European Management \oumal Vol. 12, No. 4, pp. 401-406, 1994 Copyright 0 1994 Ek&ier Science Ltd

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cultural Change and Competi tive Perform .ance

JOHN HENDRY, Director MBA Course, Judge Znstitute of Management Studies, University of Cambridge; VERONICA HOPE, Leading Edge Forum Research Fellow, Judge Institute of Management Studies, University of Cambridge

Against a background of management literature which advocated cultural change to increase corporate competitive performance (such as Peters and Waterman‘s In Search of Excellence), John

Hendry and Veronica Hope explore four components of the problem of bringing about cultural change to produce major strategic shifts - a problem which has proved difficult to solve in the last decade. For example, a web of organisational properties and practices acts to protect the existing culture (the ‘cultural web’).

The authors highlight two very different but related ways in which cultural change programmes try to work - by reference to control and by reference to sets of specific values. Today’s companies are losing control (informed structures, greater individualism). To restore control, they would be advised to value and empower their staff more highly, i.e. work on values to reinstate a sense of community, and control by consensus. But will all the stakeholders agree?

The idea that organisational culture can contribute to competitive performance is not new. Over half a century ago, leading edge companies such as IBM, J. Lyons and Lever Brothers recognised the contribution that culture could make to staff loyalty, motivation and service quality. It is only in the last decade, however, that the idea of cultural change has entered into management thinking.

The catalyst for this development was a rash of popular management books published in the early 198Os, the most influential of which was Peters and Waterman (1982). Excellent companies, these books proclaimed, were characterised by strong corporate cultures in which the values of service, quality and innovation were all deeply embedded. As companies throughout the world sought to match the performance and reputations of the excellent firms described in the books by modelling themselves on them, culture became something to be manipulated, something to be changed.

Ten years later, many of Peters and Waterman’s excellent companies are excellent no longer, at least in terms of their performance, but the idea of cultural

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CULTURAL CHANGE AND COMPETITIVE PERFORMANCE

I Companies find if very di~c~lf fo contemplate fundamental cultural change and fend to react cos~efically or f rivia lly

change remains attractive. Where companies have fallen, they have done so because of a failure to change and, as researchers into strategic change have shown, one of the biggest obstacles to change in a company is the self-reinforcing value structure of an existing culture. If major strategic changes are to be effected, then cultures must be changed.

The problem is that this is all much easier said than done, and when it comes to implementing cultural change the record of the past decade is not encouraging. It is a record of triumphal proclamations and whimper- ing non-achievements; of apparently solid successes undermined by pervasive backsliding. Where cultural change has taken effect, it has all too often followed a traditional but scarcely welcome pattern: dramatic losses leading to dramatic sackings and a turnaround operation driven by new top management, using the fear of extinction to bring the staff (or what is left of them) around to new ways of thinking.

In addressing this problem, it is useful to break it down into several different components. The first of these relates to the problem of recognising the need for change in the first place. The second concerns the general difficulty of implementing any cultural change. The third component concerns the particular types of culture which firms have sought to put in place, and the fourth concerns the role of culture in organisations, and just what it is that people are seeking to achieve through its manipulation.

Contemplating Cultural Change The fact that cultural change is in general fraught with difficulties should not really be surprising, when we think what culture is. A useful way of doing this is through the analogy between an organisation’s culture and a person’s character or personality. Organisational culture is a product of an organisation’s history, of its accumulated experiences, and of the lessons it has learnt in seeking to survive and prosper. What is valued, what is assumed, and what is lodged in the corporate memory, often unconsciously, is what has worked in the past. This can be changed only cumulatively. We can add to our experience, but we cannot subtract from it and, while additional new experiences may modify our values and beliefs, they cannot remove the effects of those past experiences through which the culture of the organisation, or the character of the individual, were formed.

For Peters and Waterman, a strong culture was one of the causes of a company’s success. But because culture is based on experience, it is also one of the consequences

of success, with the culture and the performance linking together in a positive feedback loop. The organisation learns from what works. The learning is embodied in the culture, which reinforces the successful behaviour pattern, which strengthens the culture, and so on. Unfortunately the very process that leads to success also leads inevitably to failure when, in the longer term, the environment changes. On one hand the old culture ceases to be appropriate. On the other hand, it continues to provide the background against which people try to judge what is appropriate and what is not.

