, creating in the process a matrix organization.

Some leaders believe in minimizing interdependence to free each unit of the organization; others believe in creating checks and balances so that no one unit can ever function autonomously. Lee Kuan Yew believed in creating departments like the EDB and giving it simultaneously “complete independence” and the requirement to “coordinate its activities with the other government departments” so that the investor would experience Singapore as a “one-stop shop” that produced reliable information, made commitments, and “never broke its promises.”

Beliefs also vary about how stable a given structure should be, with some leaders seeking a solution and sticking with it, while others, like Olsen, were perpetually redesigning their organization in a search for solutions

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that better fit the perceived problems of the ever-changing external condi- tions. The initial design of the organization and the periodic reorganiza- tions that companies go through thus provide ample opportunities for the founders and leaders to embed their deeply held assumptions about the task, the means to accomplish it, the nature of people, and the right kinds of relationships to foster among people.

Some leaders are able to articulate why they have designed their orga- nization the way they have; others appear to be rationalizing and are not really consciously aware of the assumptions they are making, even though such assumptions can sometimes be inferred from the results. In any case, the organization’s structure and design can be used to reinforce leader assumptions but rarely does it provide an accurate initial basis for embed- ding them, because structure can usually be interpreted by the employees in a number of different ways in that any given hierarchical relationship can vary from total domination to intimate collaboration. It is the qual- ity of the relationship that ultimately makes the difference, especially whether the leader defines his or her relationship with subordinates as a transactional, emotionally distant, Level 1 role relationship, or attempts to create a more personal Level 2 relationship that is designed to be more open and trusting.

Organization Systems and Procedures

The most visible parts of life in any organization are the daily, weekly, monthly, quarterly, and annual cycles of routines, procedures, reports, forms, and other recurrent tasks that have to be performed. The origins of such routines are often not known to participants or, sometimes, even to senior management. But their existence lends structure and predictability to an otherwise vague and ambiguous organizational world. The systems and procedures thus serve a function quite similar to the formal structure in that they make life predictable and thereby reduce ambiguity and anxi- ety. Though employees often complain of stifling bureaucracy, they need some recurrent processes to avoid the anxiety of an uncertain and unpre- dictable world.

Given that group members seek this kind of stability and anxiety reduction, founders and leaders have the opportunity to reinforce their

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assumptions by building systems and routines around them. For example, Olsen reinforced his belief that truth is reached through debate by cre- ating many different kinds of committees and attending their meetings. Steinberg reinforced his belief in absolute authority by creating review pro- cesses in which he would listen briefly and then issue peremptory orders. Ciba-Geigy reinforced its assumptions about truth deriving from science by creating formal research studies before making important decisions. Alpha Power reinforced its assumptions about the inherent danger of delivering electricity, gas, and steam by writing hundreds of procedures for how to do things and constant training and monitoring to ensure compliance. Lee Kuan Yew supported his belief that only the best and the brightest should be in government by creating a scholarship program that sent the brightest to the best overseas universities but then required them to enter govern- ment service for a period of years.

Systems and procedures can formalize the process of “paying atten- tion,” thus reinforcing the message that the leader really cares about certain things. This is why the president who wanted management-development programs helped his cause immensely by formalizing his quarterly reviews of what each subordinate had done. Formal budgeting or planning routines are often adhered to less to produce plans and budgets but more to provide a vehicle to remind subordinates what to pay attention to.

If founders or leaders do not design systems and procedures as reinforce- ment mechanisms, they open the door to the evolution of inconsistencies in the culture or subcultures that conflict with the CEO’s primary values. Olsen believed that line managers should be in full control of their own operation but refused to allow them to become divisions. He allowed strong centralized corporate financial, engineering, manufacturing, and sales orga- nizations to evolve; at the same time he expected the product-line man- agers to be on top of their jobs. This resulted in much more expensive product lines because they wanted their own engineering, manufacturing, and finance people as liaisons. As the organization matures, subcultures will develop in each function that may or may not be aligned with each other or with the overall corporate culture. If those groups end up fighting each other, it will be the direct result of the initial inconsistency in design logic, not the result of the personalities or the competitive drives of the managers of those functions.

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Rites and Rituals of the Organization

Some students of culture view the special organizational processes of rites and rituals as central to the deciphering as well as to the communicating of cultural assumptions (Deal & Kennedy, 1982, 1999; Trice & Beyer, 1984, 1985). Rites and rituals are symbolic ways to formalize certain assumptions and are, therefore, important artifacts to observe. However, their lessons are not always easy to decipher; hence I do not consider them to be primary embedding mechanisms. Instead, they might be considered to be important reinforcers of key cultural assumptions if those assumptions are made clear by the primary embedding mechanisms.

