The corporate culture vultures

U.S. business is in the throes of a cultural revolution. Even some of the hardest-nosed managers have started worrying about the appropriateness of their corporate cultures. Consultants have begun to offer high-priced advice on how to mesh a company’s culture with its strategy. The problem is, it isn’t clear that most corporations can consciously create a new culture for themselves. Or even that they should try.

The revolutionary concern for the soft, bewilderingly human underpinnings of business has several hard roots. Within the last three years a quartet of hot-selling management books—Theory Z, The Art of Japanese Management, Corporate Cultures, and In Search of Excellence, now at a million copies in print and still rising—have hammered home the idea that companies with a record of outstanding financial performance often have powerful corporate cultures. The books also helped clarify what culture is: a system of shared values (what is important) and beliefs (how things work) that interact with a company’s people, organizational structures, and control systems to produce behavioral norms (the way we do things around here). For example, at IBM customer service is a dominant value that keeps everyone, from the chairman to the factory worker, pulling in the same direction.

These aren’t new notions, but recently they’ve become riveting. What thinking manager can ignore the connections increasingly drawn between, say, Toyota’s success and the image of its workers intoning the company song? Or between Hewlett-Packard’s long-term growth rate–an average of 25% a year in revenues–and its beliefs, which seem to lead almost everyone at the company to behave like an entrepreneur? The word is out: a survey of 305 chief executives published last month by William M. Mercer Inc., a New York City firm that designs compensation systems, showed that all but a handful think strong corporate values are important to their companies’ success. Asked how much their companies had “addressed the issue of corporate values,” two-fifths of the group checked off “a great deal.”

The idea that culture matters happened along at the right time, just as many managers were learning that corporate strategy alone, no matter how well formulated, can’t produce winning results (see “Corporate Strategists Under Fire,” FORTUNE, December 27, 1982). At best, big-league management consultants observe, only one company in ten can successfully carry out a complex new strategy, say, to bring down production costs systematically, cut price, and gain share of market. But the need for devising and executing better strategies has, if anything, grown of late. Recession, deregulation, technological upheavals, foreign competition, and markets that seem to emerge and vanish by the month have cranked up the pressure on companies to adapt.

The fashionable view holds that the biggest stumbling block on the path to adaptation is often an inappropriate corporate culture. A widely cited example is AT&T, which has labored for years to behave like a marketing company, but with scant success. Efforts to serve different market segments in different ways have run afoul of the strong values, beliefs, and norms Bell managers have imbibed since the tum of the century—that it’s important to furnish telephone service to everybody, that you do that by not discriminating too much among different kinds of customers. The solution seems obvious: change the culture. As AT&T’s dilemma shows, that’s not easy.

A number of consultants, however, have sensed and abetted the shift in focus to the soft—they’re eager to help the culturally distressed. Most of them have specialized for years in human resource problems such as organizational design. “The pendulum is swinging away from the strategists and toward the social architects,” exults Paul V. Croke, vice president of Boston’s Forum Corp., which focuses on training salesmen and managers.

The most ambitious of this crew is the Management Analysis Center, or MAC, of Cambridge, Massachusetts. Over the last few years, MAC has encroached on the turf of specialists in corporate strategy such as the Boston Consulting Group by arguing that you can’t change strategies without taking heed of culture. Now the firm, with about 120 professionals in eight offices worldwide, sees a “window of opportunity” through which it hopes to squeeze by selling a new product—the “CEO’s Change Agenda,” a list of six steps for implementing strategy by massaging the softer side of management. MAC expects revenues—around $20 million in 1982—to grow by more than 25% this year.

The Management Analysis Center began delving into culture six years ago to help Willard C. Butcher, then heir apparent to Chief Executive David Rockefeller at Chase Manhattan Bank. Butcher wanted to execute a plan for regaining industry leadership and avoiding disasters like Chase’s $61-million loss in real estate investment trusts in 1976. At his urging, Stanley M. Davis, a research professor at Boston University, and Howard M. Schwartz, a MAC consultant, interviewed Chase’s top two dozen managers to collect anecdotes about the way the company worked. The two observed meetings and pored over logs of how executives spent their time.

The objective was to flush out the actual rules of behavior at the bank rather than the ones people professed. The consultants homed in on unwritten laws that governed relations among people when handling six general management tasks: innovating, decision-making, communicating, organizing, monitoring, and appraising and rewarding. Then they laid these norms—for example, “be a gentleman” and “avoid confrontations”—against the elements of Chase’s plan for strategic redirection.