[the] basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic ‘taken for granted’ fashion an organisation’s view of itself and its environment. These assumptions and beliefs are learned responses to a group’s problems of survival in its external environment and its problems of internal integration. They come to be taken for granted because they solve those problems repeatedly and reliably.

Definition of culture (Schein, 1985, p. 8)

Organisations, like individuals, operate in complex environments in which they cannot hope to absorb or analyse even a small fraction of the data available to them. In order to survive they must, again like indivi- duals, make a whole range of simpl~~ng assumptions, ordering the data and fitting it into pre-existing frameworks and patterns. But these frameworks and patterns are themselves based on experiences of successful interpretation. If I see a jumble of colours in an office I am apt to interpret them not only as people (itself quite an assumption!), but as the very people I would expect to find there. If I have developed, through my experience of life, a set of values, beliefs and assumptions (which are also, in their origins, conclu- sions) about the environment in which I live and the behaviour appropriate to it, I wiIl naturally interpret any new experiences in the light of these values, beliefs and assumptions. I will see what I expect to see, hear what I expect to hear, and behave as I have learnt to behave. In the same way a company will naturally interpret market data, customer responses or competitor actions in line with what its past experience leads it to expect.

The result is that while outsiders may see very clearly the need for change, the individuals or companies concerned will not. Impressing on a company that it needs to change its culture is like impressing on an individual that he needs to change his character: for those involved in and embraced by it, culture is not a variable but a given, and any criticism of it is likely to be interpreted as a fault of the critic, not of the company. Moreover, the more successful the company has been in the past, the more strongly its culture has been reinforced by that success, the more resistant it will be to the prospect of change and the more likely it is to fail as a consequence.

This is not to say that companies will not consider the ideal of cultural change, proclaim the need for such change, or embark on cultural change programmes. On

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CULTURAL CHANGE AND COMPETITIVE PERFO~ANCE

the contrary, many companies, egged on by change consultants, OD advisors and HRM enthusiasts, have done just that. Individuals too will accept the scope for improvement, make New Year’s resolutions, and try to modify their behaviour patterns. But how much of this really touches on the cultural core of corporation, or the underlying character of the individual? Given all that \k’e know about the resiiience of culture, there must ,ilways be a suspicion that what is presented as cultural change is either cosmetic, or an honest but impotent tmkering with the fringes. The contemplation of fundamental change is not so easy.

Implementing Cultural Change Even if a proposed cultural change is not that fundamental, it can still be very difficult to implement, as a web of organisational properties and practices acts trl support and maintain the existing culture. The culture of an organisation is expressed and transmitted not only through the formal structure and systems, which can be relatively easily changed, but through informal processes and communication networks, rituals and routines, organisational stories and myths, physical svmbols, power structures and political behaviour. Because all these factors are mutually reinforcing, it is usually impossible to change one without changing them all (see Figure 1).

It: cultural change is to be effected, the web has to be broken. There has, first, to be some kind of ‘unlearning’ process, to break the hold of the accumulated past experience. The inapprop~ateness of the existing culture and the irrelevance of past experience must somehow be made obvious, in a way that is powerful enough to overcome people’s deeply rooted prejudices. At the s;lme time, a new culture has to be established, not only by proclaiming its virtues, but also by demonstrating

Source: Johnson (1987).

Figure 1 The Cultural Web

them in action, and so providing new stores, new rituals, and new processes to drive out and replace the old ones.

Without going through the pain and sacrifices of a turnaround crisis, however, when circumstances force a re-evaluation, how is this to be achieved? Throughout the 198Os, the emphasis has been on programmatic change, implemented in a top down fashion throughout the organisation. Within this context, there appear to be two potentially effective ways of going about the change process. One is through a comprehensive pro- gramme of staff involvement, in which groups of staff are encouraged and assisted to retrace the steps by which top management first realised the need for change, and so to acquire ‘ownership’ of the change programme for themselves. The other is through the propagation of a corporate vision, in which the new culture is ‘sold’ to the company staff, through a combination of charismatic leadership, symbolic action and powerful advertising. Both methods depend heavily on effective communications, but the first relies mainly on rational argument, the second on emotive response.

