In this document I will look at what company culture is, how it affects the way in which companies operate, and how it can be modified to make companies more successful. My focus will be on UK manufacturing companies, and in particular information relevant to small or medium size independent enterprises. Larger companies and particularly partnerships have many more complex cultural issues than I will cover.
Culture is very difficult to define, but the spirit of the required definition is clear: we are talking about properties of companies that can't be measured in terms of standard measures such as assets or training or market share. Culture is about the way the people in a company behave and interact, but it is more than just the sum of the characters within the company.
The word culture was first used in 1871 by the anthropologist Edward Taylor. He defined culture as 'that complex whole which includes knowledge, beliefs, art, morals, law, custom and any other capabilities and habits acquired by man as a member of society'. Since that time anthropologists have updated and modified the definition many times, and in 1952 anthropologists identified 164 distinct definitions of culture. There are probably even more definitions of organisational culture, some of which are listed in Andrew Brown's book 'Organisational Culture'. The definition chosen by that book is one which is neither overly encompassing, nor is it excluding of important aspects. Brown states: 'Organisational culture refers to the pattern of beliefs, values and learned ways of coping with experience that have developed during the course of an organisation's history, and which tend to be manifested in its material arrangements and in the behaviours of its members.'
Some other definitions of culture are broader than Brown's, often being so broad as to include nearly everything that makes a company unique: its situation, buildings, equipment, processes and so on. I do not wish to use such a broad definition as this, since many of these things can be managed directly to fit in with a company's strategy. Whilst all these factors affect the culture, I do not wish to consider them a part of that culture.
A popular and potentially useful definition of culture is the simple phrase 'the way we do things round here'. It is clear that this definition is a simple way of thinking about Brown's definition. For most of the rest of this document, I shall use Brown's definition of culture.
Company cultures are usually related to the national or regional culture of the location of the company, but they vary massively beyond this. Company cultures are a product of the people in the company, but a culture can change massively with no change in personnel. As cultures are based to a large degree on people's values, sometimes people will not fit in with a company's culture. The stronger a company's culture, the more strongly people are likely to fit or not fit into the company. The fact that some talented people do not feel that they fit into the culture of a given company does not necessarily say anything bad about the culture. Whilst a purely profit-orientated organisation may suit some people, others may be more happy at Merck, which has the following ideology: "We are in the business of preserving and improving human life. All our actions must be measured by our success in achieving this goal."
Many people imply that a company's culture is recorded in its mission statement. This is not generally true: in most companies, the vast majority of the workforce, often including the senior management, will not even know what the mission statement says. In contrast, companies described by Deal and Kennedy as having a strong culture have a few simple aims and principles behind which the workforce unite, and these aims are usually described by the company's mission statement. It is in these companies that the potential value of having a strong culture shows itself. Often the principles are very simple: customer service for Nordstrom Department Stores, technological development for Sony, quality for Anheuser-Busch.
Culture manifests itself in a large number of ways. These are usually portrayed as layers, with the top layer being the easiest to see, and also the easiest to modify. Deepest of all are basic assumptions. These concern the environment, reality and anthropological things such as human nature and human activity. The next level is the values and beliefs of the company and its employees. Beliefs are things which are considered to be true, for example maybe it is believed that the company can never successfully compete in a given market. Values are the principles that people believe in in terms of how the company should operate, which may be ethical or environmental, but may also be commercial principles, for example concentrating on core competencies. The top level is those things which we can see, known as artefacts. These include behavioural patterns, who is respected in the company, what stories are passed round, and the ethical codes that the company conforms to, and mission statements.
Basic assumptions are hardest to change; they differ from beliefs in that they are not consciously held opinions, they are things which are taken for granted, subconscious beliefs. Basic assumptions may be about how companies should fit into their environment, whether people want to work (McGregor's Theory X and Y), how work fits into people's lives, and the way in which people relate to one another: a good example in manufacturing is the nature of the relationship between management and shop floor workers. Because basic assumptions are not held consciously, people do not question them, and thus modifying them is a fundamental change to people's outlook.
