Design and Culture

By Luthans, F.

Edited by Paul Ducham


The real break with classical thinking on organizational structure is generally recognized to be the work of Chester Barnard. In his significant book The Functions of the Executive, he defined a Formal Organization as a system of consciously coordinated activities of two or more persons. It is interesting to note that in this often-cited definition, the words system and persons are given major emphasis. People, not boxes on an organization chart, make up a formal organization. Barnard was critical of the existing classical organization theory because it was too descriptive and superficial. He was especially dissatisfied with the classical bureaucratic view that authority should come from the top down. Barnard, using a more analytical approach, took an opposite viewpoint. He maintained that authority really should come from the bottom up, rather than the top-down bureaucratic approach.
          Besides authority, Barnard stressed the cooperative aspects of organizations. This concern reflects the importance that he attached to the human element in organization structure and analysis. It was Barnard’s contention that the existence of a cooperative system is contingent on the human participants’ ability to communicate and their willingness to serve and strive toward a common purpose. Under such a premise, the human being plays the most important role in the creation and perpetuation of formal organizations.


From this auspicious historical beginning from Barnard, modern organization theory has evolved in several directions. The first major development in organization theory was to view the organization as a system made up of interacting parts. The open-systems concept especially, which stresses the input of the external environment, has had a tremendous impact on modern organization theory. This development was followed by an analysis of organizations in terms of their ability to process information in order to reduce the uncertainty in managerial decision making. The next development in organization theory is the contingency approach. The premise of the contingency approach is that there is no single best way to organize. The organizational design must be fitted to the existing environmental conditions.
        One of the modern theoretical approaches is a natural selection—or ecological—view of organizations. This organizational ecology theory challenges the contingency approach. Whereas the contingency approach suggests that organizations change through internal transformation and adaptation, the ecological approach says that it is more a process of the “survival of the fittest”; there is a process of organizational selection and replacement.
        Finally are information processing and organizational learning. These most recent approaches to organization theory are based largely on systems theory and emphasize the importance of generative over adaptive learning in fast-changing external environments. All these organization theories serve as a foundation for the remaining discussion of the organizational context for organizational behavior. The learning organization represents contemporary organization theory and is compatible with and is relevant to the new paradigm environment facing today’s organizations.


The organization portrayed as a learning system is certainly not new. In fact, at the turn of the last century Frederick W. Taylor’s learnings on scientific management were said to be transferable to workers to make the organization more efficient. However, the beginning of today’s use of the term learning organization is usually attributed to the seminal work of Chris Argyris and his colleagues, who made the distinction between first-order, or “singleloop,” and second-order, or dentero or “double-loop,” learning. The differences between these two types of learning applied to organizations can be summarized as follows:

1. Single-loop learning involves improving the organization’s capacity to achieve known objectives. It is associated with routine and behavioral learning. Under single-loop, the organization is learning without significant change in its basic assumptions.
2. double-loop learning reevaluates the nature of the organization’s objectives and the values and beliefs surrounding them. This type of learning involves changing the organization’s culture. Importantly, double-loop consists of the organization’s learning how to learn.

          The other theorist most closely associated with learning organizations, Peter Senge and his colleagues, then proceeded to portray this type of organization from a systems theory perspective and made the important distinction between adaptive and generative learning. The simpler adaptive learning is only the first stage of the learning organization, adapting to environmental changes. In recent years, many banks, insurance firms, and old-line manufacturing companies made many adaptive changes such as implementing Total Quality Management (or TQM), Benchmarking (comparing with best practices), Six Sigma (a goal of virtually no defects in any process) programs, and customer service initiatives. However, despite the popularity and general success of these efforts to adapt to changing Customer Expectations for quality and service, organizations have still struggled with their basic assumptions, cultural values, and structure. They have not gone beyond mere adaptive learning. The more important generative learning was needed.
       Generative learning involves creativity and innovation, going beyond just adapting to change to being ahead of and anticipating change. The generative process leads to a total reframing of an organization’s experiences and learning from that process. For example, the largest car dealer, AutoNation, totally reframed and showed generative learning from the nightmare customers typically experience in trying to buy a used auto. This firm anticipated customer needs by proactively addressing key issues such as a no-haggling sales process, providing a warranty on used cars, and being able to buy from any one of hundreds of car lots.
           With the theoretical foundation largely provided by Argyris (double-loop learning) and Senge (generative learning), we conducted a comprehensive review to identify the major characteristics of learning organizations. Figure 3.1 shows the three major dimensions or characteristics of learning organizations that emerged out of the considerable literature. The presence of tension—Senge calls it “creative tension”—serves as a catalyst or motivational need to learn. As shown in Figure 3.1, this tension stems from the gap between the organization’s vision (which is hopefully always being adjusted upward) and reality and suggests the learning organization’s continually questioning and challenging the status quo. The systems characteristic of learning organizations recognizes the shared vision of employees throughout the whole organization and the openness to new ideas and the external environment. The third major characteristic shown in Figure 3.1 is an Organizational Culture conducive to learning. The culture of the organization places a high value on the process of learning and goes beyond mere lip service by setting mechanisms in place for suggestions, teams, empowerment, and, most subtly but importantly, empathy. This empathy is reflected by the genuine concern for and interest in employee suggestions and innovations that can be operationalized through Reward Systems.

Figure 3.1


Taken to a more individual employee, organizational behavior level, the adaptive learning organization would be associated with employees’ reacting to environmental changes with routine, standard responses that often result in only short-run solutions. In contrast, generative learning, with its emphasis on continuous experimentation and feedback, would directly affect the way personnel go about defining and solving problems. Employees in generative learning organizations are taught how to examine the effect of their decisions and to change their behaviors as needed. A good example occurred at Children’s Hospital and Clinic of Minnesota. They learned to institute a new policy of “blameless reporting” that replaced threatening terms such as “errors” and “investigations” with less emotional terms such as “accidents” and “analysis.” As described by Garvin, Edmondson, and Gino, “The result was that people started to collaborate throughout the organization to talk about and change behaviors, policies, and systems that put patients at risk. Over time, these learning activities yielded measurable reductions in preventable deaths and illnesses at the institution.”
       Learning organizations are also characterized by human-oriented cultural values such as these: (1) everyone can be a source of useful ideas, so personnel should be given access to any information that can be of value to them; (2) the people closest to the problem usually have the best ideas regarding how to solve it, so empowerment should be promoted throughout the structure; (3) learning flows up and down, so managers as well as employees can benefit from it; (4) new ideas are important and should be encouraged and rewarded; and (5) mistakes should be viewed as learning opportunities. The last point of learning from failures is an especially important cultural value for people in the learning organization.


There are a number of ways that the learning organization can be operationalized into the actual practice of management. For example, managers must be receptive to new ideas and overcome the desire to closely control operations. Many organizations tend to do things the way they have done them in the past. Learning organizations break this mold and teach their people to look at things differently. For example, several years ago British Petroleum (BP) was bogged down in their bureaucratic structure and control procedures, accumulated a huge debt, and had some of the highest costs in the industry. Then a new CEO took over, sold off the firm’s unrelated business, and implemented a Corporate Strategy mostly based on speed and rapid learning. BP was redesigned as follows:

Functional and divisional walls that inhibited cooperation, resource sharing, and internal debate were leveled to promote forward thinking, the learning of new managerial competencies, and the adoption of risk taking behaviors. Most importantly, a rejuvenated senior management team began cultivating a new culture that emphasized knowledge sharing, open communications, team-building, and breakthrough thinking throughout the firm.

