LEADING CULTURE CHANGE IN GLOBAL ORGANIZATIONS
By IMD Professors Robert Hooijberg and Dan Denison - June 2012
In March 2011 Sherry Hunt filed a whistleblower lawsuit against Citigroup for passing on risky loans to the US Federal Housing Agency and not disclosing flaws in its underwriting process. The US government later joined the lawsuit. In February 2012 Citigroup settled for $158.3 million and Hunt's share was $31 million. She had filed the lawsuit almost three years after the global financial meltdown which caused Citigroup to lose $2.7 billion and to receive $45 billion in taxpayer bailouts (Sherry hunt, citigroup whistleblower: 'I have no regrets' ; Woman who couldn't be intimidated by citigroup wins $31 million). Despite all these financial penalties, Citigroup had not changed its practices after 2008. As the French say, plus ça change, plus c'est la même chose or the more things change, the more they stay the same. How could Citigroup have continued lax mortgage lending practices after such behavior had been cited as a key cause of the housing meltdown and the subsequent financial crisis? A crucial part of the answer is the role of organizational culture. Organizations can assert that they are changing practices but if their organizational culture does not also evolve then chances are that the desired transformations will not take place.
What is corporate culture? People have described it as: "what we do when nobody is looking" or "how things are done around here." It is revealed in the routines that have developed over the years, how employees interact, the architecture, the way employees dress, and so on. However, corporate culture goes much deeper, as do icebergs. Only ten percent of an iceberg is visible and the 90% hidden below the water is more dangerous to passing ships. Likewise with corporate culture: the subconscious, underlying beliefs and assumptions that are far beneath the surface are rarely questioned; yet they can hamper an organization's efforts to adapt in an ever-changing world.
However, to survive in the rapidly changing world organizations must adapt. When an organization suspects it is not keeping up, what should it do? Most will start by changing product portfolios or service or change market focus or their sourcing. Few, however, will look to change their culture to (re)create a competitive advantage. However, companies like Citigroup will not change with the times if they do not address the below-the-surface culture. John Stumpf, CEO and Chairman of Wells Fargo Bank, agrees. He is on record as saying "It's about the culture. I could leave our strategy on an airplane seat and have a competitor read it and it would not make a difference" (Guerrera, 2008). People intuitively know this but do not know how to go about changing culture.
We have spent our careers studying corporate culture and helping global organizations navigate their culture change journeys. In this article we draw upon our experience to show how to make culture change tangible and the steps some companies took to change theirs.
Domino's Pizza had been led by its founder for almost forty years. He then sold it to Bain Capital, who brought in a new CEO, David Brandon. Brandon and his team decided that the only way to create a competitive advantage in delivering pizzas was to focus on its people. Another example is Polar Bank, which had been created from the merger of three banks that provided unrelated products and were based in different Scandinavian countries. Its CEO, Katarina Hansen, realized that with European banking consolidating, Polar Bank would only stay in business if it was integrated better. How could the CEOs and management teams of these two companies realize their visions? In these cases both companies conducted an organizational culture survey to help them assess their cultures. They used the results to identify the gaps, track progress as their organization evolved, and benchmark against other companies. Research has shown that there is a link between traits that describe companies' cultures and various performance measures such as profitability, sales growth, quality, and market value, researchers. In short, organizational culture impacts business performance. It does so by creating an organization's sense of mission and direction; building a high level of adaptability and flexibility; nurturing employee involvement and engagement; and providing consistency that is strongly rooted in a set of core values. These surveys provide a common definition of culture, a way to measure it, and a benchmark against other companies (Denison, 1990).
Organizations face a set of dynamic tensions that leaders must manage as they try to solve two problems simultaneously: external versus internal focus and flexible versus stable internal environment. They also face other tensions, such as providing a "top-down" mission versus engaging employees with "bottom-up" involvement. Managing one part of these tensions is relatively easy; however, it is hard to get them all right: Externally focused organizations often have trouble with internal integration. Effective organizations resolve many of the contradictions (showing more color in the circle) and they outperform companies that do not manage the tensions as well (Denison, 1990).
Brandon realized that Domino's had to focus on developing its capabilities, coordination and integration, customer focus and organizational learning. Domino's focused on improving the quality of the workforce. One change it made was to emphasize attitude rather than skill: skills could be taught but attitude is stubbornly permanent. It started drug testing its drivers, implemented new financial software to prevent "shrinkage" and banned employees who had been fired from one location from being rehired anywhere. These steps all contributed to Domino's steadily improving performance.
To break down the barriers at Polar Bank, Hansen had each of the banks develop their strategies with input from the other groups. The cross-fertilization was an essential step in fostering understanding across the banks. Another innovation was to initiate a job rotation process whereby managers moved to different operations for four to six months. A third key step was to create one common board of directors to govern all three banks. Together they had to understand Polar Bank's overall strategy and ensure consistent implementation in the three banks, thereby fostering a One Polar Bank perspective.
These are just a few innovative ways we have seen companies change deep-rooted cultural habits to (re)gain a competitive advantage. Had Citigroup paid attention to the underlying culture, Hunt probably never would have needed to blow the whistle.
Dan Denison is a professor of Organization and Management and Robert Hooijberg is professor of Organizational Behavior at IMD. Their new book Leading Culture Change in Global Organizations (San Francisco Jossey Bass) will be released in June 2012. Their session at OWP this June 26 – July 1 will be about Building a Corporate Culture in the 21st Century. To order the book, visit the website.
Denison, D. R. (1990). Corporate culture and organizational effectiveness. New York: Wiley. Guerrera, F. (2008). Wells fargo cracks the whip. FT.Com, Sherry hunt, citigroup whistleblower: 'I have no regrets' Retrieved 6/4/2012, 2012, from http://www.huffingtonpost.com/2012/02/16/sherry-hunt-citigroup-whistleblower_n_1283594.html
Woman who couldn't be intimidated by citigroup wins $31 million Retrieved 6/4/2012, 2012, from http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/05/30/bloomberg_articlesM4UIDH0D9L3401-M4UKB.DTL