Most writers agree that there are three main sources of organisational culture: the national or societal culture in which the organisation resides; the personality of the founder or other dominant leader in the company's history; and the business environment in which the company operates.
Fonz Trompenaars' book 'Riding the Waves of Culture' looks at typical cultures in different countries. Using a survey of 30,000 managers across the world he produced statistics to show how firms in different countries varied along seven different dimensions of culture identified. These dimensions included:
These dimensions are clearly based around the basic assumptions of the managers surveyed, and therefore allow fundamental elements of culture to be compared between countries. Trompenaars shows that there is very significant variation between countries, and goes on to look at how this affects the way in which business should be done with companies from different countries. He also discusses the reasons for certain national cultures having particular basic assumptions, and how the way companies in these countries operate ties in with those basic assumptions.
One example of how these factors affect business is the way in which particularist companies do business. Their business relationships tend to be based around personal relationships which must be established before any deals can take place. They must trust the people they are dealing with, and when they do that they want to have a simple contract. In contrast, a universalist company will be prepared to sign a deal with an unknown firm by having a sufficiently strict and precise contract that the firm cannot afford to produce the desired goods. Both attitudes have advantages: universalists can do business much more quickly, but particularists are more flexible in the long term, and are more likely to cooperate to the benefit of both partners in the agreement.
Deal and Kennedy suggest how different types of industry typically contain companies with different types of culture. They define the type of industry by whether the business the company is involved in has high or low risks, and whether the risks are short-term or long term.
A company with low risk and fast feedback typically has a 'work-hard/play-hard' culture. This culture is typical of sales organisations, and many companies manufacturing low-value goods. The culture is built around meeting customer's needs. So long as the staff can keep up the work, the company will sell goods, and everyone will be happy. Typically this culture measures success in quantity, and can thus be distracted from ensuring a continued quality product. Because of the short-term feedback in these companies, they tend to have quite short-term views, not looking at long-term solutions to problems and often failing to develop products sufficiently to meet future demands. Good companies in these markets deliberately try to dilute this culture slightly to counteract the problems mentioned.
A company taking small risks with slow feedback is likely to have a 'process' culture. In these companies, employees get little feedback on the decisions they make. These cultures often promote order and procedure, but are unresponsive and lack creativity. Examples are actuarial and civil service work. Because they require order, they are usually quite universalist.
A company taking large risks with short feedback may have a 'tough guy' culture. Pressures on individuals are high, and you are judged on your most recent work. Examples are management consultancy and the film industry where 'you're only as good as your last film'. Individuals only tend to be able to stay in these industries for a few years before the pressures become too much for them.
The fourth type of company is one where the risks are high but the feedback is slow, typically an example of the 'bet-your-company' culture. These include aerospace companies (Rolls-Royce bet their company on the development of composite turbine blades, and lost, having to be rescued by the UK government), pharmaceutical companies and oil companies. In these companies people generally have high regard for the older, more experienced members of the company. These people may have seen one or two long term risks through before, and know the business.
One interesting thing that this division of company types may highlight is how different cultures are suited to different people. It is easy imagine what work would be like in each of the different types of company, and see how different people might fit into different sectors.
Deal and Kennedy present these example cultures as four extremes, and suggest that no company fits perfectly into any category. Within an organisation, different departments fit better into different models: sales into work hard/play hard; administration into the process model.
The values and beliefs of an organisation indicate what matters are to be attended to most assiduously - for instance, current operations in one company, external relations in a second and longer-term strategy in a third. They suggest what kind of information is taken most seriously for decision-making purposes - experienced judgement of 'old hands' or detailed 'number crunching'. They define what kind of people are most respected - engineers, marketing people or financial types.
Finding the true underlying culture in many companies is very difficult. Deal and Kennedy state that the easiest way to expose the culture in a company is to break the unwritten rules, producing cries of "we don't do that here". Whilst doing something that goes against a company's culture is an effective way of discovering something about it, learning everything by by such a method is likely to be a long and painful experience. After a long time in a company, it may be possible to come to understand most of the culture, but are there quicker methods of identifying and possibly quantifying that culture, and it can also be difficult to notice things about a culture you are a part of. Indeed, we only generally notice that there are alternatives to our basic assumptions when we see someone else doing things differently.