By the turn of the century, BP had a learning-driven culture in place, the old bureaucratic boundaries were down, everyone in the firm shared knowledge with everyone else, and BP became the lowest-cost producer in the oil industry.
      As was done at BP, the move toward a learning organization entails breaking out of the highly controlled, layered hierarchy that is characteristic of bureaucratic structures. The accompanying OB in Action: Breaking Out of the Box gives a number of real-world managers’ examples of problems with bureaucracies and how to think outside the box and bust out of them. In other words, the beginning point in establishing a learning organization is to recognize that bureaucracies have too often become an end to themselves instead of supporting the vision and goals that require adapting to the changing environment and learning how to do that.
         Besides breaking out of bureaucracies, another way to operationalize the Learning Process in organizations is to develop systemic thinking among managers. This involves the ability to see connections among issues, events, and data as a whole rather than a series of unconnected parts. Learning organizations teach their people to identify the source of conflict they may have with other personnel, units, and departments and to negotiate and make astute trade-offs both skillfully and quickly. Managers must also learn, especially, how to encourage their people to redirect their energies toward the substance of disagreements rather than toward personality clashes or political infighting. For example, in most successful firms today, interFunctional Teams, increasingly at a distance (virtually), work on projects, thus removing the artificial barriers between functional areas and between line and staff. For example, at Mars Drinks, the top management team is structured globally, with both regional general managers and functional heads. Even the president is not only on this team, but also multiple other teams depending on, in his words, “what the issue of the day is and whether I have particular expertise in those areas.” A research study confirms the important impact that team learning can have on organizational learning.
            Another practice of learning organizations is to develop creativity among personnel. Creativity is the ability to formulate unique approaches to problem solving and decision making. In generative learning organizations, creativity is most widely acknowledged as a requisite skill and ability. Two critical dimensions of creativity, which promote and help unleash creativity, are personal flexibility and a willingness to take risks. As a result, many learning organizations now teach their people how to review their current work habits and change behaviors that limit their thinking. Whereas typical organizations focus on new ways to use old thinking, learning organizations focus on getting employees to break their operating habits and think “outside the box” (see the OB in Action: Breaking Out of the Box). Creativity also includes the willingness to accept failure. A well-known story at IBM tells of the worried manager going to a meeting with his boss after his project had failed. Getting right to the point, the trembling manager blurted out, “I suppose you’re going to have to fire me.” But his boss quickly replied, “Why would I do that, we’ve just invested $6 million in your education.” In other words, learning organizations such as IBM treat failure as a learning opportunity, and also the way it is treated creates a climate for future creativity. Managers encourage risk-taking, creative behavior by providing a supportive environment. A cultural value or slogan such as “ready, fire, aim” depicts such an environment.
          Well-known learning organization theorist and consultant Peter Senge summarizes the differences between learning organizations and traditional organizations in Table 3.1. These differences help illustrate why learning organizations are gaining in importance and why an increasing number of enterprises are now working to develop a generative learning environment. They realize the benefits that can result. There is also empirical research evidence suggesting a positive association between the learning organization concept and firms’ financial performance. The classical organization theories are still depended upon in today’s organizations, but organizational learning goes a necessary step further to the understanding of effective organizations in the new paradigm environment. Part One Environmental and Organizational Context

OB in Action: Breaking Out of the Box

Anyone who has worked in the corporate world, held a government job—or lived in Europe—knows well how bureaucracy can drive even those of sound mind to distraction. All too often it stifles good ideas, slows progress, and frustrates employees.
       A recent survey ranked “Negotiating a Stultifying Bureaucracy” third among most pressing workplace problems. “You can’t even get a light bulb changed without putting in a work order,” says Wayde Alford, a cost estimator at a major defense contractor near Jacksonville, Florida. Alford says he cuts through red tape by cozying up to colleagues and requesting favors. Otherwise, a task as simple as changing that bulb can take two months to accomplish. Maybe it’s not that bad in your organization. But just in case, here’s a sampling of other suggestions for bureaucracy-busting:

Bill Fox, managing partner, VanguardComm, New Brunswick, New Jersey. It’s been said that successful corporate survivors are “system beaters.” Just like in judo, where you use your opponent’s momentum against them, in bureaucracies if you learn the system you can use it against the bureaucrats. For example, very often bureaucratic requirements are more about form than substance. So as long as you fill out the proper paperwork, dot the i’s, and cross the t’s, you can get what you want approved; your request complied with the bureaucrats’ system and that’s their primary concern.

Arthur “Buck” Nimz, certified Defense Dept. enterprise architect and principal research specialist, MS2, Lockheed Martin, Moorestown, New Jersey. Foster an environment of innovation that reaches out beyond your org chart and tries to capture the intellectual diversity of others in your company who have different perspectives on the business and the market. Legendary GE CEO Jack Welch called this “boundaryless thinking,” which is a mindset that transcends bureaucracy and creates a behavioral culture of innovation.

Marshall Potts, managing director, Jasper International, Nottingham, England. Bureaucracies don’t tolerate deviation from set ways of doing things. In an increasingly competitive world, this inflexibility is a major stumbling block. One way leaders could address this is to find someone to explain to their organization’s senior team what sustains the bureaucracy, what it costs them, what the competition is doing differently, and finally, the impact of resisting change.

John Sheeran, Bateau Bay, Australia. Keep a very low hierarchy and give all levels of staff a vested interest in the success of the company . . . Also, keep the family of staff involved.

Chris Bylander, CEO, International American Group, St. Louis and Stockholm. We delegate responsibility whenever possible. Employees, no matter what rank, come to understand “bureaucracy” as something else—namely corporate governance—when they voluntarily interact with it on a get-the-job-done basis.

Daniel S. Mulhall, educational consultant, Laurel, Maryland. The challenge is to control and manage bureaucracy so that it serves the corporate body, not controls it. Bureaucracy itself should be reviewed and evaluated on a regular basis so that harmful pieces are rejected and helpful pieces kept and reinforced.

George Peterson, vice-president for international relations, SolBridge International School of Business, Daejeon, South Korea. Work to eliminate bureaucracy: Make a nonbureaucratic environment part of the corporate policy statement; have an efficient process to get input from employees on bureaucracy problem areas; eliminate the problems identified.

Brian Behler, Lomita, California. Transparency with regular communication is the only solution. There are huge differences in the amount of bureaucracy at various companies today. A supervisor who doesn’t engage and communicate will lose his best and brightest to a more nimble company.

Cecil Sunder, Level 3 Communications, Broomfield, Colorado. Map processes and executives will soon realize where the bottlenecks are. Because of SarbOx and other mandates it is a necessary evil to have some kind of bureaucracy, but it should not stagnate the work.

Table 3.1


Horizontal designs are at the other end of the continuum from the traditional vertical, hierarchical structures. In a comprehensive analysis of the recent evolution of organizational design, Anand and Daft noted that “the horizontal organization advocates the dispensing of internal boundaries that are an impediment to effective business performance. If the traditional structure can be likened to a pyramid, the metaphor that best applies to the horizontal organization is a pizza—flat, but packed with all the necessary ingredients.” The modern environment has stimulated the change to horizontal designs that better facilitate cooperation, teamwork, and a customer rather than a functional orientation. Frank Ostroff, a McKinsey & Company consultant, along with colleague Douglas Smith, is given credit for developing some of the following guiding principles that define horizontal organization design.

