IMD International


By Professors Robert Hooijberg and Dan Denison and Research Associate Nancy Lane - March 2013

Managers regularly ask us whether we think it is a good idea for their organizations to have a culture and what value it might add. The question is interesting because it presumes a company does not already have a culture. This is a myth. All organizations inevitably have a culture; they do not have a choice. Its culture consists of its values and principles as they are expressed through management and employee behaviors and the organization's systems and processes. An organization's culture often reflects the values of its founders: Whether it's Sam Walton of WalMart or Steve Jobs for Apple, one can clearly see the impact its founder and his or her values on what happens in that organization. 

This question probably arises due to the confusion between espoused and actual culture. Espoused culture refers to the values companies write about on their website, in their brochures, in their corporate annual report, and so on. It shows how the company would like to be seen. However, espoused culture can differ from how management and employees act on a day-to-day basis. And if the gap between espoused and actual values is too big it could, in fact, be destructive. For example, it could lead to employee cynicism and, ultimately client cynicism. 

Thinking about the destructive potential of a culture gap brings us to the more important question about how we can create value through the organization's culture. A culture really refers to the behaviors we habitually execute, without much conscious thought. This can bring the organization great efficiency and, if the behaviors create value for the various stakeholders, also effectiveness. Changing culture to become more effective is great, but it also comes at a cost. As long as the change is ongoing, it costs effort, time, and money. However, once those new, improved behaviors become integrated and a normal part how things get done, then the organization can truly capture their benefits. 

The effectiveness of a culture is optimal if it works for all stakeholders. For example, if a company espouses the importance of customer service in terms of product and service offerings, responsiveness and quality assurance, yet offers its employees minimal HR services, management attention and office environment then inevitably this dissonance will lead to deterioration in customer service, responsiveness and quality. 

Given the importance of alignment between the internal and external cultures, top management needs to pay close attention to the way in which they shape the culture. In late February 2013, Yahoo CEO Marissa Mayer's new policy prohibiting telecommuting and requiring employees' physical presence from June 2013 caused an uproar. After having spent a month post-partum working from home, Mayer has reportedly spent her own money to build a nursery for her 5-month old son next to her office. So, while taking steps to increase the amount of time she has with her child, Mayer requires employees' physical presence at the office, thereby removing an industry-standard benefit that allows them to spend more time with their families. There is a stark difference between her actions and her new policy. Thus, alignment between what happens inside and outside the company is clearly important. How can companies ensure that it happens? Leaders must make sure that such things as the reward system and HR processes support what they say are important. If you say teamwork is important, then at least some part of the performance system should reflect it, rather than focusing solely on individual performance. Likewise, teamwork should be built into the other HR processes such development and promotion. If your growth strategy requires mergers and acquisitions, then you should target companies that value teamwork rather than individual performance. Managers must carefully consider if the way things are done inside reflect what they say is important.


So, if leaders decide to influence culture, rather than letting it emerge, how should they approach it? The first thing to worry about is not overreacting. If leaders devise a 100-point change plan, they are setting themselves up for failure. Rather, they should determine the key levers for change. Then, they should reflect on what the impact they are trying to achieve with the changes and which of them will spread effectively throughout the organization. Research shows that different parts of organizations change at a dramatically different pace and that successful transformations make critical choices about their starting points. This means that the most important choice in a transformation is the process of defining a set of targets for change that will create the most leverage and build the most momentum.  These key leverage behaviors and associated processes and systems are referred to as "keystone habits" (Charles Duhigg, 2012).  Once leaders have identified and chosen these keystone habits they need to ensure that sufficient resources are put behind them and do it right.

Dan Denison is a professor of Organization and Management and Robert Hooijberg is professor of Organizational Behavior at IMD. Professor Hooijberg will be teaching on the Orchestrating Winning Performance program, which is for individuals and teams who seek the latest management thinking and practical, innovative solutions for their business. 

Nancy Lane is a research associate at IMD.

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