Some people claim that there is no way to qualify a company's culture, but there are also consultancies who specialise in doing so. One example of a tool used by consultants is the Denison Organisational Cultural Survey. This is a behaviourally based survey consisting of about 40 questions. From this it is claimed that the company can be assessed against twelve different criteria, and these are plotted to give scores in four dimensions - internal focus, external focus, flexibility and stability. Although these sound like two pairs of opposites, some companies manage to score highly on all fronts, and the survey can be used to find where a company's weaknesses are.
The proprietors of the Denison survey also claim that by checking whether two companies have a similar culture, they can better predict whether mergers or takeovers are likely to be successful. This is important as over half of international mergers in a survey of 700 between 1996 and 1998 caused a loss in shareholder value, whilst a mere 17% saw a significant rise in values. The claim by the consultants is that the main reason for the combined value of companies not being as high as expected is primarily due to cultural clashes between the companies. This is often a more significant problem in international mergers, since the cultures are likely to be significantly different.
If a company does not have a consistent culture throughout, then there are likely to be conflicts where the different cultures meet, as the people from the different cultures will have different principles and beliefs.
Whilst there are still those who deny that culture really exists, most people agree that the effect of a company's culture on its productivity can be tremendous. A company with a culture that encourages employees to constantly suggest improvements and empowers them to use their own ideas to improve the way things are done is making much better use of its human resources and is much more flexible than one where employee's ideas are never even considered.
If a company's culture makes it a more pleasant and interesting working environment, this will also decrease the pay required to retain staff. Thus a company can pay less, or have lower staff turnover, or some combination.
There is not a single culture which is best for all times, places and people. UK manufacturing firms which merely try to imitate a Japanese manufacturing culture within their firm will not succeed, but some positive aspects of the culture can be obtained. The culture in some UK manufacturing companies dates back to the times before about 1970 when demand generally outstripped supply, and companies could sell whatever they produced. Whilst the culture in these companies is suited to producing large quantities of goods, these cultures do not produce what the modern market-place requires: value, quality and an increasing flexibility to customers' needs.
Rolls-Royce have traditionally had a very risk-averse culture: a fitting culture for a manufacturer of safety-critical products. However, Rolls-Royce are now trying to become more commercially orientated; they need to be more ready to take risks in business, though obviously not with the reliability of their products. Due to the tendency of cultures to align themselves across an organisation, this may prove a very difficult task.
Company cultures are continually changing due to changes in society such as the increased desire for life-style jobs, due to changes in the markets in which the company operates, due to changes in legislation, and also due to internal changes. But whilst there is a continuing evolution of culture within a company, controlling that cultural change is a very difficult task. Some consultants estimate that the cost of a major cultural change is the equivalent of one or two month's productivity. Occasionally, fast culture changes do occur. There are examples of companies who, when employees have refused to comply with a request for a change in working behaviour, have sacked all the staff and then rehired most of them, often with a significant cultural change. It is easiest to change a company's culture when the company is in trouble and people recognise the need to change in order to survive.
One way to try to influence culture is to change the way in which you interact with those you have contact with. Culture is partly about values, and by showing your appreciation of certain values, that appreciation may be passed on, particularly down the chain of command. For a culture change to be successful, it nearly always needs to come from the top, and the senior management must genuinely believe in the values they want to new culture to respect. It is sometimes possible for managers to run a single department in a company with a radically different culture to other departments, but this situation can cause friction and usually relies on the department manager to keep the cultures separate: once that manager leaves, the culture of the company as a whole is likely to reunite.
Attitudes to others tend to be passed down through a company. If the senior management treat the middle managers in an authoritarian manner, the managers are likely to treat the workers in the same way, and customers are also likely to be so treated. If senior management listens to ideas from below, so will the managers, and all the ideas from the shop floor and request from customers will flow through the company more easily.
