Organizational Culture Changes: 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. The cultural paradigm that becomes embedded, if the organization suc­ceeds in fulfilling its primary task and survives, can then be viewed as 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 the environment and from other organizations; the organization makes its culture explicit, integrates it as much as possible, and teaches it firmly to newcomers (and/ or selects them for initial compatibility).

The distinctive competencies in young companies are usually biased toward certain business functions reflecting the occupational biases of the founders. At DEC, the bias was clearly in favor of engineering and manu­facturing. Not only was it difficult for the other functions to acquire status and prestige, but also professionals in those functions, such as professional marketers, were often told by managers who had been with the company from its origin that “marketers never know what they are talking about.” At Ciba-Geigy, a similar bias persisted for science and research, even though the company was much older. Because R&D was historically the basis of Ciba-Geigy’s success, science was defined as the distinctive competence, even though more and more managers were admitting overtly that the future hinged more on marketing, tight financial controls, and efficient operations.

The implications for change at this stage are clear. The culture in young and successfully growing companies 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 environment, 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 other 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 change in the early growth phase of an organization?

1. Incremental Change Through General and Specific Evolution

If the organization is not under too much external stress and if the founder or founding family is 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 and Service, 1960).

General Evolution. General evolution toward the next stage of develop­ment involves diversification, growing complexity, higher levels of differen­tiation and integration, and creative syntheses into new and more complex forms. The growth of subcultures, diversification into other macrocultures, the gradual aging and retirement of the founding group, going from private to public ownership, and merging with or acquiring other companies all create the need for new structures, new systems of governance, and new cultural alignments. Though 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, and Ruef, 2006; Chandler, 1962; Gersick, 1991; Greiner, 1972; Tushman and 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 ultimately 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” was behaviorally expressed through the intense debate in which members of the executive committee used their individual logical power to test any given idea or proposed course of action. The emphasis was on reason and logic. With growth, each of the members of the execu­tive committee and/or their successors became leaders of large groups and developed feelings of responsibility for the welfare of these groups. In the meetings of the executive committee, the arguments were as spirited as ever, but I noticed that reason and logic had evolved to varying degrees into protecting one’s group. Whereas in the early DEC culture individuals were able to stay logical in their debate, as DEC became a large conglomerate of powerful groups, those same individuals argued increasingly from their positions as representatives and defenders of their projects and groups. “Doing the right thing” and “truth through debate” was still espoused but had evolved into more of a political process based on a new assumption of “protect your turf.” This is “general” evolution because it is an inevitable consequence of growth and differentiation.

Specific Evolution. Specific evolution involves the adaptation of specific parts of the organization to their particular environments and the impact of the subsequent 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 subcultures. Thus, a high-technology company will develop highly refined 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 experience of the organization. In addition, because the different parts of the organization exist in different environments, each of those parts will evolve to adapt to its particular environment, as discussed in the previous chapter.

As subgroups differentiate and subcultures develop, the opportunity for more major culture change will arise later, but in this early stage, those dif­ferences will only 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 tolerated 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 managerial variations in the various functions.

2. Self-Guided Evolution Through Insight

If we think of culture as, in part, a learned defense mechanism to avoid uncertainty and anxiety, then we should be able to help the organization assess for itself the strengths and weaknesses of its culture and to help it mod­ify cultural assumptions if that becomes necessary for survival and effective functioning. Members of the organization can collectively achieve insight if they collectively examine their culture and redefine some of the cogni­tive elements. Such redefinition involves either changing some of the priorities within the core set of assumptions or abandoning one assumption that is a barrier by subordinating it to a higher-order assumption.

For example, Ciba-Geigy had held the assumption that “we never lay people off,” yet faced the necessity of major shrinking in some of its divi­sions. It then managed the layoffs by doing them according to the higher order assumption of “we take good care of our people and treat them well.” They provided opportunities for retraining, generous severance packages for early retirement, part-time work, good career counseling, and anything else that would make employees who lost their jobs feel that they were still valued human beings.

It should be noted, however, that this occurred in a mature midlife orga­nization, and the same process may not be feasible in a young and growing organization because in the growth process, culture is clung to as part of the evolving of an identity. DEC had strong pressures to lay people off as the market conditions changed and cost pressures mounted, but the company clung to the assumption that once you were hired, you were a member of the family and could not be let go. The higher order assumption of “growth will take care of it” dominated the thinking.