1. Organization revolves around the process, not the task. Instead of creating a structure around the traditional functions, the organization is built around its three to five core processes. Each process has an “owner” and specific performance goals.
2. The hierarchy is flattened. To reduce levels of supervision, fragmented tasks are combined, work that fails to add value is eliminated, and activities within each process are cut to the minimum.
3. Teams are used to manage everything. Self-Managed Teams are the building blocks of the organization. The teams have a common purpose and are held accountable for measuring performance goals.
4. Customers drive performance. Customer satisfaction, not profits or stock appreciation, is the primary driver and measure of performance.
5. Team performance is rewarded. The reward systems are geared toward team results, not just individual performance. Employees are rewarded for multiple skill development rather than just specialized expertise.
6. Supplier and customer contact is maximized. Employees are brought into direct, regular contact with suppliers and customers. Where relevant, supplier and customer representatives may be brought in as full working members of in-house teams.
7. All employees need to be fully informed and trained. Employees should be provided all data, not just sanitized information on a “need to know” basis. However, they also need to be trained how to analyze and use the data to make effective decisions.

       Today, this horizontal structure is used by a number of organizations. For example, most large firms today (e.g., the auto firms, Xerox, Lexmark Printers, Eastman Kodak) use it for new product development. Another example would be AT&T units doing budgets based not on functions but on processes, such as the maintenance of a worldwide telecommunications network. Importantly, AT&T is also rewarding its people based on customer evaluations of the teams performing these processes. General Electric has also scrapped the vertical structure that was in place in its lighting business and replaced the design with a horizontal structure characterized by over 100 different processes and programs. In particular, to cut out bureaucracy and solve organizational problems that cut across functions and levels, GE implemented its famous “Work Out” (as in get the work out and work out any problems to get it done) described as follows:

Large groups of employees and managers—from different organizational levels and functions—come together to address issues that they identify or that senior management has raised as concerns. In small teams, people challenge prevailing assumptions about “the way we have always done things” and come up with recommendations for dramatic improvements in organizational processes.

     The Government Electronics group at Motorola has redesigned its supply-chain management organization so that it is now a process structure geared toward serving external customers. These horizontal designs are more relevant to today’s environmental needs for flexibility, speed, and cooperation. However, there may also be potential problems such as feelings of neglect and “turf battles” for those individuals and departments not included in the horizontal process flow and the advantages of technical expertise gained under the functional specializations may be diluted or sacrificed. A book on The Horizontal Organization suggests guiding principles such as the following to make horizontal designs as effective as possible.

1. Make teams, not individuals, the cornerstone of the organizational design and performance.
2. Decrease hierarchy by eliminating non-value-added work and by giving team members the authority to make decisions directly related to their activities within the process flow.
3. Emphasize multiple competencies and train people to handle issues and work in crossfunctional areas.
4. Measure for end-of-process performance objectives, as well as customer satisfaction, employee satisfaction, and financial contribution.
5. Build a corporate culture of openness, cooperation, and collaboration, a culture that focuses on continuous performance improvement and values employee empowerment, responsibility, and well-being.


Around the turn of the new century, especially with the advent of advanced information technology (i.e., the Internet and mobile/cell phones) and globalization (especially the emerging economies of China and India with their low-cost, skilled workforce), new organization designs emerged. Whereas the horizontal designs broke down the former bureaucratic hierarchical and functional specialization boundaries within an organization, the twenty-first century designs have extended and broken the boundaries of the organization itself. Specifically, in order to compete in the global economy, far-thinking management recognized and then embraced the fact that they needed to outsource selected tasks, functions, and processes. For example, much of manufacturing on all levels and industries was outsourced to China and other developing countries, while information processing and customer service was outsourced to India and a few other countries. This movement of entire processes outside the organization left what has been termed the “Hollow Organization” design22 and when just parts of the product or service are outsourced, it’s called the “Modular Organization” design.
      Initially, organizations involved in labor intensive manufacturing of toys, apparel, shoes (e.g., Nike and Reebok) moved to hollow designs that outsourced the entire process of making of their products and left them to focus on product design and marketing. Then in recent years manufacturing of all kinds has moved outside the United States and also financial, accounting, and even medical service processes have left hollow organizations. Anand and Daft summarized the advantages of this design in terms of cost savings, tapping into best sources of specialization and technology, supplier competition and technology, and flexibility, but also the disadvantages of loss of in-house skills and innovation, reduced control over supply and quality, and even the threat of being entirely supplanted by suppliers. With an economic downturn such as the United States has experienced in recent times and rising wages abroad, there could be a movement toward what could be called “onshoring,” bringing outsourced jobs back to the United States. For example, DESA Heating Products had outsourced hundreds of jobs to China but is now bringing those jobs back to its Kentucky factory based on quality and transportation costs and service.
      As indicated, the modular designs are also based on Outsourcing, but instead of the entire process being taken offshore, as in hollow designs (e.g., manufacturing, Logistics, or customer service), the modular design consists of “decomposable product chunks provided by internal and external subcontractors.” For example, Bombardier’s business jet design consists of a dozen chunks provided by both internal (cockpit, center, and fuselage) and external subcontractors from around the world (e.g., Australia, Taiwan, Japan, Austria, and Canada) as well as the United States (e.g., General Electric for the engine and the avionics from Rockwell Collins). Industries that commonly use modular designs include auto, bicycle, consumer electronics, appliances, power tools, and computing products and software.
       Anand and Daft summarize the advantages of modular designs in terms of cost, speed of response to market changes, and innovation through recombination of modules in different ways. This flexibility advantage, however, is counterbalanced by problems with interfacing the modules and laggards in the supply chain affecting the whole system. An example of these advantages and disadvantages would be the auto firms Nissan and DaimlerChrysler. Nissan’s modular design is known for being very efficient because parts such as the frame, dashboard, and seats are made by subcontractors and then shipped to the Nissan plant for assembly. DaimlerChrysler, also using a modular design in producing its two-seater Smart Car, had trouble because the various subcontracted parts failed to properly snap into place. The resulting extensive debugging was very costly to DaimlerChrysler and embarrassingly delayed the launch of its hyped-up innovative car.


The commonality found in the horizontal, hollow, and modular organization designs is that they all provide an alternative to the traditional bureaucratic model in terms of both perspective and actual structure. All three of these contemporary designs are sometimes subsumed under the single term “Network Designs” because of the boundaryless conditions created by advanced information technology and globalization. As Rosalie Tung observed:

The advent of the Internet (one of the world’s biggest networks), quantum advances in other means and modes of telecommunications, and continued globalization of the world economy have changed all that—it is now possible to form networks that link phenomenal numbers of people, organizations, and systems in disparate corners of the world at an alarming rate and speed. For example, some popular Web sites receive as many as 5 million hits a day, thus making instantaneous access to information and exchange of ideas among peoples from different geographic locations possible. In a similar vein, people from far corners of the world now regularly work together in Virtual Teams on various types of projects.

