week 6 Organizational Theory And Development (B01)

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This chapter deals with the natural processes by which culture evolves and changes as organizations grow and age and also discusses how change lead- ership can influence those processes. Such influence can come about by deliberately redesigning the structure of the organization to give subgroups different environments, changing some of the organizational processes and thereby “coercing” new kinds of behavior that may or may not lead to new beliefs and values, or taking advantage of natural events such as disasters or scandals that force new behavior among organization members. These changes are generally not planned and are not usually preceded by for- mal cultural diagnoses or assessments. Rather, they result from how change leaders’ react to emergent events.

In the following chapters we take up the cases in which change leadership perceives a specific problem to be addressed and launches a managed-change process that will inevitably involve culture in some manner. Leaders need to understand the normal evolutionary change processes to be able to steer them.

The mechanisms and processes by which culture can and does evolve depend on the stage at which the organization finds itself. These mecha- nisms are cumulative in the sense that at a later stage, all the prior change mechanisms are still operating, but additional ones are becoming relevant.

Understanding how these mechanisms work is especially important for formal leaders, because the best kinds of change programs are often those where the leader enhances a normal evolutionary process rather than going against what may turn out to be the most stable elements in the cultural DNA. Resistance based on cultural DNA is especially likely if we consider the fact that an organization from one macro culture may be nested in a different macro culture with its own DNA. For example, a corporation from a country in which bribing officials is normal procedure would find its attempts to do that in the United States to be either fruitless or dangerous.

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Founding and Early Growth

In the first stage—the founding and early growth of a new organization— the main cultural thrust comes from the founders and their assumptions as was described in Chapter 8. The cultural paradigm that becomes embedded becomes that organization’s distinctive competence, the basis for member identity, and the psychosocial “glue” that holds the organization together. The emphasis in this early stage is on differentiating the organization from its environment and from other organizations; the organization makes its culture explicit, integrates it as much as possible, and teaches it firmly to newcomers (or selects them for initial compatibility).

The implications for change at this stage are clear. The culture in a young and successfully growing company is likely to be strongly adhered to because (1) the primary culture creators are still present, (2) the culture helps the organization define itself and make its way into a potentially hostile environ- ment, and (3) many elements of the culture have been learned as defenses against anxiety as the organization struggles to build and maintain itself.

It is therefore likely that proposals to deliberately change the culture from either inside or outside will be totally ignored or strongly resisted. Instead, dominant members or coalitions will attempt to preserve and enhance the culture. The only force that might influence such a situation would be an external crisis of survival in the form of a sharp drop in growth rate, loss of sales or profit, a major product failure, the loss of some key people, or some environmental event that cannot be ignored. If such a crisis occurs, the founder may be discredited and a new senior manager may be brought into the picture. If the founding organization itself stays intact, so will the culture. How then does culture evolve in the early growth phase of an organization?

Incremental Change through General and Specific Evolution

If the organization is not under too much external stress and if the founder or founding family stays around for a long time, the culture evolves in small increments by continuing to assimilate what works best over the years. Such evolution involves two basic processes: general evolution and specific evolution (Sahlins & Service, 1960).

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General Evolution. General evolution toward the next stage of develop- ment involves diversification, growing complexity, higher levels of dif- ferentiation and integration, and creative syntheses into new and more complex forms. The growth of subcultures, diversification into other macro cultures, the gradual aging and retirement of the founding group, going from private to public ownership, and merging with or acquiring other com- panies all create the need for new structures, new systems of governance, and new cultural alignments. Although there are a number of models that have been proposed for such evolution, it has been my experience that we still need to see many more cases before any of these models can really be validated (Adizes, 1990; Aldrich & Ruef, 2006; Chandler, 1962; Gersick, 1991; Greiner, 1972; Tushman & Anderson, 1986).

The general principle of this evolutionary process is that the overall corporate culture will adapt to changes in its external environment and internal structure. Basic assumptions may be retained, but the form in which they appear may change, creating new behavior patterns that ulti- mately change the character of the basic assumptions. For example, in DEC the assumptions that a person must find “truth through debate” and always “do the right thing” evolved from debate based on pure logic to debate based on protecting one’s turf, one’s organization.

