Bookbinder, S. (1984). Measuring and Managing Corporate Culture

Measuring and ManagingCorporate CultureStephen M. Bookbinder

This article defines corporate culture and its vita! role in human resource planning. Itpresents a five-step plan for identifying an organization's culture. Stephen Book-binder is a Consultant with Towers, Perrin, Forster & Crosb];.

"Corporate culture" is a phrase often heard in the boardrooms, offices and corri-dors of American business. Yet the concept is not new. It has always been accepted thatdifferent industries, even different companies, have distinctive norms, values, styles --all the factors associated with the concept of "culture." What has kindled the newinterest in this subject? The rising concern with why companies are not able to achievethe goals they set for themselves. And the need to manage more effectively in theuncertainty of today's business environment.

A company committed to growth and competitive success must be sensitive to itscorporate culture. It has become painfully clear that any attempts to bring about signifi-cant changes that fly in the face of an organization's culture will be short-circuited. Achange can be put into effect by executive order, but frequently it will be at the cost of somuch organizational strain and friction that the results will inevitably fall short of thevision.

Why should it be so difficult to reconcile cultural concerns with corporate goals?Probably because most organizations do not try to measure or manage their culturesystematically. For every IBM orGE whose tremendous efforts to develop a distinctiveorganizational culture are well known, there are hundreds of companies that have onlya superticial understanding of their cultures. Management may believe that it firmlyand consistently promotes certain values, but the message received by the rest of thecompany is unclear, mixed, even directly contradictory.

Recently, many companies have begun to study their corporate cultures and touse the results to refine their management systems and increase their capacity toimplement their strategies. This article presents a qualitative and quantitative method-ology for studying the culture of an organization, and an analytical approach thatstresses measurement of the differences between the existing culture and the culturenecessary to attain the company's strategic goals.

CULTURE: THE ELUSIVE FORCE

Part of the reason companies find their cultures difficult to manage is because theterm itself is frequently defined in different ways. One useful definition is:

Culture is a pattern of beliefs and expectations shared by the organiza-tion's members. These beliefs and expectations produce norms that power-fully shape the behavior of individuals and groups in the organization.*

A more succinct way to refer to this "pattern of beliefs and expectations" is to use theterm values.

Another problem is that the term culture is easily confused with the term climate.Climate refers to the set of attitudes employees have toward a number of issues (e.g.,pay, benefits, supervision, leadership) at a given time. An understanding of a compa-

'Davis & Schwartz, Organizotional Dynamics. Summer 1981, p.33.

MEASURING AND MANAGING CORPORATE CULTURE 4 7

ny's climate is like a snapshot of the prevailing perceptions. As such, it may be a usefulfirst step in understanding the corporate culture, pointing up where possible troublespots may lie. What is important is to go deeper and determine the origin of thoseperceptions, the underlying values that dictate employee reactions to events.

Elusive as culture may seem, it does have a powerful impact on a company's long-term goals. If a company undergoes a significant change, it is important to knowwhether its culture will be a force that impedes or facilitates the change. Forexample:

New !eadership of a company may not fully understand the fundamental natureof the organization and may develop a strategy not in keeping with the culture.

The integration of a new acquisition may result in conflicts between the acquiredand acquiring company that can be reduced once the different cultures areclearly understood.

Rapid growth rates, such as those experienced by high-technology firms, oftenproduce growing pains that can be traced to the failure to transform an entrepre-neurial culture into one that embodies the management systems necessary for alarge organization.

Changing markets or industries such as banking and insurance present compa-nies with challenges of positioning that may well strain the limits of their tradi-tional cultures.

The failure to understand the organization's culture and to take it into account indesigning strategies may explain why the efforts of strategic planners have not hadmore of an impact on the operations of U.S. companies.