Network organizations have been discussed in the academic literature for a number of years. For example, organization theorists Miles and Snow identified what they call the dynamic network. This involves a unique combination of strategy, structure, and management processes. They more recently have described the network organization as follows: “Delayered, highly flexible, and controlled by market mechanisms rather than administrative procedures, firms with this new structure arrayed themselves on an industry value chain according to their Core Competencies, obtaining complementary resources through strategic alliances and outsourcing.” There is also research showing the impact that structure and information technology can have on network behavior and outcomes.
        With the advent of teams, outsourcing and, especially, alliances (two or more firms building a close collaborative relationship), network designs are being increasingly used by practicing organizations. Tapscott and Caston note that such networked organizations are “based on cooperative, multidisciplinary teams and businesses networked together across the enterprise. Rather than a rigid structure, it is a modular organizational architecture in which business teams operate as a network of what we call client and server functions.” Table 3.2 compares the various dimensions and characteristics of the traditional, hierarchical organization with the network organization. Although the network design cannot readily be drawn, as can the classical hierarchical and horizontal structures, Figure 3.2 is an attempt to at least show the concept.
     Miles and colleagues identified three types of radical redesign of organizations:

1. Greenfield redesign. As the term implies, this means starting from just a piece of green field or from a clean slate, breaking completely from the classical structure and establishing a totally different design. Examples include such highly successful firms as Google and Southwest Airlines. For example, when Southwest Airlines started under the unique leadership of Herb Kelleher, the firm made a complete break from the traditional airline industry. The now retired Kelleher was described as having enormous intellectual capabilities, a love for people, a playful spirit, and a commanding personality; he once arm-wrestled an opponent in an advertising slogan dispute rather than going to court. Southwest created an organization that “flies in the face of bureaucracy: it stays lean, thinks small, keeps it simple—and more.” The successor to Kelleher, Jim Parker, noted the cross-functional nature of jobs at Southwest is more perceptual than real: “People should not be doing other people’s job but they need to understand all of those other jobs; they need to understand how their job fits into the overall performance of the vision and how the other jobs do as well."

2. Rediscovery redesign. This is a more usual type of redesign, whereby established companies such as General Electric return to a previously successful design by eliminating unproductive structural additions and modifications. For example, several U.S. electronics firms such as Texas Instruments have reverted to some highly formalized, bureaucratic procedures in their product development process.

3. Network design. Firms such as Harley-Davidson are not just redesigning in the “Greenfield” sense or rediscovering and extending their past. Instead, they are undergoing efforts to disaggregate and partner. In the network approach, the firm concentrates on where it can add the greatest value in the supply chain, and it outsources to upstream and/or downstream partners who can do a better job. This network of the firm and its upstream and downstream partners can be optimally effective and flexible. Another network approach is to require internal units of the firm to interact at market prices—buy and sell to each other at prices equal to those that can be obtained by outsourcing partners. This “insourcing” approach to the internal network organization can be found in global firms such as the well-known Swiss conglomerate Asea Brown Boveri (ABB). In addition, globalization challenges these multinational corporations to make sure they account for Cultural Differences (see OB in Action: One Size Doesn’t Fit All)..

Table 3.2

Figue 3.2

OB in Action: One Size Doesn’t Fit All

There are some things in the world that seem to be the same regardless of geographic location. Whether a pilot is flying into Kennedy International in New York or Heathrow in the U.K., one would assume the procedures for taking off and landing to be identical. The truth is, however, cultural differences may violate such assumptions. For example, most countries of the world have indeed agreed that English should be the universal language when pilots from anywhere are talking to air traffic controllers. On the other hand, French unions have encouraged their pilots to continue talking in French when landing at Charles de Gaulle airport. These culturally generated differences are not restricted to the airline industry.
         Many multinational companies are finding that it is extremely difficult to take a product that sells well in the home country and achieve equal success in a foreign market. The customs, culture, and behaviors of people in these markets are often quite different from those in the home country. For example, when Office Depot and Office Max entered the Japanese market, they were convinced that their wide variety of products, convenient store layout, and low prices would help them attain a significant market share. They were wrong. One of their major Japanese competitors realized something that the big American multinationals did not—small business firms account for a significant percentage of the office supply market, and these firms were anxious to get the same big discounts on their purchases as did large firms. So the Japanese company created a catalogue business that was geared specifically to small firms. In these companies clerks did much of the purchasing of business equipment, and they were happy to be able to look through a catalog and place orders from their desk rather than traveling to the store.
         Although chagrined by their efforts to compete effectively with their smaller Japanese rival, Office Depot and Office Max believed that they would be able to capture a large percentage of the remaining market—the walk-in customer. Again, they were foiled by their Japanese competitors. Unlike American customers, Japanese buyers do not mind shopping at small stores where the merchandise is crammed together. As a result, Office Depot and Office Max built large stores with wide aisles and ended up paying twice as much as their smaller competitors for rent and personnel salaries and were eventually forced to admit defeat. Their experience is not unique.
         When Bob’s Big Boy, the Michigan-based restaurant minichain, opened a series of units in Thailand, management was surprised to learn that local customers really did not care for the firm’s hamburgers. Local customers would rather buy a sweet satay, noodle bowl, or grilled squid from a street vendor at onefifth the cost. In fact, the owner of the Thai franchise system did not start making money until he began closely studying the potential customers who were walking past his restaurants. He then realized that these potential customers fell into two broad categories: European tourists and young Thai people. This resulted in his changing the menu of his restaurants. For German customers he began offering specialties such as spatzle, beef, and chocolate cake. For local Thais there were country-style specialties such as fried rice and pork omelets. The owner also added sugar and chile powder to Big Boy’s burgers to better match Thai taste buds. Commenting on his eventual success, the adaptable owner recently noted, “We thought we were bringing American food to the masses. But now we’re bringing Thai and European food to the tourists. It’s strange, but you know what? It’s working.” And the reason is that the owner realizes market offerings have to be tailored to local demand. One size does not fit all.


Besides the more specific horizontal, hollow, and modular contemporary designs, another more all-encompassing design besides the network organization is the so-called virtual organization. This term virtual organization has emerged not so much because it describes something distinct from network organizations but because the term itself represents the new environment and the partnering, alliances, and outsourcing arrangements found in an increasing number of global companies. Anand and Daft note that “collaboration or Joint Ventures with competitors usually takes the form of a virtual organization—a company outside a company created to specifically respond to an exceptional market opportunity that is often temporary.” Interestingly, the word virtual as used here comes not from the popular Virtual Reality but from virtual memory, which has been used to describe a way of making a computer’s memory capacity appear to be greater than it really is but does require a strong information technology platform.

Different from traditional mergers and acquisitions, the partners in the virtual organization share costs, skills, and access to international markets. Each partner contributes to the virtual organization what it is best at—its core capabilities. Briefly summarized, here are some of the key attributes of the virtual organization:

1. Technology. Informational networks will help far-flung companies and entrepreneurs link up and work together from start to finish. The partnerships will be based on electronic contracts to keep the lawyers away and speed the linkups.

2. Opportunism. Partnerships will be less permanent, less formal, and more opportunistic. Companies will band together to meet all specific market opportunities and, more often than not, fall apart once the need evaporates.

3. No borders. This new organizational model redefines the traditional boundaries of the company. More cooperation among competitors, suppliers, and customers makes it harder to determine where one company ends and another begins.

4. Trust. These relationships make companies far more reliant on each other and require far more trust than ever before. They share a sense of “codestiny,” meaning that the fate of each partner is dependent on the other.

5. Excellence. Because each partner brings its “core competence” to the effort, it may be possible to create a “best-of-everything” organization. Every function and process could be world class—something that no single company could achieve.

    Importantly, virtual organizations can help competitiveness in the global economy. The alliances and partnerships with other organizations can extend worldwide, the spatial and temporal interdependence easily transcend boundaries, and the flexibility allows easy reassignment and reallocation to take quick advantage of shifting opportunities in global markets. To avoid disintegration and attain effective needed focus, the lead virtual organization must have a shared vision, a strong brand, and, most important, a high-trust culture. For instance, competitors P&G and Clorox recently collaborated in forming a new generation of plastic wrap called GLAD Press’n Seal in order to effectively compete with market leader Saran.