Specific Evolution. Specific evolution results from the adaptation of spe- cific parts of the organization to their particular environments and the impact of increasing macro-cultural diversity on the core culture. This is the mechanism that causes organizations in different industries to develop different industry cultures and causes subgroups to develop different sub- cultures. Thus, a high-technology company will develop highly refined research and development (R&D) skills, whereas a consumer products company in foods or cosmetics will develop highly refined marketing skills. In each case, such differences will come to reflect important underlying assumptions about the nature of the world and the actual growth experi- ence of the organization.

If the subculture is occupationally based it will also acquire the values of that occupation as the occupation itself changes. For example, the person- nel function in most companies was originally very locally nested in the company culture, but as the occupation grew into a more “professional”

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cosmopolitan occupation, more managers in that function began to advo- cate the values and beliefs of the profession even if that deviated from the corporate culture. In many organizations “human resources” began to wield power, began to change some of the rules to fit the profession, and began to be less aligned with the original cultural DNA.

This lack of alignment between the ideals of the corporate culture and the practices of a subculture is one of the main forces leading to “managed culture evolution” as the organization matures (personal communication, Cook, 2016). In the early stage, those differences will be tolerated and efforts will be made to minimize them. For example, it was clear that the service organization at DEC was run more autocratically, but this was toler- ated because everyone recognized that a service organization required more discipline if the customers were to get timely and efficient service. The higher-order principle of “do the right thing” justified all kinds of mana- gerial variations within the various functions. However, it is the lack of alignment between the company culture and the subculture that becomes a primary force for change in midlife and beyond.

Self-Guided Evolution through Insight

A young organization is usually highly aware of its culture, even if it does not call its way of doing things “our culture.” In some organizations (e.g., DEC), the culture became a focus of attention and was perceived as a source of strength. DEC managers realized that their culture was an important motivator and integrative force, so they created “boot camps” to help newcomers gain insight and published many internal documents in which the culture was explicitly articulated and touted as a strength. They also recognized that cultural assumptions and the norms that they created could be used as a powerful control mechanism (Kunda, 1992; O’Reilly & Chatman, 1996).

Managed Evolution through Hybrids

The preceding mechanisms serve to preserve and enhance the culture as it exists, but changes in the environment often create disequilibria that force more adaptive change—change that challenges some of the deeper

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assumptions of the cultural paradigm. How can a young organization highly committed to its identity make such changes? One mechanism of gradual and incremental change is the systematic promotion of insiders whose own assumptions are better adapted to the new external realities. Because they are insiders, they accept much of the cultural core and have credibility. But because of their personalities, their life experiences, or the subculture in which their career developed, they hold assumptions that are to varying degrees different from the basic paradigm and thus can move the organiza- tion gradually into new ways of thinking and acting. When such managers are put into key positions, they often elicit the feeling from others, “We don’t like what this person is doing in the way of changing the place, but at least he (or she) is one of us.”

For this mechanism to work, some of the most senior leaders of the company must first have insight into what needs to be changed and what in their culture is missing or is inhibiting the change. They can obtain such insight by engaging in formal cultural assessment activities, by stimulating their board members and consultants to raise questions, or through educa- tional programs at which they meet other leaders. What all of these activi- ties have in common is to compel the leader to step partially outside his or her culture to be able to look at it more objectively. If leaders then rec- ognize the need for change, they can begin to select “hybrids” for key jobs by locating insiders who have a bias toward the new beliefs and values that they want to introduce or enhance. For example, as the computer industry moved away from hardware innovation to software development, change leaders could put more software-oriented managers into key positions in product development. Because DEC needed to become more disciplined in its operations as it grew, it put more people from manufacturing into key product-line jobs because they had learned to be more disciplined in their function.

