Organizational Culture 10 chapter Organizational Culture McGraw-Hill/Irwin Principles of Management © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

Learning Objectives Describe the elements of organizational culture. Discuss the importance of organizational subcultures. List four categories of artifacts through which corporate culture is deciphered. Discuss the conditions under which cultural strength improves corporate performance. Identify four strategies to change and strengthen an organizations culture. Compare and contrast four strategies for merging organizational cultures. See Text Page: 230

What is Organizational Culture? Organizational Culture: The values and assumptions shared within an organization. The concept of organizational culture has been around for decades and started to gain popularity beyond academic circles in the 1980’s. Organizational culture directs everyone in the organization toward the “right way” of doing things. It frames and shapes the decisions that managers and other employees should make and the actions they should take. Learning Objective 1: Describe the elements of organizational culture. See Text Page: 232

Google Culture Even with rapid growth and expansion, Google continues to maintain a small company feel Everyone wears multiple hats with emphasis on innovation and commitment to cost containment Hiring policy favors ability over experience Google headquarters – Googleplex – comprises of recreation facility (workout, massage rooms, video and other games), snack rooms Most Googlers have high-powered Linux OS workstations on their desk and three or four staffers share office space with couches and dogs. Learning Objective 1: Describe the elements of organizational culture. Google Culture This slide presents the Culture at Google. Ask the students before showing this slide – What have they heard about Google and how would it be like working at Google? It is clear the emphasis at Google is on cost containment, informality, innovation, and having lots of fun. Ask the students – would they like to work for a company like Google? Why or Why not? Source: google.com

Organizational Culture Assumptions, Values, and Artifacts Stories/legends. Rituals/ceremonies. Organizational language. Physical structure/décor. Visible Shared Values Conscious beliefs. Evaluate what is good or bad, right or wrong. Invisible Learning Objective 1: Describe the elements of organizational culture. See Text Page: 232 Shared assumptions Unconscious, taken-for-granted perceptions or beliefs. Mental models of ideals.

Shared Values Values: Are stable, evaluative beliefs that guide our preferences for outcomes or courses of action in a variety of situations. Shared Values: Values that people within the organization or work unit have in common and place near the top of their hierarchy of values. Espoused values: Values people say they use and, in many cases, think they use even if they don’t. Enacted Values: Values people actually rely on to guide their decisions and actions. Learning Objective 1: Describe the elements of organizational culture. See Text Page: 233

Diversity Objective at SYSCO To create a competitive and innovative business environment by leveraging the diversity of thought, experience and people. Understanding diversity requires a respect and appreciation of differences. Learning Objective 1: Describe the elements of organizational culture. Diversity Objective at SYSCO This slide presents the diversity aspect of SYSCO’s corporate culture. Ask the students what aspects of culture do these statements represent? (Values held and prescribed by the company and followed by the management and employees) What benefits might be derived from such values? (Students should be able to identify various strengths such as capitalizing on diverse abilities and talent, gaining competitive advantage, recruiting talent, etc.) Source: sysco.com

Shared Assumptions The deepest element of organizational culture is the shared assumptions that people carry around in their heads. Assumptions: Unconscious perceptions or beliefs that have worked so well in the past that they are considered the correct way to think and act toward problems and opportunities. These assumptions are so deep that they are taken for granted—they are obviously good and right for the company that no one really questioned its underlying assumptions. Shared assumptions are the most difficult to change. Learning Objective 1: Describe the elements of organizational culture. See Text Page: 234

Content of Organizational Culture Organizations differ in their cultural content—that is, the relative ordering of values and assumptions. Some writers and consultants have attempted to classify organizational cultures into several categories. One of these models claims that there are seven corporate cultures in the world: attention to detail, outcome orientation, people orientation, team orientation, aggressiveness, stability, and innovation and risk taking. Learning Objective 1: Describe the elements of organizational culture. See Text Page: 234-235

Organizational Subcultures Dominant Culture: The values and assumptions shared most widely by people throughout the organization. Organizations have subcultures located throughout their various divisions, geographic regions, and occupational groups. Some subcultures enhance the dominant culture by espousing parallel assumptions, values, and beliefs. Other subcultures are called countercultures because they directly oppose the organization’s core values. Learning Objective 2: Discuss the importance of organizational subcultures. See Text Page: 235