         Other examples of firms that have formed virtual collaborations include Harley-Davidson and ABB—and also, on a smaller scale, firms such as Clark Equipment, a manufacturer of forklifts and other industrial equipment; Semco, a Brazilian firm producing pumps, valves, and other industrial products; Sweden’s Skandia Insurance Group (with 91,000 partners worldwide); and the Australian firm Technical and Computer Graphics (TCG). In the information technology industry, Sun Microsystems views itself as an intellectual holding company that designs computers and does all other functions (product ordering, manufacturing, distribution, marketing, and customer service) through contractual arrangements with partners located throughout the world, and Intel uses virtual teams with members from Ireland, Israel, England, France, and Asia working on a wide variety of projects. As with the network organization, it is not really possible to show a virtual organization, but Figure 3.3 depicts graphically how TCG would look as a virtual organization. Because networks and virtual organizations both represent such radically different ways to structure firms, there are many challenges ahead, especially on the human side of these contemporary structural forms.

Figure 3.3


When people join an organization, they bring with them the values and beliefs they have been taught. Quite often, however, these values and beliefs are insufficient for helping the individual succeed in the organization. The person needs to learn how the particular enterprise does things. A good example is the U.S. Marine Corps. During boot camp, drill instructors teach recruits the “Marine way.” The training attempts to psychologically strip down the new recruits and then restructure their way of thinking and their values. They are taught to think and act like Marines. Anyone who has been in the Marines or knows someone who has will verify that the Corps generally accomplishes its objective. In a less-dramatic way, today’s organizations do the same thing. For example, UPS is known for having a militarylike corporate culture. However, as an outside observer who embedded himself (i.e., riding “shotgun” next to drivers and aiding with deliveries during the Christmas rush) noted: “Although the job is highly regimented, it includes enough independence for workers to be energized by the daily challenge of getting all the packages out and importantly, when there were problems, drivers, not technology, were the best at solving them.” The same is true in more complex organizations where a key challenge is to instill and sustain a corporatewide culture that encourages knowledge sharing. As the partner in charge of Ernst & Young’s knowledge-based business solution practice notes, “If you’re going to have a rich knowledge-sharing culture, that can’t just be a veneer on top of the business operation. You have to have people who can make sense out of it and apply it.”
       Edgar Schein, who is probably most closely associated with the study of organizational culture, defines it as

a pattern of basic assumptions—invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration—that has worked well enough to be considered valuable and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.

    More recently, Joanne Martin emphasizes the differing perspectives of cultures in organizations. She notes:

As individuals come into contact with organizations, they come into contact with dress norms, stories people tell about what goes on, the organization’s formal rules and procedures, its formal codes of behavior, rituals, tasks, pay systems, jargon, and jokes only understood by insiders, and so on. These elements are some of the manifestations of organizational culture.

However, she adds that there is another perspective of culture as well:

When cultural members interpret the meanings of these manifestations, their perceptions, memories, beliefs, experiences, and values will vary, so interpretations will differ—even of the same phenomenon. The patterns or configurations of these interpretations, and the ways they are enacted, constitute culture.

   In other words, organizational culture is quite complex. Although there are a number of problems and disagreements associated with the conceptualization of organizational culture, most definitions, including the preceding, recognize the importance of shared norms and values that guide organizational participants’ behavior. In fact, there is research evidence that not only are these cultural values taught to newcomers, but newcomers seek out and want to learn about their organization’s culture.
           Organizational culture has a number of important characteristics. Some of the most readily agreed upon are the following:

1. Observed behavioral regularities. When organizational participants interact with one another, they use common language, terminology, and rituals related to deference and demeanor.

2. Norms. Standards of behavior exist, including guidelines on how much work to do, which in many organizations come down to “Do not do too much; do not do too little.”

3. Dominant values. There are major values that the organization advocates and expects the participants to share. Typical examples are high product quality, low absenteeism, and high efficiency.

4. Philosophy. There are policies that set forth the organization’s beliefs about how employees and/or customers are to be treated.

5. Rules. There are strict guidelines related to getting along in the organization. Newcomers must learn those “ropes” in order to be accepted as full-fledged members of the group.

6. Organizational climate. This is an overall “feeling” that is conveyed by the physical layout, the way participants interact, and the way members of the organization conduct themselves with customers or other outsiders.

     Each of these characteristics has controversies surrounding it and varying degrees of research support. For example, there is controversy in the academic literature over the similarities and differences between organizational culture and organizational climate. However, there is empirical support for some of the characteristics, such as the important role that physical layout plays in organizational culture. Here is a real-world illustration:

Nike Inc. serves as an excellent example of a company that successfully revealed its corporate culture through corporate design. Set on 74 sprawling acres amid the pine groves of Beaverton, Oregon, the Nike World campus exudes the energy, youth and vitality that have become synonymous with Nike’s products. The campus is almost a monument to Nike’s corporate values: the production of quality goods and, of course, fitness. Included in the sevenbuilding campus is an athletic club with a track, weight rooms, aerobic studios, tennis, racquetball and squash courts, and a basketball court.

The six characteristics of culture are not intended to be all-inclusive. For example, a study examined why companies were rated as most and least admired. Statistical analysis was conducted that compared the findings from a subjective opinion survey of reputation with what one might expect perceptions to be if they are based solely on financial performance. The financial measures that correlated most closely with the opinion of a firm’s “reputation” over a decade ago were, in order, 10-year annual return to shareholders, profits as a percent of assets, total profits, and stock market value. As the head of Coca-Cola, one of the most admired companies for many years, declared at that time: “I get paid to make the owners of Coca-Cola Co. increasingly wealthy with each passing day. Everything else is just fluff.” Obviously, bottom-line financial performance remains important, but a more recent analysis of Fortune’s admired companies found the most highly correlated attribute of those that scored in the top three of their industry was the “attraction and retention of top talent,” and a major way these top firms do this is to take their culture and values seriously. For example, currently admired firms such as the software firm SAS, Southwest Airlines, and Google attract and retain their best people because they give a lot of attention and care to their legendary cultures and values. As a recent analysis of how Toyota’s culture led it to become the top automaker concluded, the curiosity and spirit of Toyota people, as much as anything, has determined its success. In his final days, the former CEO of KPMG recognized the importance of a compassionate culture and urged his staff to “get the most out of each moment and day—for the firm’s benefit and the individual’s.” These cultures and values also drive business results and make them successful.