Transition to Midlife: Problems of Succession

Organizational midlife can be defined structurally as the stage at which founder owners have relinquished the control of the organization to pro- moted or appointed general managers. They may still be owners and remain on the board, but operational control is turned over to a second generation

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of general managers. This stage can occur slowly or rapidly and can hap- pen when the organization is very small or very large, so it is best to think of it structurally rather than temporally. Many start-up companies reach midlife very quickly, whereas an organization such as IBM reached it only when Tom Watson Jr. relinquished the reins. The Ford Motor Company is perhaps still in the transition phase in that a family member, William Clay Ford, is still the chair of the board.

The succession from founders and owning families to midlife under gen- eral managers often involves many stages and processes. The first and often most critical of these processes is the relinquishing of the CEO role by the founder. Even if the new CEO is the founder’s son or daughter or another trusted family member, it is in the nature of founders and entrepreneurs to have difficulty giving up what they have created (Dyer, 1986, 1989; Schein, 1978; Watson & Petre, 1990). During the transition phase, conflicts over which elements of the culture employees like or do not like become surro- gates for what they do or do not like about the founder, because most of the culture is likely to be a reflection of the founder’s personality.

Battles develop between “conservatives” who like the founding culture and “liberals” or “radicals” who want to change the culture, partly because they want to enhance their own power position. The danger in this situa- tion is that feelings about the founder are projected onto the culture, and in the effort to displace the founder, much of the culture comes under chal- lenge. If members of the organization forget that the culture is a set of learned solutions that have produced success, comfort, and identity, they may try to change the very things they value and depend on.

What is often missing in this stage is an understanding of what the orga- nizational culture is and what it is doing for the organization, regardless of how it came to be. Change leaders among the investors and board members should therefore design succession processes that enhance those parts of the culture that provide identity, distinctive competence, and protection from anxiety. The new leaders not only should have the competence to bring the organization into maturity but should have beliefs and attitudes that will be compatible with the culture or they will fail, as happened to John Sculley and several other outside CEOs that Apple tried out. Figuring out what is the DNA of the existing culture and what is the DNA of the macro cultures in which the organization is nested become critical tasks for a change leader.

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The preparation for succession is psychologically difficult, both for the founder and for potential successors, because entrepreneurs typically like to maintain high levels of control. They may officially be grooming succes- sors, but unconsciously they may be preventing powerful and competent people from functioning in those roles. Or they may designate successors but prevent them from having enough responsibility to learn how to do the job—the “Prince Albert” syndrome, remembering that Queen Victoria did not permit her son many opportunities to practice being king. This pattern is particularly likely to operate with a father-to-son transition as was the case in IBM (Watson & Petre, 1990).

When the founder or founding family finally relinquishes control, an opportunity arises to change the direction of the cultural evolution if the successor is the right kind of hybrid and represents what is needed for the organization to survive. If the right kind of hybrid is not found, the organi- zation sometimes reverts to former members who have become hybrids by evolving their own career outside their original organization. For example, after Scully had been fired by Apple, several outside CEOs were brought in, but none were able to revitalize the organization. It was only when they brought back Steve Jobs, who had created and run NeXT and presum- ably had learned some valuable new things to bring to the organization he founded, that Apple regained its momentum.

In midlife, the most important elements of the culture will have become embedded in the structure and major processes of the organization. Hence, consciousness of the culture and the deliberate attempt to build, integrate, or conserve the culture have become less important. The culture that the organization has acquired during its early years now comes to be taken for granted. The only elements that are likely to be conscious are the credos, dominant espoused values, company slogans, written charters, and other public pronouncements of what the company wants to be and claims to stand for—its philosophy and ideology, which may or may not be consis- tent with its cultural DNA.

A number of change mechanisms come into play in connection with these transition processes. They may be launched by the outgoing founder or owner or by the new CEO or may occur spontaneously. In midlife orga- nizations, these mechanisms will operate in addition to the ones previously mentioned.