Many of the interventions that occurred over the years at DEC produced cultural insight. For example, at an annual meeting where the company’s poor performance was being discussed, a depressive mood overtook senior management and was articulated as “We could do better if only Ken Olsen or someone would decide on a direction and tell us which way to go.” A number of us familiar with the culture heard this as a wish for a magic solution, not as a realistic request. I was scheduled to give a short presenta­tion on the company’s culture at this meeting and used the opportunity to raise the following question: “Given the history of this company and the kinds of managers and people that you are, if Ken Olsen marched in here right now and told everyone in what direction he wanted you to go, do you think you would do it?” There was a long silence, followed gradually by a few knowing smiles and ultimately by a more realistic discussion. In effect, the group recognized, reaffirmed, and strengthened its assumptions about individual responsibility and autonomy but also recognized that its wish for marching orders was really a wish for more discipline in the organization and that this discipline could be achieved among the senior managers by more negotiation and tighter coordination at their own level.

DEC managers realized that their culture was an important motivator and integrative force, so they created the “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 and Chatman, 1996).

With insight, new norms can be evolved that are still consistent with deeper assumptions. Sometimes it is enough to recognize how they operate so that their consequences can be realistically assessed. If they are con­sidered too costly, an individual can engage in compensatory behavior. For example, DEC ’s commitment to checking all decisions laterally (get­ting buy-in) before moving ahead was a defense against the anxiety of not knowing whether a given decision was correct. As the company grew, the costs of such a defense mounted because it not only took longer and longer to make a decision but also the process of checking with others who had not grown up in the company, with whom one was not functionally famil­iar, often could not resolve issues.

The options then were to (1) give up the mechanism, which was dif­ficult to do unless some way was found to contain the anxiety that would be unleashed in the short run (for example, finding a strong leader who would absorb the anxiety), (2) design compensatory mechanisms (for example, having less frequent but longer meetings, classifying decisions, and seeking consensus only on certain ones, or finding ways to speed up meetings), or (3) break the company down into smaller units in which the consensual process could work because people could remain functionally familiar with each other and build efficient consensual processes. In DEC ’s evolution, all of these mechanisms were discussed and tried from time to time, but breaking up into smaller units was not ever implemented sufficiently to avoid the dysfunctional intergroup negotiations that arose.

3. Managed Evolution Through Hybrids

The preceding two mechanisms serve to preserve and enhance the culture as it exists, but changes in the environment often create disequilibria that force more transformational change—change that challenges some of the deeper 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 organiza­tion 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 change 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 educational programs at which they meet other leaders. What all of these activities have in common is to get the leader to step partially outside his or her culture to be able to look at it more objectively. If leaders then rec­ognize the need for change, they can begin to select “hybrids” for key jobs by locating insiders who have a bias toward the new assumptions that they want to introduce or enhance.

For example, at one stage in its history, DEC found itself increasingly losing the ability to coordinate the efforts of large numbers of units. Olsen and other senior managers knew that a proposal to bring an outsider into a key position would be rejected, so they gradually filled several of the key management positions with managers who had grown up in manufacturing and in field service, where more discipline and centralization had been the norm. These managers operated within the culture but gradually imposed more centralization and discipline. In the end, this approach did not work because DEC’s cultural paradigm was strong enough that it overrode their efforts, but it was clearly the correct strategy at that time in DEC’s history. Several of these hybrid managers left the company in frustration as they found their efforts repeatedly thwarted.

Similarly, when Ciba-Geigy recognized the need to become more mar­keting oriented, it began to appoint to more senior positions managers who had grown up in the pharmaceutical division, in which the importance of marketing had been recognized earlier. The process worked to make Ciba- Geigy both more marketing oriented and more strategically focused on pharmaceuticals, ultimately resulting in the merger with Sandoz to create Novartis.

Filling key positions with people who have the beliefs, values, and assumptions that are viewed by senior leaders as the necessary ones for the future growth and survival of the organization is, in fact, the common­est evolutionary culture change mechanism that I have observed across all types of organizations. What makes this a powerful mechanism is that a promoted insider, even if he or she is to some degree a cultural deviant, understands the culture well enough to know how to make the necessary changes. Outsiders who are brought into organizations may have the values and assumptions that are needed, but they almost always lack the cultural insight that would enable them to figure out how to implement the desired changes.

Source: Schein Edgar H. (2010), Organizational Culture and Leadership, Jossey-Bass; 4th edition.

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