A common misconception is that an organization has a uniform culture. However, at least as anthropology uses the concept, it is probably more accurate to treat organizations “as if ” they had a uniform culture. “All organizations ‘have’ culture in the sense that they are embedded in specific Societal Cultures and are part of them.” According to this view, an organizational culture is a common perception held by the organization’s members. Everyone in the organization would have to share this perception. However, all may not do so to the same degree. As a result, there can be a dominant culture as well as subcultures throughout a typical organization.
A dominant culture is a set of core values shared by a majority of the organization’s members. For example, most employees at Southwest Airlines seem to subscribe to such values as hard work, company loyalty, and the need for customer service. Southwest employees take to heart cultural values such as: irreverence is okay; it’s okay to be yourself; have fun at work; take the competition seriously, but not yourself; and do whatever it takes for the customer. Table 3.3 summarizes the FUNdamentals that are the core of the Southwest cultural values that are taught to the 25,000 associates who go through its corporate University for People every year. Those who work for Disney are: in the show, not on the job; wearing costumes, not uniforms; on stage or backstage, not at positions or workstations; cast members, not employees. When Disney cast members are presented with the riddle: “Ford makes cars, Sony makes TVs, Microsoft makes software, what does Disney make?”—all respond, “Disney makes people happy!” These values create a dominant culture in these organizations that helps guide the day-to-day behavior of employees. There is also evidence that these dominant cultures can have a positive impact on desirable outcomes such as successfully conducting mergers and acquisitions (e.g., when Dow AgroSciences purchased Cargil Hybris Seeds), supporting product-innovation processes,60 and helping firms cope with rapid economic and technological change.
         Important, but often overlooked, are the subcultures in an organization. A subculture is a set of values shared by a minority, usually a small minority, of the organization’s members. Subcultures typically are a result of problems or experiences that are shared by members of a department or unit. For example, even though GE has one of the most dominant overall corporate cultures of being boundaryless between the highly diversified divisions (e.g., ranging from power generation to media, plastics, financial services, aircraft engines, locomotives, medical equipment, and lighting and appliances), each also has a distinctive subculture. GE Capital has a distinctive culture compared to the high-tech manufacturing cultures of aircraft engines and gas turbines.
           Subcultures can weaken and undermine an organization if they are in conflict with the dominant culture and/or the overall objectives. Successful firms, however, find that this is not always the case. Most subcultures are formed to help the members of a particular group deal with the specific day-to-day problems with which they are confronted. The members may also support many, if not all, of the core values of the dominant culture. In the case of GE, the success of the company is their “social architecture,” which pulls the subcultures all together. As former president Jack Welch stated, “GE is greater than the sum of its parts because of the intellectual capacity that is generated in the businesses and the sharing that goes on of that learning and the rapid action on that learning.”

Table 3.3


Although organizational cultures can develop in a number of different ways, the process usually involves some version of the following steps:

1. A single person (founder) has an idea for a new enterprise.
2. The founder brings in one or more other key people and creates a core group that shares a common vision with the founder. That is, all in this core group believe that the idea is a good one, is workable, is worth running some risks for, and is worth the investment of time, money, and energy that will be required.
3. The founding core group begins to act in concert to create an organization by raising funds, obtaining patents, incorporating, locating space, building, and so on.
4. At this point, others are brought into the organization, and a common history begins to be built.

Most of today’s successful corporate giants in all industries basically followed these steps. Two well-known representative examples are McDonald’s and Wal-Mart.

McDonald’s. Ray Kroc worked for many years as a salesperson for a food supplier (Lily Tulip Cup). He learned how retail food operations were conducted. He also had an entrepreneurial streak and began a sideline business with a partner. They sold multimixers, machines that were capable of mixing up to six frozen shakes at a time. One day Kroc received a large order for multimixers from the McDonald brothers. The order intrigued Kroc, and he decided to look in on the operation the next time he was in their area. When he did, Kroc became convinced that the McDonald’s fast-food concept would sweep the nation. He bought the rights to franchise McDonald’s units and eventually bought out the brothers. At the same time, he built the franchise on four basic concepts: quality, cleanliness, service, and price. In order to ensure that each unit offers the customer the best product at the best price, franchisees are required to attend McDonald University, where they are taught how to manage their business. Here they learn the McDonald cultural values and the proper way to run the franchise. This training ensures that franchisees all over the world are operating their units in the same way. Kroc died many years ago, but the culture he left behind is still very much alive in McDonald’s franchises across the globe. In fact, new employees receive videotaped messages from the late Mr. Kroc. Some of the more interesting of his pronouncements that reflect and carry on his values are his thoughts on cleanliness: “If you’ve got time to lean, you’ve got time to clean.” About the competition he says: “If they are drowning to death, I would put a hose in their mouth.” And on expanding he declares: “When you’re green, you grow; when you’re ripe, you rot.” So even though he has not been involved in the business for many years, his legacy lives on. Even his office at corporate headquarters is preserved as a museum, his reading glasses untouched in their leather case on the desk.

Wal-Mart. Sam Walton, founder of Wal-Mart Stores, Inc., opened his first Wal-Mart store in 1962. Focusing on the sale of discounted name-brand merchandise in smalltown markets, he began to set up more and more stores in the Sun Belt. At the same time, he began developing effective Inventory Control systems and marketing techniques. Today, Wal-Mart has not only become the largest retailer but also one of the biggest firms in the world. Although Sam died many years ago, his legacy and cultural values continue. For example, Walton himself stressed, and the current management staff continues to emphasize, the importance of encouraging associates to develop new ideas that will increase their store’s efficiency. If a policy does not seem to be working, the company quickly changes it. Executives continually encourage associates to challenge the current system and look for ways to improve it. Those who do these things are rewarded; those who do not perform up to expectations are encouraged to do better. Today, Walton’s founding values continue to permeate the organization. To make sure the cultural values get out to all associates, the company has a communication network worthy of the Pentagon. It includes everything from a satellite system to a private air force of numerous planes. Everyone is taught this culture and is expected to operate according to the core cultural values of hard work, efficiency, and customer service.

    Although the preceding stories of cultural development are well known, in recent years these and other well-known companies founded by charismatic leaders have had varied success. The same is true of the dot-com firms. Some, like Jeff Bezos’s founding and cultural development of, are in some ways similar to and in some ways different from the stories of Ray Kroc at McDonald’s or Sam Walton at Wal-Mart. They are similar in that both started from scratch with very innovative, “out of the box” ideas to build an empire and change the way business is done. They are different in terms of speed and style. Other corporate culture stories today are not necessarily about the founders, but about those who took their company to the next level. For example, John Chambers, the CEO of Cisco, is largely credited for taking this well-known high-tech firm from a market capitalization of $9 billion when he took over in 1995 to being the highest-valued corporation in the world five years later and then repositioning the firm when the economy began to slump. The culture of Cisco is largely attributed to his old-school values such as trust, hard work, and customer focus, but as the subsequent economic downturn and the rapid decline in the stock values of Cisco brought out, being at the right place at the right time in terms of the technology environment also had had a lot to do with Cisco’s initial success. After the bubble had burst for Cisco and the other high-tech and especially dot-com firms, those who had the strong, but flexible, cultures were the ones that survived the extreme roller-coaster ride of the economy in recent years. Chambers indicated such desirable organizational cultural values when he declared, “I have no love of technology for technology’s sake. Only solutions for customers


Once an organizational culture is started and begins to develop, there are a number of practices that can help solidify the acceptance of core values and ensure that the culture maintains itself. These practices can be described in terms of several socialization steps. Figure 3.4 illustrates what Richard Pascale has identified as the sequence of these steps.

Selection of Entry-Level Personnel
The first step is the careful selection of entry-level candidates. Using standardized procedures and seeking specific traits that tie to effective performance, trained recruiters interview candidates and attempt to screen out those whose personal styles and values do not make a “fit” with the organization’s culture. There is research indicating that newcomers’ and their supervisors’ perceptions of organization culture fit are related to organizational commitment and intention to leave the organization. There is also accumulating evidence that those who have a realistic preview (called realistic job preview, or rjp) of the culture will turn out better. An example of effective selection for cultural fit is North Shore Bank, a community bank in Wisconsin. One approach that they have implemented in order to maximize the “fit” as well as productivity is through recruitment and selection in neighborhoods closest to its branches. This helps customers and employees alike identify with the unique differences between their local bank and their large national bank competitors.

Placement on the Job
The second step occurs on the job itself, after the person with a fit is hired. New personnel are subjected to a carefully orchestrated series of different experiences whose purpose is to cause them to question the organization’s norms and values and to decide whether or not they can accept them. For example, many organizations with strong cultures make it a point to give newly hired personnel more work than they can handle. Sometimes these assignments are beneath the individual’s abilities. At Procter & Gamble, for example, new personnel may be required to color in a sales territory map. The experience is designed to convey the message, “Although you’re smart in some ways, you’re in kindergarten as far as what you know about this organization.” The objective is also to teach the new entrant into the culture the importance of humility. These experiences are designed to make newly hired personnel vulnerable and to cause them to move emotionally closer to their colleagues, thus intensifying group cohesiveness. Campus fraternities and the military have practiced this approach for years.