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Taking Advantage of Subculture Diversity

The strength of the midlife organization lies in the diversity of its sub- cultures. Leaders can therefore evolve midlife organizations culturally by assessing the strengths and weaknesses of different subcultures and then biasing the corporate culture toward one of those subcultures by systemati- cally promoting people from that subculture into key positions of power. This is an extension of the previously mentioned use of hybrids but has a more potent effect in midlife because preservation of the corporate culture is not as big an issue as it was in the young and growing organization. Also, the midlife organization is led by general managers who are not as emotion- ally embedded in the original culture and are therefore better able to assess needed future directions. Where product or market changes are involved, as was the case with Ciba-Geigy moving toward pharmaceuticals, I observed that several of the most important corporate-level general management positions were usually filled by executives from the pharma division.

Whereas the diversity of subcultures is a threat to the young organiza- tion, in midlife it can be a distinct advantage if the environment is chang- ing. Diversity increases adaptive capacity. The only disadvantage to this change mechanism is that it is very slow. If the pace of culture change needs to be increased because of crisis conditions, more systematic planned change projects must be launched.

Changes in Technology

Culture elements, even at the basic-assumption level, are sometimes forced to evolve in midlife when a new technology is brought in “disruptively” by competitors or by the leaders themselves through mergers, acquisitions, or their own R&D units (Christensen, 1997; O’Reilly & Tushman, 2016). New technologies require new behavior of employees and managers that may or may not be compatible with their talents and preferences. As Zuboff (1984) showed so powerfully, when information technology and numbers in the control room displaced the reliance on employee sensory data in the manufacture of paint, many employees could not make the transition and had to leave what became a “new” culture for them. Doctors who are now required to fill in electronic data on patients and no longer use handwriting

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for prescriptions experience these changes as major cultural shifts, which many of them resent and refuse to adopt.

Interestingly, I recently experienced yet another iteration in this chang- ing technology as my doctor was wearing GoogleGlasses, which allowed him to look directly at me and dictate everything that he used to have to enter into a computer. Changes in technology do not influence culture directly, but they coerce all kinds of new behavior, which gradually leads to new skills, beliefs, and attitudes. When desktop computers first became available, many organizations mandated that all managers would start to use them, just as medicine is beginning to coerce doctors to use them for medical records and prescriptions. The insightful change leader will real- ize that if beliefs and values are to follow, the manner in which such new technologies are introduced influences the likelihood of their successful acceptance. Instead of just giving in to the coercive force of the new tech- nology, many change leaders created more managed-change programs of the kind that are discussed in the following chapters.

As a preliminary to managed-change programs, companies have used “educational interventions” to introduce a new social technology as part of an organization-development program, with the avowed purpose of creat- ing some common concepts and language in a situation where they perceive a lack of shared assumptions—for example, Blake’s managerial grid (Blake & Mouton, 1969; Blake, Mouton, & McCanse, 1989), “systems dynamics” and “the learning organization” as presented in Senge’s The Fifth Discipline (1990), and Scharmer’s Theory U (2007), total quality management, and the Toyota production system, commonly known as “lean” (Womack, Jones, & Roos, 1990).

The growing practice of introducing personal computers and related networking information technology, the mandatory attendance at train- ing courses, the introduction of expert systems to facilitate decision mak- ing, and the use of various kinds of groupware to facilitate meetings across time and space barriers all clearly constitute another version of what might best be called technological “seduction,” though perhaps unintended by the original architects (Gerstein, 1987; Grenier & Metes, 1992; Johansen, et al., 1991; Savage, 1990; Schein, 1992). The assumption underlying this strategy is that a new common language and concepts in a given cultural area, such as “how people relate to subordinates” or “how people define

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reality in terms of their mental models,” will gradually force organization members to adopt a common frame of reference that will eventually lead to new shared assumptions.

An unusual example of technological seduction was provided by a man- ager who took over a British transportation company that had grown up with a royal charter 100 years earlier and had developed strong traditions around its blue trucks with the royal coat of arms painted on their sides. The com- pany was losing money because it was not aggressively seeking new concepts of how to sell transportation. After observing the company for a few months, the newly appointed CEO abruptly and without giving reasons ordered that the entire fleet of trucks be painted solid white. Needless to say, there was consternation. Delegations urging the president to reconsider, protestations about loss of identity, predictions of total economic disaster, and other forms of resistance arose. All of these were patiently listened to, but the president simply reiterated that he wanted it done, and soon. He eroded the resistance by making the request nonnegotiable.