In DEC, for example, the monthly “Woods meetings” devoted to impor- tant long-range strategic issues were always held off-site in highly informal surroundings that strongly encouraged informality, status equality, and dia- logue. The meetings usually lasted two or more days and involved some joint physical activity such as a hike or a mountain climb. Olsen strongly believed that people would learn to trust each other and be more open with each other if they did enjoyable things together in an informal setting. As the company grew, various functional groups adopted this style of meeting as well, to the point where periodic off-site meetings became corporate rituals with their own various names, locales, and informal procedures.

In Ciba-Geigy, the annual meeting always involved the surprise ath- letic event that no one was good at and that would therefore equalize sta- tus. The participants would let their hair down, try their best, fail, and be laughed at in a good-humored fashion. It was as if the group were trying to say to itself, “We are serious scientists and business people, but we also know how to play.” During the play, informal messages that would not be allowed in the formal work world could be conveyed, thus compensating somewhat for the strict hierarchy.

In Alpha Power the values of teamwork, especially in environmental, health, and safety activities, were symbolized by monthly “way we work” special lunches attended by three or four teams that had been nomi- nated for outstanding achievements by senior management. Each team was asked to tell the entire group what they had accomplished and how they had done it. Group photographs then published in the house organ served as additional reward and publicity. In addition, the company had all kinds of prizes for safety performance.

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One can find examples of ritualized activities and formalized ritual events in most organizations, but they typically reveal only very small por- tions of the range of assumptions that make up the culture of an organiza- tion. Therein lies the danger of putting too much emphasis on the study of rituals. One can perhaps decipher one piece of the culture correctly, but one may have no basis for determining what else is going on and how important the ritualized activities are in the larger scheme of things.

Design of Physical Space, Façades, and Buildings

Physical design encompasses all the visible features of the organization that clients, customers, vendors, new employees, and visitors would encounter. The messages that can be inferred from the physical environment, as in the case of structure and procedures, potentially reinforce the leader’s mes- sages, but only if they are managed to accomplish this (Steele, 1973, 1986; Gagliardi, 1990). If they are not explicitly managed, they may reflect the assumptions of architects, the organization’s planning and facilities manag- ers, local norms in the community, or other subcultural assumptions. Often the architecture also reflects macro culture assumptions in that buildings have to fit the style of the community in which they exist.

DEC chose to locate itself initially in an old woolen mill to emphasize frugality and simplicity. What the visitor experienced visually in this orga- nization was an accurate reflection of deeply held assumptions, and one indicator of this depth was that the effects were reproduced in the offices of this organization all over the world.

Ciba-Geigy strongly valued individual expertise and autonomy. But because of its assumption that the holder of a given job becomes the ulti- mate expert on the area covered by that job, it physically symbolized turf by giving people privacy. In both companies physical arrangements were not incidental or accidental physical artifacts. They reflected the basic assumptions of how work gets done, how relationships should be managed, and how one arrives at truth.

The current trend toward open areas, cubicles, and mixed-use space is very vivid but not easy to decipher. Is it about reducing costs, stimulating certain kinds of interaction, making employees more visible to managers, creating flexible designs that can easily be altered, or combinations of these

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things? Without getting into the organization to reconstruct the history of the decision process, we don’t know what to infer about the culture.

Stories about Important Events and People

As a group develops and accumulates a history, some of this history becomes embodied in stories about events and leadership behavior (Allan, Fairtlough, & Heinzen, 2002; Martin & Powers, 1983; Neuhauser, 1993; Wilkins, 1983). Thus, the story—whether it is in the form of a parable, legend, or even myth—reinforces assumptions and teaches values to newcomers. However, because the message to be found in the story is often highly distilled or even ambiguous, this form of communication is some- what unreliable. Leaders cannot always control what will be said about them in stories, though they can certainly reinforce stories that they feel good about and perhaps can even launch stories that carry desired messages. Leaders can make themselves highly visible to increase the likelihood that stories will be told about them, but sometimes attempts to manage the mes- sage in this manner backfire because the story may reveal inconsistencies and conflicts in the leader.

Efforts to decipher culture from collecting stories encounter the same problem as the deciphering of rituals: unless one knows other facts about the leaders, one cannot always correctly infer what the point of the story is. If one understands the culture, then stories can be used to enhance that understanding and make it concrete, but it is dangerous to try to achieve that understanding in the first place from stories alone.

For example, let’s revisit the story told about Ken Olsen that when he first saw the IBM PC he said, “Who would ever want a computer in their home?” and “I would fire the engineer who designed that piece of junk.” This story sends strong messages about Olsen’s prejudices, but it turns out that only one of the messages is correctly interpreted. Olsen did think the PC was less elegant than what he would have wanted to produce, but his remark about computers in the home was made at a time when people were advocating computers as a way of controlling everything in the home. This remark was made at a time when fears of computers taking over all functions in our lives was very real, as viewers of the film 2001: A Space Odyssey will recall. Olsen welcomed and used computers in his home as work and play stations but not as mechanisms for organizing

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and controlling daily activities. Unfortunately, the story was often told to show that Olsen did not perceive the growing use of home comput- ers, even as he also said that he felt that DEC had actually invented the personal computer because DEC was the first company to provide desktop interactive capabilities.