There are many classic examples of the pitfalls of ignoring culture. In one instance,a CEO decided that a more aggressive management style would give his high-tech-nology manufacturing company the orientation to results and profits that it wouldneed to achieve its growth potential. His strategy for making the change was to bring innew key executives from well respected, bigger companies in other industries. Once hedid so, short-term results and profits did improve. But morale sank and turnoveramong essential technical staff reached a critical level. What had happened was thatthe new, more aggressive executives brought a set of values that emphasized highoutput and cost efficiencies rather than quality control, a situation that the long-serviceemployees found unacceptable. If theCEO had assessed the corporate culture beforeacting on his strategy, much damage could have been averted. A study of the cultureidentified the problem, clarified the conflicting values, and suggested ways to reducethe organizational strains and still achieve the company's strategic goals.

AN APPROACH TO STUDYING CORPORATE CULTURE

Underlying the following approach to studying corporate culture are four inter-related assumptions:

1. The long-term success of an organization depends on there being a good fitbetween its strategy, its culture and its management systems.

2. A strategy can succeed only to the extent that the culture desired by seniormanagement is congruent with the actual culture.-

3. There is not an "ideal" set of values that will best meet the needs of allcompanies.

4. The dynamics of leadership are crucial to both strategy and culture.

4 8 HUMAN RESOURCE PLANNING 1984

A good fit: Figure 1 illustrates how strategies, systems and cultural values areinterrelated. The diagram shows a sample strategy, a crucial supporting program, andthree examples of values and systems essential to achieving the strategy. As shown, acompany may devise a strategy to acquire major national accounts that requires thecreation of a new sales force of major account executives. If pushing down decisionmaking is stated as a value crucial to the success of this strategy, then decision-makingsystems that include significant sign-off or approval authority at lower levels must exist.Likewise, reward, development and many other values and systems must be consistentwith the strategy.

In studying an organization, it is necessary to examine the congruence betweenthe different segments, and to determine ways to fit them together more tightly. Eachvalue should be analyzed in terms of its consistency with the existing systems and withthe strategy.

FIGURE 1

Fit Between Culture. Systems and Strategy

V>^ .Lh, High Poleniia, r. ^ C c

MEASURING AND MANAGING CORPORATt CULTURE 4 9

The desired and actual culture: The key to this approach is the comparison ofcultural values management wants the company to have with those it actually has. Forexample, senior executives of a large financial services company had always believedthat the organization valued creativity and innovation. The reward systems, however,did not foster those values; middle managers perceived that raises and promotionscame to those who put in long hours and produced solid financial results. Yet thewords "creativity" and "innovation" were held up to them as desirable characteristics.Naturally, the managers were frustrated by these conflicting signals. The source of theproblem, as a culture study revealed, was that top management had a specific under-standing of what was meant by innovation. Risk taking was not a part if it; innovationmeant being a "quick second" in the industry - allowing other companies to do thepioneering work on a new product and then rapidly following them into the marketwith a refined and somewhat differentiated copy. Once the source of the confusion wasisolated, it was easier for this company to carry out its strategy. A lagging culturalmisunderstanding is often an obstacle to a company's efforts to implement its strategy.This is a difficult fact for many executives to accept because they assume they under-stand their company's culture. Perceptive executives generally do understand someaspects of it, but they lack a deep, detailed and structured understanding. This is what aculture study can provide.

No ideal set of values: A common misconception about corporate culture isthat there is one ideal pattern or set of values that will spell success for every company.The approach proposed here is different. The peculiar strengths and weaknesses of anorganization's culture are identified. Simultaneously, the strong values and practicesof other companies in an industry should be examined to determine whether they canor should be replicated. There is marginal utility in examining companies in otherindustries, no matter how widely heralded they are for cultural achievements.

Leadership: The final assumption of this approach to studying culture is atten-tion to the dynamics of a company's leadership. Many different leadership styles mayprove effective for any given culture, as long as they take the culture into considera-tion. Good leaders will not always act in ways consistent with their culture -- at timesthey must take actions that will conflict with the established values. But if they act withan awareness of the culture, they will be prepared to deal with the fallout from theiractions.