The jury is still out on how effective these methods can be. Experience so far suggests that they can certainly achieve something, but that they also have their limita- tions. The effects can be very transient. Recognising rationally that something is appropriate is a very different thing from doing it in practice, and grand visions can seem very hollow if they are not quickly followed up by positive results. In particular, values such as individuality, integrity and empowerment can very quickly be relegated to motherhood mantras, with all their potency removed. Moreover, unless the imple- mentation is performed with consummate skill, there is a danger that staff will feel they are being manipulated or brainwashed, leading either to anger and lack of co- operation or to cynicism and mimic, paying lip service to the desired values without any real change to either culture or behaviour .

There are other dangers too. In the effort to establish a new culture across an organisation it is easy to lose sight of important cultural differences within the organisation - between divisions, departments or national operations. When a culture grows organically it often provides a common ground between the different organisational subcultures, but when a new culture is artificially imposed this organic connection can be broken down, leading to dislocation and conflict. The pressures for conformity in a culture change programme can also stifle individual initiative, even when, as is often the case, this is intended to be one of the core values of the new culture.

A related problem is that the very concept of the imposi- tion of cultural change, whether through top-down communications, bureaucratic controls or organisation- wide programmes of planned intervention, often runs counter to the values a company is seeking to promote. In such cases ‘culture change’ becomes just another

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CULTURAL CHANGE AND COMPETITIVE PERFORMANCE

product of the existing cultural system, and the whole process is neutered from the beginning. Finally there are doubts as to how far attitudinal change actually affects performance. In many of the change programmes of the 1980s the tasks or jobs remained the same, and while the cultural context changed this did not always lead to changes in behaviour and performance. To quote one subject (a baggage handler) of an expensive on- going change programme, ‘I know what sort of attitude I’m supposed to have. It’s just I’m not sure what to do with the baggage.’

I The power (political) structure of an organisatio~ will always tend to protect the existing culture

Reverting to the analogy of an individual personality, the approaches to change discussed so far can be characterised as either rational reflection (‘I know I’m a lousy sod so I’m going to reform’) or emotional conversion (the born-again Christian phenomenon). There is, however, another way of changing character, and that is by beginning with behaviour and ‘becoming what we act’ - not just through force of habit, though that may play a part, but through experiencing and recognising the benefits of the new type of behaviour. In a corporate setting, as advocated by Michael Beer et ~11. (1990), this translates into a bottom-up approach of ‘task alignment’, in which cultural change begins when staff are put into new contexts, with new roles, responsi- bilities and relationships. In these settings people develop new patterns of behaviour and from their experiences come new attitudes, values and beliefs. This process is not initially corporation-wide. Instead, like Henry Mintzberg’s grass roots strategy making, it begins through ad-hoc initiatives on the periphery of the organisation, and grows and moves gradually towards the core.

There is little doubt that successful cultural change often takes place in the way that Beer et al. (1990) describe. It begins with the analysis of a specific business problem at a small unit level; proceeds through the development of a shared vision of how to manage and organise to solve that problem; grows through the reinforcement of successful experience; and speads through imitation in other units and, only after its success has been established, through the development of formal policies, systems and structures, But this is a process of natural, organic change. It is slow to mature and unpredictable in its consequences. And there is a question as to whether that is what companies are seeking in their pursuit of cultural change.

Cultural Values and Corporate Imperatives

The principal threat to an innovative culture is the same as that to an innovative society: politics. There is an irony here, for it is often through political action that change is finally brought about. But that can happen only when a culture is already very vulnerable, at a time of major and widely recognised crisis. In the absence of such a crisis, the forces of politics are innately conservative. The power structure of an organisation can be seen, as in the cultural web, as one manifestation of the organisation’s culture. It is, typically, in tune with that culture, and the people who exercise power in the organisation have an inherent interest in maintaining the status quo. An innovative culture is rather like the Maoist idea of continuous revolution. It is fine when you are the underdog, but a lot less attractive when you are in charge. But it’s the people in charge who have most influence over whether things change or not.

The cultural recipe of In Search of Excellence (Peters and This situation has been exacerbated by many of the other Waterman, 1982) had two major ingredients. One was developments that have taken place in business organi- a strong corporate culture, able to act as a control over sations in the late 1980s and early 199Os, as companies individual behaviour and so allow a high level of have responded to global competition and economic

Cultural Change

A euphemism for

brainwashing, mind control trying to control the buggers getting more for less offloading responsibilities this looks quite sexy we’ve tried everything else

or do you really want to change the culture? L

personal initiative without any concomitant risk to the company. The other was a specific set of values, in particular those of service, quality and, above all, innovation. Because the excellent company cultures were, in the authors’ view, innovative cultures, the problem of cultural change did not arise. Whatever changes were needed, the ‘change cultures’ of the excellent companies would be able to accommodate it. As events have proved, however, this was not the case, and the creation of a culture that is genuinely supportive of change has become something of a Holy Grail for corporations in the 1980s and 1990s.