After the trucks were painted white, the drivers suddenly noticed that customers were curious about what they had done and inquired what they would now put on the trucks in the way of new logos. These questions got the employees at all levels thinking about what business they were in and initiated the market-oriented focus that the president had been trying to establish in the first place. Rightly or wrongly, he assumed that he could not get this broader focus just by requesting it. He had to seduce the employees into a situation in which they had no choice but to rethink their identity.

Beyond these intra-organizational processes, we have to acknowledge that the broader IT revolution is at least as powerful as the introduction of the automobile in creating sweeping world-wide changes even in the con- cept of “organization” and “occupational community.” As Tyrell (2000) puts it in his summary of these impacts: “the development and deployment of rapid interactive communications technologies (especially . . . the Internet, intranets, EDI, and the World Wide Web) has produced new environments that give many people unprecedented access to specialized communities of interest” (p. 96). Since those words were written, we have acquired Facebook, LinkedIn, Twitter, and other new technologies that are already making even email potentially obsolete.

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If the boundaries of organizations and occupational communi- ties become fluid, the whole question arises of how culture as shared assumptions can form and operate in a group of people who inter- act only electronically (Baker, 2016). Some of the most fundamental aspects of culture deal with how people manage their interactions; in the electronic age, new forms of social contract must evolve to deal with authority and intimacy issues. For example, many professional ser- vice firms now consist of a very small headquarters organization and a vast network of geographically dispersed relevant experts (lawyers, consultants, doctors) who are “on call” but are not employees of the organization except on a contract basis. As various employment con- tracts change, the concept of what is a “career” changes as well, leading to further cultural evolution in the macro-cultural domain (Schein & Van Maanen, 2013).

Culture Change through Infusion of Outsiders

Shared assumptions can be changed by changing the composition of the dominant groups or coalitions in an organization—what Kleiner in his research has identified as “the group who really matters” (2003). The most potent version of this change mechanism occurs when a board of directors brings in a new CEO from outside the organization, or when a new CEO is brought in as a result of an acquisition, merger, or leveraged buyout. The new CEO usually brings in some of his or her own people and gets rid of people who are perceived to represent the old and increas- ingly ineffective way of doing things. In effect, this destroys the hierarchi- cal subculture that was the originator of the corporate culture and starts a process of new culture formation. If there are strong functional, geo- graphic, or divisional subcultures, the new leaders usually have to replace the leaders of those units as well. Dyer (1986, 1989) has examined this change mechanism in several organizations and found that it follows cer- tain patterns:

• The organization develops a sense of crisis because of declining per- formance or some kind of failure in the marketplace, and concludes it needs new leadership.

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• Simultaneously, there is a weakening of “pattern maintenance” in the sense that procedures, beliefs, and symbols that support the old culture break down.

• A new leader with new beliefs and values is brought in from the outside to deal with the crisis.

• Conflict develops between the proponents of the old assumptions and the new leadership.

• If the crisis is eased and the new leader is given the credit, he or she wins the conflict, and the new beliefs and values begin to be embedded and reinforced by a new set of pattern maintenance activities.

The extreme version of this is called “turnaround” management, which drastically changes structures and processes and espouses new beliefs and values, but this can happen to varying degrees. Employees may feel, “We don’t like the new approach, but we can’t argue with the fact that it made us profitable once again, so maybe we have to try the new ways.” Members who continue to cling to the old ways are either forced out or leave volun- tarily, because they no longer feel comfortable with where the organization is headed and how it does things.