Job Mastery
Once the initial “cultural shock” is over, the next step is mastery of one’s job. This is typically done via extensive and carefully reinforced field experience. For example, Japanese firms typically put new employees through a training program for several years. As personnel move along their career path, their performance is evaluated, and additional responsibilities are assigned on the basis of progress. Quite often companies establish a step-by-step approach to this career plan, which helps reduce efforts by the personnel to use political power or to take shortcuts in order to get ahead at a faster pace. Highly successful “Coca-Cola slowly steeps its new employees in the company culture—in this case, an understanding of the trademark’s image. The people system then ensures that only Coke managers who have been thoroughly socialized into worrying about the company as a whole get to make decisions affecting the company.”

Measuring and Rewarding Performance
The next step of the socialization process consists of meticulous attention to measuring operational results and to rewarding individual performance. These systems are comprehensive and consistent, and they focus on those aspects of the business that are most crucial to competitive success and to corporate values. For example, at Procter & Gamble there are three factors that are considered most important: building volume, building profit, and making changes that increase effectiveness or add satisfaction to the job. Operational measures are used to track these three factors, and Performance Appraisals are tied to milestones. Promotions and merit pay are determined by success in each of these critical areas. Motorola personnel are taught to adhere to the core cultural values through careful monitoring of team performance and through continual training programs. Typically, in companies with a strong culture, those who violate cultural norms, such as overzealousness against the competition or harsh handling of a subordinate, are sent to the “penalty box.” This typically involves a lateral move to a less-desirous location. For example, a branch manager in Chicago might be given a nebulous staff position at headquarters in Newark. This individual is now off-track, which can slow his or her career progress.

Adherence to Important Values
The next step involves careful adherence to the firm’s most important values. Identification with these values helps employees reconcile personal sacrifices brought about by their membership in the organization. They learn to accept these values and to trust the organization not to do anything that would hurt them. As Pascale observes: “Placing one’s self ‘at the mercy’ of an organization imposes real costs. There are long hours of work, missed weekends, bosses one has to endure, criticism that seems unfair, job assignments and rotations that are inconvenient or undesirable.” However, the organization attempts to overcome these costs by connecting the sacrifices to higher human values such as serving society with better products and/or services. Today’s firms in the global economy must give special attention to cultural differences around the globe, but maintain the core values. For example, when Wal-Mart Stores entered the German market a few years ago, it took along the “cheer”—Give me a W! Give me an A!, etc. Who’s Number One? The customer!— which went over as well with the German associates as it did with their counterparts in the United States. However, the cultural value of greeting any customer within a 10-foot radius did not. German employees and shoppers were not comfortable with this Wal-Mart custom, and it was dropped from the German stores.

Reinforcing the Stories and Folklore
The next step involves reinforcing organizational folklore. This entails keeping alive stories that validate the organization’s culture and way of doing things. The folklore helps explain why the organization does things a particular way. One of the most common forms of folklore is stories with morals the enterprise wants to reinforce. For example, Leonard Riggio, the CEO of Barnes & Noble, often tells stories about his childhood experiences in Brooklyn and in particular his father’s stint as a boxer. These often-told stories have been a great help to communicate a populist culture that needed to shed its elitist past. Also, Bill Hewlett of Hewlett-Packard is known for the often-told story of him using a bolt cutter to remove a lock that he encountered on the supply room. He left a note behind instructing that the door never be locked again to forever communicate the important cultural value of trust at H-P. 3M is probably the best known firm to use stories and sagas to emphasize cultural values. The famous Post-it Notes legacy is a great example.

The idea originated with Art Fry, a 3M employee who used bits of paper to mark hymns when he sang in his church choir. But these markers kept falling out of the hymnals. He decided that he needed an adhesive-backed paper that would stick as long as necessary but could be removed easily, and soon found what he wanted in a 3M laboratory. Fry saw the market potential of his invention, but others did not. Market survey results were negative; major office supply distributors were skeptical. Undeterred, because he had heard stories about other 3M employees that conveyed the importance of perseverance, Fry began giving samples to 3M executives and their secretaries. Once they actually used the little notepads, they were hooked. Having sold 3M on the project, Fry used the same approach with the secretaries of other companies’ executives throughout the United States.

The rest is history. Post-it Notes became a huge financial success for 3M, and retelling the story reinforces cultural values of innovation that can come from anywhere, perseverance, and Championing of your good ideas.

Recognition and Promotion
The final step is the recognition and promotion of individuals who have done their jobs well and who can serve as Role Models to new people in the organization. By pointing out these people as winners, the organization encourages others to follow their example. Role models in strong-culture firms are regarded as the most powerful ongoing training program of all. Morgan Stanley, the financial services firm, chooses role models on the basis of energy, aggressiveness, and team play. Procter & Gamble looks for people who exhibit extraordinary consistency in such areas as tough-mindedness, motivational skills, energy, and the ability to get things done through others. There is considerable research evidence that recognition can serve as a powerful reinforcer,75 and thus those exhibiting cultural values that are given either formal recognition or even one-on-one social attention/recognition from relevant others can build and sustain the organizational culture.

Figure 3.4


Sometimes an organization determines that its culture has to be changed. For example, the current environmental context has undergone drastic change and either the organization must adapt to these new conditions or it may not survive. In fact, it is no longer sufficient just to react to change. Today, as was pointed out in this chapter about organizational learning, organizations must have a culture that learns and anticipates change. New product development, advanced information technology and the economy are changing so rapidly that any examples would be soon out-ofdate. However, if the appropriate organization culture is in place, then such rapid change can be welcomed and accommodated with as little disruption and as few problems as possible. One example of an organization culture literally built around change is Steelcase’s corporate development center, shaped like a pyramid with an open atrium containing a huge swinging pendulum to remind employees that the world is always changing. Another example of keeping up with the changing workplace is Zenith, who uses its intranet as a kind of virtual water cooler. As the head of the marketing group notes, “Every day we say who is having a birthday, a service anniversary, or if we’ve had an incredible sales day.”
          Even though some firms have had a culture in place to anticipate change, moving to a new culture or changing old cultures can be quite difficult: a case can even be made that it really can’t be done successfully. Predictable obstacles include entrenched skills, staffs, relationships, roles, and structures that work together to reinforce traditional cultural patterns. For example, the head of Bell Canada, which is trying to undergo a significant cultural change (from its 122-year-old monopolist mentality to a highly competitive environment), started with implementing formal quality and cost cutting programs, but realized very quickly that “We needed to get to the front lines of the organization, and my view is that it’s very hard to do that through formal programs.” Another example would be the traditional tough, macho culture found on offshore oil rigs. It was very difficult to change the traditional cultural values of displaying masculine strength and daring to a caring, helping environment. This shift was difficult but over a long period of time these “rough necks” came to “appreciate that to improve safety and performance in a potentially deadly environment, they had to be open to new information that challenged their assumptions, and they had to acknowledge when they were wrong.” The result of this cultural change on the oil rigs dramatically decreased the accident rate by 84 percent and productivity, efficiency, and Reliability all increased beyond the industry benchmarks. In addition to the importance of frontline workers in cultural change, powerful stakeholders such as unions, management, or even customers may support the existing culture and impede the change. The problems are compounded by the cultural clash that is the rule rather than the exception in mergers and acquisitions (M&As), emerging relationship enterprises, and the recent economic crisis.