Because cultures are rooted in past experience there is always an intrinsic tension between culture and change, and this tension can only be sharpened when culture becomes an instrument of control. For Peters and Waterman (1982) the control provided by a strong culture was seen as the critical enabler of change. Autonomous project teams and strategic business units could be given license to innovate in the confidence that their adherence to corporate values would prevent them from acting against the interests of the company. For companies attracted by the rewards of innovation, but scared of the risks of autonomy, this argument was very attractive. So, for the past decade, the ideals of free innovation and cultural control have been the common components of cultural change initiatives. But freedom and control are not natural bedfellows.

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ecession by means of a relentless drive for cost savings nd efficiency. With dramatically improved communica- ions and dramatically reduced information costs, the Balance of economic advantage has swung away from he large scale hierarchies characteristic of the 1970s and 980s multinationals towards much leaner and more ocused units. Organisations of the 1990s are delayering, lecentralising and devolving responsibilities. They are livesting many of their non-core activities, including not only support services such as catering and personnel but also some of their routine operations. With business )rocess re-engineering, the traditional functional bmpires are being disbanded. What is left is increasingly In organisation of professional ‘knowledge workers’ Drucker, 1993) or ‘symbolic analysts (Reich, 1991), tructured in terms of flexible, cross-functional project earns. Vertical lines of control and career paths are Fixing way to horizontal peer networks, and authority o expertise.

Though designed for efficiency, these developments are 11so good for innovation. the new organisation struc- ures have more flexibility, and they offer staff groupings ;rrrater autonomy, and more power with which to ,hallenge the conservative forces of authority. The )roblem of control, however, is magnified enormously, or the people who remain in these new organisations, tnd the people who will flourish in them, are precisely hose least open to cultural manipulation. They are ndeed the type of people for whom any attempt at ,ontrol is likely to backfire. A manager in a large and successful pharmaceuticals company expressed this )articularly forcefully in response to that company’s ,ul tural change programme:

They’re getting back to the stage where they want to control he how as the well as the what. Now to me as an individual hat’s one thing 1 hate is to be told exactly how 1 should do ‘zi)zgs. Now why are they employing me? With this expertise r experience why have they put all this training info me in prms of creative innovation; why have they given me, and 111,~ have I gone through a whole range of different jobs in ie company in order to acquire a set of skills which for them !7ey won’t let me use . . . That’s one way to stifle innovation, !ris is one way to make people react badly to change.

‘Unless [corporations] find new ways to motivate those who survived the repeated purges of the professional ranks, most big firms may never achieve the gains that are supposed to justify such wrenching changes. That is because they are tearing up the implicit contract they have always had with managers and other professionals: security of tenure in return for dogged loyalty. The problem is that many companies have given no indication of what the new psychological contract is.’

Economist, 25 January 1993, p. 91. -

‘he situation is far worse in those industries and companies which have suffered badly from recession. 1fter waves of middle management redundancies, an atmosphere of deep cynicism is now pervasive in many leveloped countries. Security of employment has gone jut of the window. Predictable career paths, which

depended on vertical hierarchies, have disappeared. It should be no surprise if staff find the demands of corporate loyalty hard to stomach, or if they take propounded corporate values with a large pinch of salt.

Culture and Control These conflicts prompt the question as to what the purpose of organisational culture might be, other than the reinforcement of existing patterns of successful practice. What can organisations reasonably hope to achieve through the manipulation of culture? The aim of cultural change programmes is to improve perfor- mance, but the means by which they seek to do this are not always coherent. As in the Peters and Waterman (1982) recipe, the emphasis tends to be on two aspects, which are often confused. One is culture as a means of control; the other is culture as a set of specific values.