For example, the CEO of a highly successful company had always allowed hissenior management team of ten vice presidents to act completely independently. Thecompany had no performance appraisal system, nor any formal way to measure theproductivity of employees. The board of directors finally demanded that the CEOestablish such systems. The CEO felt this would be very difficult because he sensed thathis vice presidents and their subordinates would be hostile to any formal managementsystems. He retained a consultant to gain a clearer understanding of the cultural valuesconcerning reward and performance management systems.

Some of the findings were quite surprising to the CEO- Contrary to his expecta-tions, most of his senior- and middle-level managers were not averse to performanceappraisal systems. Only two of the most vocal vice presidents and their middle-levelsubordinates were adamant about maintaining the status quo. Also, much of the wari-ness about performance appraisal systems was because they had been closely identi-fied by employees with the idea of a forced salary distribution system that would restrictthe number of people who could receive good increases. This need not be the case,and a number of similar misconceptions were identified.

In the end, the CEO was compelled to order the two reluctant vice presidents toimplement the new systems, which was an action contrary to the corporate culture. But

5 0 HUMAN RESOURCE PLANNING 1984

the study had identified the negative and positive fallout from this decision, a great dealof possible conflict and confusion was avoided, and both the board and the majority ofmanagers were satisfied.

STEPS IN A CULTURE STUDY

Within the broad framework indicated above, studies of corporate culture shouldbe designed and constructed to take advantage of qualitative and quantitativemethods. Different studies vary in scope and emphasis, but a five-step process isgenerally necessary:

1. Develop a perspective on the existing culture, systems and strategies.In this information-assessing step, review such written documents as present andpast statements of business mission, general policies and procedures, organ-izational memorandums, annual reports and employee communication ma-terials. Also, take more direct approaches to learn about the internal workings ofthe company and how it develops and markets its products or services. Forexample, in a high-technology company, it is necessary to spend time observinghow employees work together to design, manufacture, test, sell and deliver theproduct - an experience without which the dynamics of the organization cannotbe truly perceived. With this experience, the cultural implications of the produc-tion flow problems of the company will be clearly understood. This step mightseem unnecessary to some well informed employees of an organization, but it isnecessary to take a "fresh," comprehensive look at how the basic activities of theorganization are accomplished.

2. Define the desired culture. Interview members of senior management todetermine how they view the company at present and what they would like it tobe in the future. In analyzing the findings, areas of disagreement from these inter-views will provide clues to possible incongruities among strategy, systems andculture that can be explored in subsequent steps. In fact, disagreement amongsenior management is often one of the crucial reasons that other employees donot have a clear understanding of the desired culture.

3. Measure the present culture. Use all the information gathered so far to designa questionnaire to be administered to the company's employees. This will deter-mine the extent to which the values, views and strategy of senior managementare common to the other segments of the organization. The questions should becast in the organization's own terminology and concern the kinds of issueswidely discussed in the company. Employees frequently comment, in answeringsuch a questionnaire, that they are surprised by how closely the questionsthemselves reflect the organization's culture.

Analyze questionnaire responses through such statistical techniques asanalysis of variance or factor analysis to establish the relationships amongvarious concems of the organization. For example, do managerial employees ofa commercial bank feel that their rewards depend on producing short-termfinancial results, managing subordinates well, providing good customer service,or developing new products and services? Is there a positive or negative relation-ship between these goals? Do their supervisors see the relationships differently?Do loan officers see them differently from other managers? Only a quantitativeinstrument can provide precise and detailed answers to questions such as these,tailored to the particular situation of the bank (e.g.. location in a fast-growingarea, international orientation).