The Case of Mergers and Acquisitions
Although M&As were thought to have peaked over a decade ago, they have again become very common because the wide divergence in stock-market values between firms, globalization, and the recent financial/economic crisis have left a climate for both friendly buyouts and hostile takeovers. Besides the financial implications of M&As, the often slighted or even ignored organizational culture implications can be dramatic. As one veteran of a number of M&As concluded about the cultural side of mergers: (1) you can’t do too much, and (2) too little will be done. In the heat of the deal, he says, “people issues, as real as they are, become obscured.” The clash between the two cultures in a merger or acquisition can be focused into three major areas:

1. Structure. These factors from the two cultures include the size, age, and history of the two firms; the industry in which the partners come from and now reside; the geographic locations; and whether products and/or services are involved.

2. Politics. Where does the power and managerial decision making really reside? Corporate cultures range from autocratic extremes to total employee empowerment, and how this plays out among the partners will be important to cultural compatibility.

3. Emotions. The personal feelings, the “cultural contract” that individuals have bought into to guide their day-to-day thoughts, habits, attitudes, commitment, and patterns of daily behavior. These emotions will be a major input into the clash or compatibility of the two cultures.

    The potential (high probability) cultural clash from M&As will be greatly compounded when the partners are from different countries. With globalization now a reality, cross-border alliances are commonplace. Announcements of megamergers such as DaimlerChrysler, British Petroleum-Amoco, and Deutsche Bank-Bankers Trust reach the headlines, but the cultural clash aftermath seldom, if at all, is discussed. The highly visible DaimlerChrysler merger problems with advertising and U.S.-governmentsponsored research aimed at fuel efficiency and cleaner cars is given attention, but the cultural issues are not given as much attention. Yet, the day-to-day cultural clashes at all levels are the reality. As auto industry analysts have pointed out, Daimler-Benz had a conservative, slow-moving corporate culture while Chrysler at the time of the merger had a fast, lean, informal, and daring corporate culture. For example, the Mercedes-Benz plant in Vance, Alabama, represents the merger in microcosm. The German “wunderkind” plant manager deliberately selected German, U.S., and Canadian managers (some with Japanese auto firm experience) for his team. They clashed not just over the operations system, but also on more subtle but explosive cultural issues such as image and decorum. This type of cultural conflict is greatly trying to be worked out, but guidelines and help are still needed for meeting the challenge of managing the cultural change on both sides.

The Case of Emerging Relationship Enterprises
Today’s networked global environment is going beyond formal M&As with what are being called “relationship enterprises.” Somewhat like network and virtual organization designs, these relationship enterprises consist of a global network of independent companies that act as a single company with a common mission. Examples include the following:

• The aerospace industry at the turn of the century is controlled by two networks— Boeing (based in the United States) and Airbus (France). Importantly, each of these relationship enterprises consists of more than 100 partners around the world.

• In the telecommunications industry, the Global One joint venture, led by Sprint, Deutsche Telekom, and France Telecom, serves 65 countries and functions as one relationship enterprise to serve the global telecom needs of many corporations.

• In the airline industry, United, Lufthansa, SAS, Varig, Thai Airways, and others have formed into a relationship enterprise called Star Alliance. They provide the international traveler with seamless service anywhere on the planet and share systems, marketing, in-country operations, schedules, and frequent flier miles—everything except crews.

  In the near future such relationship enterprises will become common in more traditional industries such as chemicals, textiles, and food, as well as new frontier industries such as biotech and memory. The reason that this loose network of alliances is the trend over more formal M&As has to do with legal terms (by law some countries do not allow majority purchase of their firms by foreigners), but mainly with political nationalism and organizational cultural values. Pride and pragmatic needs are driving this new form of global alliance, but the perspective and management of the organizational cultures in this new relationship is a challenge. Issues such as trust, communication, and negotiation skills become very relevant and important to success. The organizations and managers in the global relations “must learn to communicate across the cultural divide; each must understand that the other perceives and interacts in a fundamentally different way.” Importantly, three-fourths of companies believe their alliances failed because of an incompatibility of country and corporate cultures.

Impact of Organizational Culture in an Economic Crisis
Besides M&As and the new organizational designs having an impact on organizational cultural change, the recent economic crisis has also stimulated both scholars and practitioners to reexamine the role that culture played and the lessons to be learned to effectively change the culture. For example, the mortgage companies (e.g., Countrywide Financial) and investment banks (e.g., Lehman Brothers) that collapsed at the end of 2008 were known to have very strong corporate cultures. However, as one analysis pointed out, “they were cultures characterized by rampant individualism, little attention or oversight from supervisors, and huge rewards for successful performance. Those values generated tremendous pressure to maximize individual performance and payouts, often by taking outsized risks and hiding failures. That same pressure often caused players to push the environment as to acceptable ethical behavior.”
     By contrast, at least at this writing, Goldman Sachs was one of the few that escaped the purge in investment banking. They are known for having a team-oriented culture (as opposed to “rampant individualism”) and according to Steven Kerr, a former organizational behavior professor who then became chief learning officer at GE and then Goldman Sachs, the managers had several meetings a day and “making any decision required checks with many people, and before we made a decision to invest, many eyes had seen the proposal.” 88 In other words, lessons from the recent economic crisis are that first, the organizational culture can affect not only the ethical, “right thing to do,” but also survival in the long-term. Second, organizations need to continually challenge and change their cultural values. For example, Goldman managers regularly review their cultural values by asking questions such as: “Which are we most or least faithful to?” and “Which need refreshing or reaffirming?” Such a culture of continual questioning seems to be an effective starting point in cultural change, but there is also a need to go beyond such specific guidelines and focus on a more comprehensive approach that will be able to adapt to changing conditions.

Guidelines for Change
Despite the complexity, significant barriers, and Resistance to Change, organizational cultures can be managed and changed over time. This attempt to change culture can take many different forms. Simple guidelines such as the following can be helpful:

1. Assess the current culture.
2. Set realistic goals that impact the bottom line.
3. Recruit outside personnel with industry experience, so that they are able to interact well with the organizational personnel.
4. Make changes from the top down, so that a consistent message is delivered from all management team members.
5. Include employees in the culture change process, especially when making changes in rules and processes.
6. Take out all trappings that remind the personnel of the previous culture.
7. Expect to have some problems and find people who would rather move than change with the culture and, if possible, take these losses early.
8. Move quickly and decisively to build momentum and to defuse resistance to the new culture.
9. Stay the course by being persistent.

Also, organizations attempting to change their culture must be careful not to abandon their roots and blindly abandon their core, but distinctive, competencies and core values. For example, it is generally recognized that the reason “New Coke” failed was that it broke away from the tried-but-true Coca-Cola traditional culture; and the reason Google so far has remained at or near the top in all categories, from profits, to growth, to best places to work, is because it has remained true to its core cultural values and all Googlers buy into them. As was recently observed:

Talk to more than a dozen Googlers at various levels and departments, and one powerful theme emerges: Whether they’re designing search for the blind or preparing meals for their colleagues, these people feel that their work can change the world. That sense is nonexistent at most companies, or at best intermittent, inevitably becoming subsumed in the day-to-day quagmire of PowerPoints, org charts, and budgetary realities.

Where Coca-Cola is an example of a firm with a long history and strong corporate culture, and Google is a new age company with a very powerful corporate culture, IBM, discussed earlier under creating and maintaining a corporate culture, is a good example of a firm that has successfully undergone cultural changes.