The new leader can fail in three ways—improvement does not occur, the new leader is not given credit for the improvement that does occur, or the new leader’s assumptions threaten too much of the core of the culture that is still embodied in the founder’s traditions. If any of these three con- ditions apply, the new leader will be discredited and forced out as happened with Scully at Apple (it is said that he was never accorded the respect of the technical community within Apple, yet that was Apple’s core, no pun intended). This situation occurs frequently when an outsider is brought into young companies in which the founders or owning families are still powerful. In those situations, the probability is high that the new leader will violate the owners’ assumptions and will be forced out by them.

Culture change is sometimes stimulated by systematically bringing outsiders into jobs below the senior-management level and allowing them gradually to educate and reshape senior management’s thinking. This is most likely to happen when those outsiders take over subgroups, reshape the cultures of those subgroups, become highly successful, and thereby

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create a new model of how the organization can work. Probably the most common version of this process is to bring in a strong outsider or an inno- vative insider to manage one of the more autonomous divisions of a mul- tidivisional organization. If that division becomes successful, it generates a new model for others to identify with and creates a cadre of managers who can be promoted into more senior positions and can thereby influence the main part of the organization. As O’Reilly & Tushman (2016) have shown this is also the way organizations can cope with disruptive technological or market changes by creating their own subunits of disruption and fostering their growth alongside the original culture.

For example, the Saturn division of General Motors and the NUMMI (New United Motor Manufacturing, Inc.) plant—a joint venture of GM and Toyota—were deliberately given freedom to develop new assumptions about how to involve employees in the design and productions of cars and thus learn some new assumptions about how to handle human relation- ships in a manufacturing plant context. GM also acquired EDS (Electronic Data Systems) as a technological stimulus to organizational change. Each of these units became successful and created different cultures; they could thus become a model for change in the parent organization, but the GM “experiment” showed that if an innovative subculture is nested within a strong macro culture, the larger culture does not necessarily adopt the new culture. GM closed down Saturn and NUMMI in spite of its need to make major changes, because the DNA of the innovators clashed too much with the basic assumptions that had driven GM and that persisted even after GM went through bankruptcy procedures some years later.

Organizational Maturity and Potential Decline

Continued success creates two organizational phenomena that make cul- ture change more complicated: (1) Many basic assumptions become more strongly held, and (2) organizations develop espoused values and ideals about themselves that are increasingly out of line with the actual assump- tions by which they operate. If the internal and external environments remain stable, strongly held assumptions could be an advantage. However, if there is a change in the environment, some of those shared assumptions can become liabilities precisely because of their strength.

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As an organization matures, it also develops a positive ideology and a set of myths about how it operates. The organization develops a self-image, an organizational “face” so to speak, that will be built around the best things it does and did in the past. Because organizations, like individuals, have a need for self-esteem and pride, it is not unusual for them to begin to claim to be what they aspire to be or were at one time, while their actual practices are more responsive to the realities of accomplishing their primary task. Espoused values therefore come to be, to varying degrees, out of line with the actual assumptions that have evolved out of successful daily practices and with some of the assumptions that evolved in the various subcultures.

The best examples of such myths can be seen around the issue of “safety” in high-hazard industries such as oil companies, power companies, airlines, hospitals, and other organizations that espouse concern for the safety of its employees and the public. Each of these industries and individual compa- nies espouses that “safety is our primary concern,” but its practices are almost always driven by various tradeoffs around cost, productivity, schedules, and political considerations (Amalberti, 2013). The two major accidents expe- rienced by NASA with the Challenger and Columbia space shuttles both involved overriding concerns by some employees that there were safety issues. The BP Texas City deaths resulted from employee houses being built too close to dangerous chemical processes. The failure to cap the well in the Gulf of Mexico was the result of having only one instead of two back-up systems because of cost pressures. The ultimate irony of that case was that on the day of the explosion, employees were getting awards for safety perfor- mance because the number of “slips, trips, and falls” had gone down.

If nothing happens to expose these incongruities, myths grow up that support the espoused values, thus even building up reputations that are out of line with reality. The most common example in the 1990s was the myth in many companies that they would never lay off anybody, and in 2009 the myth that the banks, the financial companies, and related industries could survive the consequences of the bursting of the housing bubble. It is the growing strength of culture and the illusion that the espoused val- ues are actually how the organization operates that makes managed cul- ture change so difficult in a mature company. Most executives will say that nothing short of a “burning platform” or some major crisis will motivate a real assessment and subsequent change process.

