How to Change and Strengthen Organizational Culture - Principles of Management

Can managers change an organization’s culture? Yes, but it isn’t easy, it rarely occurs quickly, and often the culture ends up changing managers. Remember that culture is deeply embedded in the collective mindset. Employees don’t just value some things more than others; they don’t even question why they believe something is the right thing to do. Artifacts further reinforce that cultural system of beliefs.

The shared assumptions of an organization’s culture are so well established that employees rely on them to make decisions and engage in behavior without consciously questioning them. Indeed, when outsiders critique those culturally congruent decisions and actions, employees often respond with disbelief that anyone would doubt such logical courses of action.

Many executives have been driven out of organizations because they tried to change the organizations’ culture. One casualty, as we mentioned earlier, was a Procter & Gamble CEO who lasted only two years because he tried to deculturize an intransigent “Procterized” workforce too quickly and forcefully. Carly Fiorina, the former CEO of Hewlett- Packard (HP), is another example. The California-based technology company’s legendary culture, known as “the HP Way,” revered innovation, employee well-being, and collegial teamwork.

It was a role model for cultures in other Silicon Valley companies. But HP started to lose ground to Dell, Compaq, and other competitors who were responding with more agility and efficiency to customer demands. Furthermore, an internal assessment revealed that HP’s culture had shifted. “The HP Way has been misinterpreted and twisted as a gentle bureaucracy of entitlement instead of a performance-based meritocracy,” said Fiorina soon after becoming Hewlett-Packard’s CEO.

As HP’s first CEO hired from outside the company, Fiorina’s task was to alter the HP Way so the company would become more competitive. She launched “the Rules of the Garage,” a set of cultural values having symbolic reference to the Palo Alto garage where founders William Hewlett and David Packard started the company in 1939. Fiorina reinforced these performance-focused values with a customer-driven bonus system and organizational structure.

Her biggest initiative was acquiring Compaq, a fast-paced and aggressive competitor from Texas. The merger was intended to inject “a little of Compaq’s DNA into the HP Way, especially speed and agility,” said a Compaq executive who later took an executive position at HP. Hewlett-Packard’s acquisition of Compaq seems to have had some effect on the HP culture—but at a cost.

Both board members from the founding families (Hewlett and Packard) quit over the changed culture; HP lost its status as one of the top 10 best places to work in America (it isn’t even on the top 100 today); and Fiorina was ousted as CEO. On the surface, Hewlett-Packard’s board lost confidence in Fiorina because she failed to raise the company’s profitability and achieve related targets.

But sources say that Fiorina also tried to change more of the HP Way than was necessary, which battered employee loyalty, productivity, and ultimately profitability. “A little of the HP Way would probably work pretty well right now,” says Quantum CEO and former HP executive Richard E. Belluzzo soon after Fiorina was fired.

“The strength of HP has always been its culture and its people.” The lesson here is that changing an organization’s culture can be a manager’s greatest challenge. At the same time, as we noted earlier, organizational culture can be a powerful influence on the company’s success. So how can managers change and strengthen organizational culture? Over the next few pages we highlight four strategies that have had some success. This list, outlined in Figure below is not exhaustive; but each activity seems to work well under the right circumstances.

ACTIONS OF FOUNDERS AND LEADERS

An organization’s culture begins with its founders and leaders. Founders set the tone, emphasizing what is most important and what should receive a lower priority. They are often visionaries who provide a powerful role model for others to follow. Experts suggest that the company’s culture sometimes reflects the founder’s personality, and this cultural imprint often remains with the organization for decades.

Changing and Strengthening Organizational Culture

Strategies to Change and Strengthen Organizational Culture

Strategies to Change and Strengthen Organizational Culture

Dell Inc. has a winning culture because Michael Dell is a high achiever. The HP Way culture emphasizes collegiality and employee well-being because the company’s founders were outgoing and benevolent.

Founders establish an organization’s culture, but they and subsequent CEOs can sometimes reshape that culture. A legendary example is Zhang Ruimin’s corporate culture transformationof Haier Group, the Chinese state-owned appliance manufacturer. Soon after his arrival as CEO two decades ago, Zhang was so incensed by the poor quality of the products built at Haier Group’s factory in Qingdao that he picked up a sledgehammer and, with employees watching, smashed several washing machines.

Zhang’s dramatic behavior symbolized the need for radical change, including replacing the entitlement culture with one that values quality and performance. Today Haier Group is a model of modern efficiency.