These two aspects are very different. Moreover, as we have already indicated, they are not necessarily inde- pendent. The ability of culture to control has to do with the social structure of the society or organisation concerned, which can be represented as a combination of the degree of formal structuring of the organisation and the degree of social pressure to conform, itself a product of social bonding and a sense of family or community. The anthropologist Mary Douglas (1973) has described these dimensions psychologically in terms of a society‘s ‘grid’ and ‘group’. What we are perhaps seeing in the 1990s is a move from formal organisation structures and strong organisational communities (strong grid, strong group) towards informal structures and much more individualistic cultures (weak grid, weak group). Politically this corresponds to a move from bureaucracy to anarchy, with much greater prospects for innovation, but much less prospect of control (see Figure 2).

Stron cl System of shart ?d

Strong Group Ego exerting pressure that controls others Source: Douglas (1973).

Grid classifications

Private systems.of classification Weak Grid

Weak Group Ego controlled by pressure from others

igure 2 Grid Group Classification of Cultures

EUROPEAN MANAGEMENT 1OURNAL Vol 12 No 4 December 1994 405

To retain effective control, companies will either have to go back to more rigid classification structures (strong grid) or restore their sense of community, and with it the social pressure to conform (strong group). The first of these, which might correspond to the politics of tyranny, is not an option, so it has to be the second. The question then is, can companies achieve this sense of community merely by creating a vision, and seeking to unite people around a set of corporate values, or can it only be achieved when the company itself contributes something to the community - something like loyalty to its staff, security and support, or concern for people’s well-being and development? People will rally around, even in adversity to their country, or their race, or their religion, but there is no obvious reason why they should do so to a set of corporate values and a pre-occupation with the bottom Iine.

The values that do make a difference are those that value the company’s staff and this is why, in the absence of job security, values of empowerment, listening, and respect for the individual play an important part in the more effective cultural change programmes. But to be effective these values have to be genuine and perva- sive.. Empowerment must mean empowerment, not ‘empowerment with strings attached’, and it must mean empowerment for Joe Smith, wherever he is in the organisation, not just requiring him to empower others. Similarly for listening and respect, they must be things

that are done to people - by everyone, including top management - not just things that they have to do to others.

If these kinds of values can be seriously embedded, then perhaps the new organisations of the 1990s can combine innovation, efficiency and control. But the control they would achieve is control through consensus, in which top management have no more say than anyone else: it is not the control of one group by another. And this may prove too much both for top management and for shareholders, Perhaps all those inefficient but socially comfortable old bureaucracies had something going for them after aI1.

References Beer, M., Eisenstat, R.A. and Spector, B. ‘Why Change

Programs don’t produce Change’, Hamard Business Review, November-December 1990, pp. 158-66.

Drunker, P. Posf-Capifalist Society, B~tterworth-Heineman~, Oxford, 1993.

Uouglas, M. ~~~~ra~ Symbols, Vintage, 1973, pp. 77if. Johnson, 6. Sfrafegic Change and the Management Process,

Blackwell, Oxford, 1987, p. 224. Peters, T. and Waterman, R. In Search of Excellence: Lessons from

America’s Best-Run Companies, Harper & Row, New York, 1982.

Reich, R.B. the Work of Nations, Simon & Schuster, New York and London: 1991.

Schein, E. Organizational Culture and Leadership, Jossey Bass, lY85, p. 8.

JCZHN HENDRY, judge IPrsfifute of ~a?~age#~e?~f Studies, LIniversify of Cambridge, Miff Lane, Cambridge CR2 1RX

Dr fohn Hendry is Director of fhe MBA Course at the fudge fnsfifufe of ~a~ageme~f Studies and a Professorial Fellow at Girton College, both in the University of Cambridge.

Before moving to Cambridge in 2990, he was Direcfor of the C~WY for Strategic Ma~ageme~lf and Urganisa- tional Change at Cra#~etd university School of Management, having previously worked at liford, Touche Ross, the Utlited Kingdom Atomic Energy Authority and the Condon Business School. His recenf ~ublicafions include European Cases in Strategic Management (with Tot%y Eccles and ofkers: Chapman and HalI, f992), Strategic Thinking fedifed with Gerry fohnson: ]ohn Wiley, 1993) and Business Ethics (with Tom Soreff: Butterworth-Heinemann, 1994).

examining human resource management and strategies for change wifh a consortium of 14 ~nfe~~at~o~al co~o~af~orrs atld gove~menf deparfme~zfs. She teaches and researches on issues of change at a strategic and organisationaf level and also at the level of individual managerial practice and personal development.

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