For many manufacturing firms, the culture change that will benefit them most is empowerment of the entire workforce. Clearly this is not as simple change, and it is a very difficult goal to achieve. Empowerment means giving freedom of action to the workforce, and releasing control is difficult for many managers. With this freedom comes responsibility for decisions, and in many firms people do not want this responsibility. This is partly due to not having sufficient knowledge and experience to make decisions, and a fear of the consequences of making mistakes. This is a cultural change that has to be developed slowly, but can usually be developed. One major sticking point is trade unions, which often eye cultural change programs with much suspicion, and sometimes go so far as to suggest that they are just a way of manipulating the workforce.
In Barry Phegan's book, he suggests that a very useful and important way of gaining trust is to conduct 'cultural interviews'. These are 40 minute interviews with employees to allow managers to get to know their subordinates: what they feel about the company, what matters to them in their jobs, what their long-term aspirations are, and so on. The interview firstly gains trust, but also allows managers to understand the feeling and motivations of their workforce, and play to their advantages. Workforces who are competing for promotion, just looking for job security, and after the largest pay-packet possible should all be managed differently. Data Connection, a massively successful IT contracting company, has a very friendly and egalitarian culture. Part of this is due to the MD interviewing all 250 staff on a quarterly basis to see whether the career that they are getting within the company is what they want.
In Charles Hampden-Turner's book 'Corporate Culture', he suggests that all elements of company cultures are responses to dilemmas the company faces. Often these dilemmas appear in the form of conflicting objectives between different departments. The proposed solution to this is to firstly defuse the conflict, and then get the relevant people to work together to achieve the best result for the company. The idea of avoiding personal conflict is very important.
There are many other ways in which management can affect a company's culture: who they recruit; how they train those people; who they promote; the way in which they perform appraisals and what they reward people for. Reward systems have a massive affect on company cultures and how companies operate. It is very common for reward systems not to reward activities that best benefit the company as a whole. Examples may be when the maintenance department are incentivized to minimise maintenance costs but penalised for equipment failure, and operations receive credit for the amount produced by the equipment. It may cost maintenance £500,000 to make a modification that save the plant from requiring shutting down for monthly cleaning, at a cost of £100,000 a time, but they haven't the budget to make this investment, as the benefit gained would go to operations.
Incentivized work is now standard among Western managers, and even if it were not, promotions would be based on similar criteria. So how can the negative effects of reward systems, in particular major internal political issues, be avoided? Unfortunately there is no simple solution, and it could be argued that internal politics is the price to be paid for the benefits of incentivized work. In more communitarian cultures, such as found in many Japanese companies, there are no individual reward schemes, and promotion is done on the grounds of the amount of time spent with the company, rather than by ability. However, this is not how Western companies operate, so a solution to the reward system problem is needed. By making the company's goals clear and aligning the reward systems with the company's objectives and values, it should be possible to improve on the situation in many companies.
This is just one of many things related to cultural change that are connected to aligning a company behind its objectives. To have a strong culture, a company's strategy must fit with its values, and the rest of the company must be aligned behind that strategy. If a company's strategy doesn't fit with its values, either the culture needs to change, or the strategy must be reassessed. To be as effective as possible requires the whole company to be strategically aligned.
In this document I have suggested a useful definition of culture which summarises a side of companies which is not considered by traditional management theory. I then looked at the types of cultures that exist and how they fit into different industries. Speculating that work hard/play hard cultures are likely to be typical of manufacturing companies, I discussing some problems this is likely to bring, and suggested a few ways of modifying these culture positively. This included the all-important cultural interview, and aligning incentive schemes with the company's strategy.
Whilst many people use different definitions of culture, most are searching for the same thing: some method of measuring things fundamental to a company which are not measured in any other way. The field is becoming more popular, and many consultancies are keen to charge large amounts of money to execute culture change programs. But whilst complete paradigm shifts are expensive and extremely difficult, small changes to a company's culture can be made, for example by aligning incentive schemes, induction and training to the company's strategy. Thus is many ways, culture management is a significant function of the HR department. Indeed, the field of Human Resource Management which has grown up in recent times has to a degree done so in parallel with the study done on company cultures.
But whilst the HR department plays a very significant role in developing culture, it is still the leaders of the company who have the most important influence. By showing belief in the values of the company, and following the strategy in their actions, they can help align the company and hopefully significantly improve its ability to perform.