Deciphering an Organization’s Culture Artifacts: The observable symbols and signals of an organization’s culture. Some experts suggest that artifacts are the essence of corporate culture, whereas others view artifacts as symbols or indicators of culture. Discovering an organization’s culture is much like an anthropological investigation of a new society. It involves observing workplace behavior, listening to unique language in everyday conversations, studying written documents, and interviewing staff about corporate stories. Learning Objective 3: List four categories of artifacts through which corporate culture is deciphered. See Text Page: 236

Organizational Stories and Legends Stories and legends about past corporate incidents serve as a powerful social prescriptions of the way things should (or should not) be done. They also provide human realism to corporate expectations, individual performance standards, and assumptions about ideal behaviors and decisions. Stories are important artifacts because they personalize the culture and generate emotions that help people remember lessons within these stories. Learning Objective 3: List four categories of artifacts through which corporate culture is deciphered. See Text Page: 237

Rituals and Ceremonies Rituals: The programmed routines of daily organizational life that dramatize the organization’s culture. They include how visitors are greeted, how often senior executives visit subordinates, how people communicate with each other, and so on. Ceremonies: Planned activities conducted specifically for the benefit of an audience. Ceremonies are more formal artifacts than rituals. Learning Objective 3: List four categories of artifacts through which corporate culture is deciphered. See Text Page: 237

Physical Structures and Decor The size, shape, location, and age of building might suggest the company’s emphasis on teamwork, environmental friendliness, flexibility, or any other set of values. Even if a building doesn’t make much of a statement, there is a treasure trove of physical artifacts inside. Desks, chairs, office space, and wall hangings (or lack of them) are just a few of the items that might convey cultural meaning. Each of these artifacts alone might not say much, but enough of them together make the company’s culture easier to decipher. Learning Objective 3: List four categories of artifacts through which corporate culture is deciphered. See Text Page: 238

Is Organizational Culture Important? Does corporate culture really make a difference? The answer is yes. Various studies indicate that companies with strong cultures are more likely to be successful, but only under a particular set of conditions. The effect of organizational culture depends partly on its strength. Corporate culture strength refers to how widely and deeply employees hold the company’s dominant values and assumptions. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 239

Strong Corporate Culture and a Company’s Success A strong corporate culture potentially increases the company’s success by serving three important functions: Control system Social glue Sense making Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 239

Organizational Culture Strength and Fit Strong cultures are potentially good for business, but studies have found only a modestly positive relationship between culture strength and success. A strong organizational culture increases organizational performance only when the cultural content is appropriate for the organization’s environment. Strong cultures create a greater risk because culture strength indicates that a greater number of employees will be guided by those values and assumptions. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 239

Organizational Culture and Performance Culture content fits environment Moderately strong culture Corporate performance Ethical conduct Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 240 Adaptive culture

Corporate Cults and Suppressing Dissent A second reason why companies with strong cultures aren’t necessarily more effective is that they become corporate cults that lock decision makers into mental models and bind them to new opportunities or unique problems. A third consideration is that very strong cultures tend to suppress dissenting subculture values. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 240-241

Adaptive Cultures Adaptive culture: An organizational culture in which employees focus on the changing needs of customers and other stakeholders and support initiatives to keep pace with these changes. Organizational culture experts are starting to piece together the elements of adaptive cultures: Adaptive cultures have an external focus. Employees pay as much attention to organizational processes as they do organizational goals. Employees have a strong sense of ownership. Adaptive cultures are proactive and quick. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 241

Organizational Culture and Business Ethics An organization’s culture influences more than just the bottom line; it can also potentially influence its ethical conduct. This makes sense because good behavior is driven by ethical values. An organization can guide the conduct of its business by embedding ethical values in its dominate culture. Unfortunately, it seems that every day companies make headlines for failing to incorporate ethics into their culture. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. See Text Page: 241-242

Corporate Wrongdoers Martha Stewart – served five-months sentence for lying to government investigators about a suspicious stock sale. Her company’s sales sunk. Tyco International CEO, Dennis Kozlowski – became a poster boy for excess with $2 million birthday party. Charges – Stealing $600 million form the company and the shareholders Former CEO of Enron, Bernard Ebbers – Charges: conspiracy, securities fraud, making false regulatory filings, ring leader in an $11 billion accounting fraud Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. Corporate Wrongdoers This slide (presented in chapter 4) presents three of the most prominent scandal examples in corporate America in the recent history. This should be used along with the next slide on Best Corporate Citizens. Ask the students – Which stakeholders were duped and suffered in each of these examples? Just about every stakeholder in some way has lost and suffered. Ask the students – What other similar examples have they heard or read about? (Other corporate examples are Ken Lay at Enron, Richard Scrushy at Healthsouth, and Frank Quattrone at Credit Suisse First Boston.) Source: Business Week, January 10, 2005 Source: Business Week, January 10, 2005