Visitors to Qingdao’s shop floor will find the legendary sledgehammer displayed in a glass case, reminding everyone of how Haier Group’s culture has changed.

Zhang’s actions illustrate that leaders play an important symbolic role in organizational culture change. Fortunately there are ways other than smashing products with a sledgehammer to communicate the need for cultural change. For example, when Louis Gerstner was brought in to turn around troubled IBM in the early 1990s, he showed up on the first day wearing a blue shirt.

What’s so symbolic about the incoming CEO wearing a blue shirt? Quite a lot at IBM, where every male employee wore a neatly starched white shirt. (Several decades earlier IBM founder Thomas Watson had disapproved of anyone wearing shirts that weren’t white.)

Gerstner’s blue shirt attire wasn’t accidental. It was a deliberate signal that he intended to break the technology firm’s bureaucratic follow-mindless-rules culture. The message was so powerful that IBM was buzzing for weeks about how the new CEO dared to wear a blue shirt in IBM’s hallowed halls.

Three months later IBM staffers everywhere were wearing blue shirts, so Gerstner sometimes reverted to wearing white shirts! He also made the point to everyone that IBM employees are not evaluated by the colors of their shirts. Instead they should wear attire appropriate for the occasion and will be rewarded for their performance.

The leader’s symbolic words and actions are sometimes highlighted in ceremonial events (such as Zhang’s sledgehammer); but they are equally important in more mundane ways, such as how meetings are conducted, where the manager locates his or her office, and who gets on the manager’s schedule and for how long.

Employees watch managers at all levels of the organization to determine how serious they are about changing the culture and how that culture translates into behavior. Thus anything managers say or do that is consistent with the desired culture will potentially lead the organization toward that culture.

Founder Michael Dell and CEO Kevin Rollins relied on symbolic events to begin the process of reshaping Dell’s culture. A 360-degree feedback report (in which employees evaluate their superiors) concluded that Dell was impersonal and emotionally detached, while Rollins was considered autocratic and antagonistic. So in front of the top management team, Dell and Rollins candidly told everyone about their 360 results.

Dell acknowledged that he was intensely shy and would work toward creating a more open and collegial workplace. “I’ve got some things to work on,” he admitted. Dell taped this self-admission and later showed it to several thousand Dell managers across the country. “It didn’t feel good,” recalls Rollins about the event, “but what we realized was, if we wanted the organization to improve and to admit failure, we’d have to set the example. And we did.”

ALIGNING ARTIFACTS

Artifacts represent more than just the visible indicators of a company’s culture. They are also mechanisms that keep the culture in place. Thus by altering these artifacts—or creating new ones—managers can potentially adjust organizational culture. Stories and legends represent a type of artifact that can help to reshape an organization’s culture. Leaders can play an active role in creating memorable events that later become stories.

For instance, earlier we described the executive meeting in which Michael Dell and Kevin Rollins acknowledged their limitations and goal to change their style. This event is more than symbolic evidence of the leaders’ dedication to a new culture; it has become a story that Dell employees around the world know about and retell to newcomers when they join the company. Leaders also play an important storytelling role by seeking out employee experiences compatible with the desired culture and telling others about those incidents.

Rituals and ceremonies can also be altered to fit the new cultural mandate. If managers want to instill more open communication, they might keep their office doors open or move completely out of their offices into open space. To discourage bureaucracy, some executives have hosted ceremonies in which all employees watch as volumes of policy manuals are burned.

Some firms have also introduced unusual (and perhaps questionable) ceremonies to engender a more performance-oriented culture. For instance, Brown & Brown Inc., one of the largest independent insurance companies in the United States, held an event at one of its annual sales meetings that would shake the nerves of any poor performer. Managers of the worst-performing divisions were led to a podium by employees dressed as medieval executioners while a funeral dirge played over loudspeakers.

These managers had to explain to an audience of 1,000 salespeople why they failed to meet their annual goals. “It does sound a bit harsh, but that’s the culture,” says Brown & Brown’s chief executive. “This is not a warm and fuzzy world.”

Earlier we observed that buildings and décor are artifacts of an organization’s culture. At the same time some leaders are moving into offices that reflect what they want the company’s culture to become. National Australia Bank’s (NAB) National@Docklands, a low-rise campuslike building in Melbourne’s docklands area, is an example. The building’s open design and colorful décor symbolize a more open, egalitarian, and creative culture, compared to the closed hierarchical culture that NAB executives are trying to shed.