MEASURING AND P^NAGING CORPORATE CULTURE 5 1

4. Confirm and expand statistical findings. Though the statistical analysesexplain with considerable accuracy what the dimensions of the culture are. theycan also raise issues that require clarification and elaboration. Therefore, holdsmall focus group discussions with employees, or conduct further interviews toexplore salient issues identified by the questionnaire.

For example, in one company, a questionnaire showed that employees of asmall division felt that their efforts were not recognized or rewarded adequately.Focus group discussions explored how a contemplated organizational change -to increase the company's profit-center orientation - would remedy or aggravatethis situation. Because the division produced very profitable results, the changewould mean higher compensation for divisional employees. However, it wouldalso make transfers to larger divisions less likely and limit career opportunitieswithin the company. The questionnaire had determined the division's major con-cerns, and the group discussions amplified the company's understanding of howan organizational change would affect these concems.

Finally, integrate quantitative and qualitative findings to create a compositepicture of the culture. Also, consider the cultural characteristics of competitors tosee whether they function as the company does. You may want to interview thecompany's suppliers, customers, or credit analysts to get their perspective on thecompany's and its competitors' strengths and weaknesses.

5. Recommend changes in culture, systems, or strategy that will positionthe organization better to achieve its long-term goals. A culture studyconcludes with a set of recommendations for change, presented initially to topmanagement. The recommendations might focus on the whole organization, asingle unit (e.g.. a division or department), or even a few crucial leaders. Theyidentify possible changes in aspects of the culture, systems, or strategy andsuggest action steps to achieve the changes. Recommendations may involvesignificant shifts in the allocation of rewards, the utilization of resources, or theorganizational structure.

A case example will show the type of results that can be obtained from statisticalanalyses of questionnaire results. Senior management of a company in a rapidlychanging industry was curious about the employee population's views on the chal-lenges of the future. This company had made special efforts to communicate strategyand corporate values to its employees. Using the statistical technique, factor analysis*,to interpret the data on the values and expectations of employees, the analysis dis-closed six broad, but totally independent dimensions of the culture. They were:

good management of employeesability to cope with pressurequality orientationvision of the futurewillingness to take risks and be innovativeproduction of good financial results.

The independence of these dimensions indicated that, contrary to the companydocuments and the statements of senior management, employees did not associatestrong financial results with producing quality products or taking business risks. In fact,many employees felt that there was a negative relationship between these dimensions

"This technique establishes common properties in a list of values and groups these values into dimensions(factore).

5 2 HUMAN RESOURCE W-ANNING 1984

that the need to produce strong financial results worked contrary to the goal ofdelivering high-quality products to the customer.

When the same data were analyzed with different techniques, other importantissues were uncovered. The broad dimensions discussed here were broken down intomore specific value statements, and this showed that each division and each majorsalary level of the company ranked the importance of more specific values differently.For example, senior management felt it was very important that employees be flexibleand able to cope with change, and were not as concerned with the quality of serviceafter the product was delivered. Lower-level employees felt just the opposite. Theywere very concerned with the quality of service delivered after the product was soldand felt that the emphasis on change was threatening the company's strong serviceImage. In the past, senior management had just assumed that all employees agreed onthe goals of the company. Even among senior management there was disagreementabout the strategic significance of the service component of the business. Some seniormanagers felt that service should not be an important concern of top management,while others disagreed. However, as a result of this study, it was generally agreed thateven if service was not a major concem of senior management, its importance shouldcontinue to be emphasized at lower levels and various suggestions for implementingthis action were proposed.

In this case, by focusing on the meaning of different values to different employeegroups, the company clarified the cultural divergences and communicated more effec-tively about corporate goals.

Inconsistency in communication and practice cannot be ignored if an organiza-tion wants to achieve long-term growth in these difficult times. Using quantitative andqualitative methods, a company can clearly and accurately understand its culture,change its management systems and communicate values that are congruent with itsstrategy. This will enable management to realize the potential of technical, financialand human resources.

MEASURING AND MANAGING CORPORATE CULTURE 5 3