Best Corporate Citizens Top three corporate citizens from consumers viewpoint: Wal-Mart McDonald’s Microsoft Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. Best Corporate Citizens This slide presents the top three corporate citizens from the consumers viewpoint. It should be presented as counter to the previous slide on Corporate Wrongdoers. Reputation Institute asked 30,000 consumers in various countries to nominate companies for their citizenship. In US, Wal-Mart received the most nominations, followed by McDonald’s and Microsoft. It should be pointed out to the students that, given that these are consumer opinions, consumer companies tended to receive the most nominations due to their familiarity. In India, Tata Motors, in Japan, Toyota, and in Finland, Nokia received the most nominations. Ask the students, why Wal-Mart, McDonald’s, and Microsoft would be on the top list? (Wal-Mart and McDonald’s due to their low prices, familiarity, and good amount of donations and green activities. Microsoft has been in the news with Bill Gates donating huge sums for health related and education issues.) Source: Forbes.com, November 28, 2006 Source: Forbes.com, November 28, 2006

Question Organization wide unethical behavior’s responsibility and blame lies with the top management team and the culture they have nurtured. Do you agree? Explain. Learning Objective 4: Discuss the conditions under which cultural strength improves corporate performance. Question Students should be able to agree and argue for this point using the examples of companies in the previous two slides.

Strategies to Change and Strengthen Organizational Culture Actions of founders and leaders Symbolize the new culture (or need for one) through memorable events. Model the new culture through subtle decisions and actions. Culturally consistent rewards Reward employees for culturally consistent behaviors. Reward managers who help employees understand the culture. Changing and strengthening organizational culture Learning Objective 5: Identify four strategies to change and strengthen an organizations culture. See Text Page: 243 Selecting and socializing employees Hire people whose values are consistent with the culture. Inform and indoctrinate new staff about what the culture means. Aligning artifacts Share stories supporting the culture. Celebrate goals/milestones to support the culture. Inhabit buildings that reflect the culture.

Question Kevin Ketterman, owner and CEO of Ketterman’s Ketchup has always preached the gospel of cost containment and frugality to employees on the shop floor. However, his office presents the picture of a penthouse filled with marble bathroom and gold covered faucets and showerheads, very expensive paintings on the walls, and expensive antique furniture. Ketterman appears to violate which of these strategies to strengthen organizational culture? Inappropriate training of employees Culturally consistent rewards Selecting and socializing employees Aligning artifacts Learning Objective 5: Identify four strategies to change and strengthen an organizations culture. See Text Page: 243 Answer: D

Managing Organizational Culture During Mergers Along with changing and strengthening an organization's culture, managers need to keep a watchful eye on culture throughout the process of mergers and acquisitions. The corporate world is littered with managers that failed or had a difficult gestation because of clashing organizational cultures. Various studies report that between 60 and 75 percent of all mergers fail to return a positive investment. Learning Objective 5: Identify four strategies to change and strengthen an organizations culture. See Text Page: 246-247

Strategies to Merge Different Organizational Cultures Assimilation: Acquired company embraces acquiring firm’s culture. Deculturation: Acquiring firm imposes its culture on unwilling acquired firm. Integration: Combining two or more cultures into a new composite culture. Separation: Merging companies remain distinct entities with minimal exchange of culture or organizational practices. Learning Objective 6: Compare and contrast four strategies for merging organizational cultures. See Text Page: 247-249

Mergers & Acquisitions Merger Monday, in November, produced $76 billion in tie-ups--solidifying 2006 as the biggest merger year on record. So far about $3.5 trillion in transactions have been announced this year. Why so any mergers?: A reasonably strong economy that is signaling growth, coupled with moderating inflation. Learning Objective 6: Compare and contrast four strategies for merging organizational cultures. Mergers & Acquisitions This slide presents 2006 as the record dollar deals in mergers and acquisitions. Some of the deals announced were: Blackstone Groups taking over US Equity Office Properties Trust for $36 billion, Freeport-McMoRan Copper & Gold announced a $25.9 billion deal for Phelps Dodge, and Bank of America buying US Trust from Charles Schwab for $3 billion. Ask the students – do these mergers and acquisitions always workout? (Obviously, not always, but one of the main reason is the differing cultural values.) Source: Forbes.com, November 21, 2006 Source: Forbes.com, November 21, 2006