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Culture Change through Scandal and Explosion of Myths

Where incongruities exist between espoused values and basic assumptions, scandal and myth explosion become the primary mechanisms of culture change. Nothing motivates an assessment and subsequent change program until there is a major accident, usually involving loss of life, which produces consequences that cannot be hidden, avoided, or denied and thus creates a public and visible scandal. Disastrous accidents, such as the near-meltdown at Three Mile Island, the losses of the Challenger and Columbia space shuttles, the Bhopal chemical explosion, the BP Texas City refinery explo- sion and the oil spill in the Gulf, the Fukushima nuclear plant destruction by the tsunami, quickly lead to a cry to “examine the culture that could allow such a thing to happen.” In the health care industry the equivalent is a “wrongful death” that reveals a failure in the hospital’s safety programs.

In all of these cases, it is usually discovered that the assumptions by which the organization was operating had drifted toward what was eco- nomical and practical to get the job done, and those practices came to be in varying degrees different from what the official ideology claimed (Gerstein, 2008; Snook, 2000). Often there have been employee complaints identify- ing such practices, but because they are out of line with what the organiza- tion wants to believe about itself, they are ignored or denied, sometimes leading to the punishment of the employees who brought up the information. When an employee feels strongly enough to “blow the whistle,” a scandal may result, and practices then may finally be reexamined, though the whistle- blower’s career may be ruined (Gerstein, 2008).

Public scandals force senior executives to examine norms and practices and assumptions that had been taken for granted and had operated out of awareness. Disasters and scandals do not automatically cause culture change, but they are a powerful disconfirming force that cannot be denied and that therefore start some kind of public self-assessment and change program. In the United States, this kind of public reexamination started with respect to the occupational culture of finance through the public scandals involv- ing Enron and various other organizations that have evolved questionable financial practices. Government oversight practices were reviewed in the wake of the Bernie Madoff scandal, and even some of the more fundamen- tal assumptions of the capitalist system of free enterprise were reexamined

Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-09-06 17:29:00.

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because of the deep recession of 2009. These reexaminations sometimes lead to new practices, but they do not automatically create new cultures, because the new practices may not result in greater external success or internal comfort. Scandals create the conditions for new practices and val- ues to come into play but they become new cultural elements only if they produce better results.

After a scandal or crisis has brought basic assumptions into conscious- ness and has been assessed as dysfunctional, the basic choices are between some kind of “turnaround,” a more rapid transformation of parts of the culture to permit the organization to become adaptive once again, or destruction of the organization and its culture through a process of total reorganization via a merger, acquisition, a turnaround process with outside leaders, or bankruptcy proceedings (or all of the above). In any case, strong new change leaders are likely to be needed to unfreeze the organization and launch the change program that will actually change the cultural DNA (Kotter & Heskett, 1992; Tichy & Devanna, 1987). The important point to note is that when myths are exploded, it provides an opportunity for change leaders to steer the organization in a new direction.

Culture Change through Mergers and Acquisitions

When one organization acquires another organization or when two organi- zations are merged for financial or marketing reasons, or in various kinds of joint ventures, there is inevitable culture clash because it is unlikely that two organizations will have the same cultures. The leadership role is then to figure out how best to manage this clash. The two cultures can be left alone to continue to evolve in their own way. A more likely scenario is that one culture will dominate and gradually either convert or excommunicate the members of the other culture. A third alternative is to blend the two cultures by selecting elements of both cultures for the new organization, either by letting new learning processes occur or by deliberately selecting elements of each culture for each of the major organizational processes (Salk, 1997, Schein, 2009b).

For example, in the merger of Hewlett–Packard with Compaq, though many felt that it was really an acquisition that would lead to domina- tion by HP, in fact the merger-implementation teams examined each

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business process in both organizations, chose the one that looked better, and imposed it immediately on everyone. Elements of both cultures were imported by this means, which accomplished the goal of eliminating those elements that the HP leadership felt had become dysfunctional in the HP culture.