Formal Statements of Organizational Philosophy, Creeds, and Charters

The final mechanism of articulation and reinforcement to be mentioned is the formal statement—the attempt by the founders or leaders to state explicitly what their values or assumptions are. These statements typi- cally highlight only a small portion of the assumption set that operates in the group and, most likely, will highlight only those aspects of the leader’s philosophy or ideology that lend themselves to public articulation. Such public statements have a value for the leader as a way of emphasizing spe- cial things to be attended to in the organization, as values around which to rally the troops, and as reminders of fundamental assumptions not to be forgotten.

Issuing formal statements can be crucial to articulating the identity that the organization wants to convey to its investors, customers, and employ- ees, but it cannot be viewed as a way of defining the organization’s whole culture. At best, formal statements cover a small, publicly relevant segment of the culture—those aspects that leaders find useful to publish as an ideol- ogy or focus for the organization. I have called such statements part of the espoused values, noting that how well aligned they are with the deeper basic assumptions has to be determined by looking at all the primary indi- cators mentioned previously.

Lessons for Leaders and Researchers

• Culture is a complex system. When founders create a new organiza- tion, it is the totality of their own thinking that gets transmitted into the new organization through all these mechanisms. This reminds us that culture is an interconnected set of assumptions, not isolated ele- ments of how groups work.

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• New cultures must be aligned with macro cultures. The new cul- ture is nested in occupational and national macro cultures and will not survive if it is not aligned with the assumptions of the macro cultures.

• Founder conflicts and inconsistencies create subcultures and culture conflict. Most subcultures form around the differentiation of the sub- tasks that organizations have to perform. If the leader sends conflicting signals, that will stimulate subcultures that can become countercultures and create organizational conflict that will be hard to explain and man- age until the conflicted leader leaves or is ousted.

• Many of the second set of embedding mechanisms are artifacts and cannot be reliably used to infer a founder’s basic assumptions.

• During the growth period the culture is the organization’s identity, and it will be fiercely defended if it is perceived to be the source of the organization’s success.

• Founders must be aware that they are creating culture, whether or not they explicitly intend to and whether or not they are aware of their impact. It is this point that is missed when managers in a mature organization launch culture-change programs without seriously exam- ining the culture they already have, based on the founder’s activities and the history of learning by the group.

Summary and Conclusions

The purpose of this chapter is to examine how leaders embed the beliefs, values, and assumptions that they hold, thereby creating the conditions for culture formation, stabilization, and evolution. Six of the mechanisms discussed are powerful primary means by which founders or leaders are able to embed their own assumptions in the ongoing daily life of their organiza- tions. Through what they pay attention to and reward, through the ways in which they allocate resources, through their role modeling, through the manner in which they deal with critical incidents, and through the crite- ria they use for recruitment, selection, promotion, and excommunication,

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leaders communicate both explicitly and implicitly the beliefs, values, and assumptions they actually hold even if they cannot articulate them clearly. If they are conflicted, the conflicts and inconsistencies are also communicated and become a part of the culture or become the basis for subcultures and countercultures.

Less powerful, more ambiguous, and more difficult to control are the messages embedded in the organization’s structure, its procedures and rou- tines, its rituals, its physical layout, its stories and legends, and its formal statements about itself. These six secondary mechanisms can provide pow- erful reinforcement of the primary messages if the leader is able to con- trol them. The important point to grasp is that all these mechanisms do communicate culture content to newcomers. Leaders do not have a choice about whether or not to communicate. They only have a choice about how to manage what they communicate.

At the organization’s early growth stage, the secondary mechanisms of structure, procedures, rituals, and formally espoused values are only sup- portive, but as the organization matures and stabilizes, they will become institutionalized and become important primary maintenance mechanisms. The more effective they are in making the organization successful, the more they become the filter or criteria for the selection of new leaders. “This is the way we do things around here” becomes the explicit definition of the culture. As a result, the likelihood of new leaders becoming cultural change agents declines as the organization matures. The socialization process then begins to reflect what has worked in the past, not what may be the primary agenda of a new leader coming in. The dynamics of the “midlife” organiza- tion are, therefore, quite different from those of the young and emerging organization, as is shown in the following chapters.

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Questions for Researchers, Students, and Employees

1. Visit a local supermarket or bank, find someplace to sit, and observe the interactions of employees and managers for as long as you are comfortable. Note especially the interactions with managers, and try to infer what kind of rules are operating around hierarchical boundaries. Watch how employees deal with each other, and see what you can infer about relationships. Are they Level 1 or Level 2?

2. Ask a friend who works in a large company, how he or she knows what is acceptable in that organization in dealing with the boss? How open can you be? How does the boss respond to bad news? What can you infer from what your friend tells you about whether or not you would want to work in that organization?

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