The docklands building project was initiated when executives realized that MLC, a financial services firm that NAB had acquired a few years earlier, was able to change its culture after moving into its funky headquarters in Sydney. “There’s no doubt that MLC has moved its culture over the last few years to a more open and transparent style which is a good example for the rest of the group to follow,” admits an NAB executive.

INTRODUCING CULTURALLY CONSISTENT REWARDS

Reward systems are artifacts that often have a powerful influence on steering an organization’s culture—so much so that we describe them here as a separate culture change strategy. One of Robert Nardelli’s first steps to change Home Depot’s culture was to introduce precise measures of corporate performance and drill managers with weekly performance objectives around those metrics.

The previous hodgepodge of subjective performance reviews was replaced with one centralized fact-based system to evaluate store managers and weed out poor performers. Nardelli instituted quarterly business review meetings in which objective measures of revenue, margins, inventory turns, cash flow, and other measures were analyzed across stores and regions. A two-hour weekly conference call became a ritual in which Home Depot’s top executives were held accountable for the previous week’s goals.

All of these actions reinforced a more disciplined (and centralized), performance-oriented culture, which eventually replaced Home Depot’s freewheeling, entrepreneurial culture. Kevin Rollins and Michael Dell applied a similar strategy to adjust Dell’s culture. But whereas Nardelli used performance-based rewards to reinforce a performance-oriented culture, Dell introduced a system that rewarded managers for creating a better place to work.

Specifically, while half of the bonus Dell managers receive is still based on reaching or beating sales targets, the other half is now determined from employee ratings of their bosses in quarterly surveys. “We now pay our managers against how their employees vote on them in terms of their management capability,” explains Rollins. The first few years proved painful because some managers with over-the-top sales performance had a large part of their bonus pulled because of low scores on the employee ratings.

SELECTING AND SOCIALIZING EMPLOYEES

People at Bristol-Myers noticed that executives hired from the outside weren’t as successful as those promoted from within. Within a year many quit or were fired. Managers looked closely at the problem and arrived at the following conclusion: “What came through was that those who left were uncomfortable in our culture or violated some core area of our value system,” says a Bristol-Myers executive. From this discovery, Bristol-Myers assessed its culture—it’s team-oriented, consistent with the firm’s research and development roots. Now applicants are carefully screened to ensure they have compatible values.

Bristol-Myers and a flock of other organizations strengthen and sometimes reshape their corporate cultures by hiring people with values and assumptions similar to those cultures.
They realize that a good fit of personal and organizational values makes it easier for employees to adopt the corporate culture. A good person–organization fit also improves job satisfaction and organizational loyalty because new hires with values compatible to the corporate culture adjust more quickly to the organization.

For instance, Robert Nardelli’s transformation of Home Depot’s culture was aided by hiring many former GE managers who already embraced a performance-oriented culture. He also encouraged employment of former military personnel, partly because they tend to support a more structured and disciplined approach to doing business.

Job applicants also pay attention to corporate culture during the hiring process. They realize that as employees, they must feel comfortable with the company’s values, not just the job duties and hours of work. Thus job applicants tend to look at corporate culture artifacts when deciding whether to join a particular organization. By diagnosing the company’s dominant culture, they are more likely to determine whether its values are compatible with their own.

Along with selecting people with compatible values, companies maintain strong cultures through the process of organizational socialization: the process by which individuals learn the values, expected behaviors, and social knowledge necessary to assume their roles in the organization. If the company’s dominant values are communicated, job candidates and new hires are more likely to internalize these values quickly and deeply.

Selection and socialization were issues that Dell had to address when changing its culture. Management realized that the company’s skyrocketing stock price during the late 1990s was attracting people who mainly valued financial gain. “The dark side of the [dot-com boom] was the possibility that we had attracted a lot of people who thought they would get rich.

And if they all of a sudden thought they wouldn’t get rich, then they’d wonder what they’re doing here,” says Michael Dell. Today the company carefully interviews and tests job applicants to see how their values align with the company’s culture.

Dell also tells job applicants about its culture before they receive job offers. For example, applicants at Dell’s new computer assembly plant in Winston-Salem, North Carolina, are invited to a special information session where they learn about the company and the jobs offered.

“We will discuss the Soul of Dell, give them a realistic job preview, and give them the opportunity to complete a job application,” explains Dell’s human resource manager for the plant. “It will be a chance to determine the mutual interest between the candidates and Dell.”


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