An interesting variation of this approach was reported in the takeover by General Electric of Pignone, an old Italian company in 1994, an acquisi- tion that Jack Welch later announced as a key step in GE’s “globalization” (Busco, Riccaboni, & Scapens, 2002). Needless to say, the GE and Pignone culture differed on many dimensions but the GE approach to the takeover was to impose only its accounting system and, thereby, focus everything on the numbers, even as the GE executives exhorted the Pignone managers “not to pay attention to the numbers, but concentrate on the vision.” Numbers, being more objective and manageable, not only became the prime focus but also enabled Pignone to improve its own management pro- cesses significantly. The authors report that what then happened was that Pignone, which had initially resisted being taken over by the GE culture, began to get very interested in how GE did things and voluntarily began to adopt many other elements of the GE culture!

Culture Change through Destruction and Rebirth

This dramatic title reflects the fact that bringing in outside executives because there are no hybrids that can evolve the culture strategically is the last resort when a mature company finds itself in a serious survival crisis. If the board or the investors bring in a strong outsider to “fix” the situation, what has come to be called a “turnaround manager,” it is likely that this new leader will find it necessary to bring in his or her own team and basically get rid of the manag- ers who adhere to the old cultural basics. In other words, when you remove the key culture carriers, usually the old-timers at the senior levels, you can destroy the culture because you are destroying the group.

When a company is acquired, a similar process can take place in that the acquiring company can impose its culture by replacing all of the key people in the acquisition with its own people. A third version of such destruction often occurs through bankruptcy proceedings. During such proceedings, a board can bring in entirely new executives, decertify a union, reorganize

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functions, bring in new technologies, and in other ways force real culture change. A new organization then begins to function and begins to build its own new culture. This process is traumatic and therefore not typically used as a deliberate strategy, but it may be necessary if economic survival is at stake. In the recession of 2009, many financial organizations and auto companies went through such destructive proceedings, but it is not always predictable in what form “rebirth” did or will occur. Historical research on past transformations in industry shows that sometimes even with crises only small changes occur, while at other times, changes are truly transfor- mational (Gersick, 1991; Tushman & Anderson, 1986).

Summary and Conclusions

I have described various mechanisms and processes by which culture changes in a natural way but have also noted that those changes can be steered by change leaders. As was noted, different functions are served by culture at different organizational stages, and the change issues are there- fore different at those stages. In the formative stage of an organization, the culture is most often a positive growth force, which needs to be elaborated, developed, and articulated. In organizational midlife, the culture becomes diverse in that many subcultures have formed. Deciding which elements need to be changed or preserved then becomes one of the tougher strate- gic issues that leaders face, but at this time leaders also have more options for changing beliefs and values by differentially rewarding different subcul- tures. In the maturity-and-decline stage, the culture often becomes partly dysfunctional and can be changed only through more drastic processes such as scandals that lead to mergers, acquisitions, bankruptcy, and turnarounds.

Culture evolves through the entry into the organization of people with new assumptions and from the different experiences of different parts of the organization. Leaders have the power to enhance diversity and encourage subculture formation, or they can, through selection and promotion, reduce diversity and thus manipulate the direction in which a given organization evolves culturally. The more turbulent the environment, the more impor- tant it is for the organization to maximize diversity, thereby maximizing its chances of being able to adjust to whatever new challenges the environ- ment creates by having a wider selection of hybrids available.

Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-09-06 17:29:00.

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Questions for Readers

1. What changes, if any, have resulted from the financial scandals of recent years?

2. What changes have resulted from the BP oil spill in the Gulf of Mexico?

3. Can you think of any major changes in recent years that have resulted without a scandal or crisis of some sort?

Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-09-06 17:29:00.

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Schein, E. H. (2016). Organizational culture and leadership. John Wiley & Sons, Incorporated. Created from liberty on 2023-09-06 17:29:00.

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