The result, naturally enough for consultants, was a matrix–a chart that plots some variable against two yardsticks–in this instance one that described the risk of making organizational changes. Each planned change was arrayed along a horizontal axis running from high to medium to low compatibility with Chase’s patterns of behavior, and along a vertical axis indicating high, medium, and low importance to Butcher’s strategy. Any change that showed up in this three-by-three matrix as being higher in strategic importance than in cultural compatibility was deemed an unacceptable risk. In those cases MAC advised the bank to find less dangerous tactics, rethink its strategy, or, as a last resort, try to change its culture.

Ultimately, the project flopped, as Chase’s subsequent record suggests—the bank still is prone to unforeseen disasters, such as the collapse of Drysdale Securities last year. Neither party will discuss the grisly details, but it seems MAC’s first report on Chase’s unspoken norms was so scathing that it nearly wiped out any audience for the 100 pages of recommendations submitted later on.

The debacle did not, however, prevent Chase and other banks from pursuing cultural change, or keep consultants from going after their business. It also helped spur MAC to come up this year with the CEO’s Change Agenda, a less inflammatory recipe for yoking strategy and culture. The first three steps focus on planning. Honchos are advised to start by having senior managers reexamine the company’s history, culture, and skills, as well as the traits of the business they’re in. The process is aimed at culling bad strategies and uncovering good ones that the received corporate wisdom has masked. Next, the chief executive is to forge a vision of the new strategy and the shared values needed to make it work, then spread this gospel himself—in speeches, memos, and more informal contacts—and check up regularly on the number of converts.

Ideally, these steps work up enough momentum to whirl a company through the trickiest part of the process—confronting mismatches between present behavior patterns and those the future requires. This may entail designing new organizational arrangements and control systems to encourage different behavior. Getting into cultural issues late in the game presumably makes them easier to face. “You can’t change culture by working on it directly,” Howard Schwartz says today. “You must have some strategic ground to stand on, then build a vision of what a company wants to be before rubbing their noses in what they are.”

The last three items on the list specify methods of creating change. Chief executives are told to promulgate and reinforce the new values in everything they do, from the kinds of people they spend most of their time with to the incidents they choose to magnify to subordinates. They must reshuffle power to elevate exemplars of the new ways, including outsiders hired mainly for their values. The leader should use such levers of change as the budgeting process and internal public relations, constantly varying the pressure to keep people moving toward the right behavior.

MAC’s approach is a lot for most companies to buy. Following it can cost up to $1 million a year in fees alone and take several years. But the agenda has appealed to some companies that face radical shake-ups in their circumstances, especially deregulation. Theodore J. Saenger, president of Pacific Telephone, has coped with AT&T’s reorganization by redefining his business according to the market segments that his company serves. He thinks MAC helped achieve behavioral changes to further that move: “We get much faster decisions about our lines of business, and I sense a willingness to get on with market positioning as well as clear agreement among middle managers and old hands on the need for a market orientation.” Saenger tries to get people to think strategically by his own example: he used to spend 25% of his time on strategy and the rest on operations, but has now reversed that allocation. Pacific has also hatched plans to tie more of its top managers’ compensation to corporate performance.

Still, the company has conceded much to a strong, old culture rather than risk changing it radically. Despite talk of marketing, Pacific retains a functional structure—one executive in charge of network operations, another responsible for engineering—and has no managers specifically accountable for attacking particular market segments. Saenger remains the only executive who must answer for profits and losses.

Consultants other than MAC treat culture less globally. They rely on questionnaires to measure organizational climate—how much a company should and actually does encourage individual responsibility, clear standards of behavior, appropriate rewards, and so forth—and on conventional tools for modifying behavior. These include feedback sessions (subordinates tell their supervisor how he’s really doing) and team-building (getting them to work together).

Forum, for instance, with over 150 professionals in 13 offices, has started stressing the execution of strategy. The firm uses a method generally like MAC’s–including the three-by-three matrix of cultural risk–though the names of the steps it recommends and their order differ. Forum concentrates on training people to change their patterns of behavior to fit the kind of culture a strategy implies. Often the company follows on the heels of strategy consultants with a climate survey, then helps managers to develop an ideal of new practices, to find out from subordinates how much current management practices fit the ideal, and to make plans for closing the gap. Smaller firms such as McBer & Co. of Boston, as well as a horde of individual consultants, offer minor variations on the basic trilogy of survey, feedback, and plan for change. Their emphases differ according to whether their traditional specialties are compensation, motivation, or organizational design and development.

Larger, broader-based consulting firms have reservations about the upsurge of concern with culture. Booz Allen & Hamilton, for example, insists that culture is but one aspect of organization. “To assume that the tail wags the dog is inane,” says Francis N. Bonsignore, a partners charged with developing organizational concepts for clients. To the extent that Booz Allen has embraced cultural change, he adds, “We’re making hay of an issue that’s topical.”

Paradoxically, McKinsey & Co., the colossus of consulting, is the most reluctant to endorse the new wisdom, even though two McKinseyites, Thomas J. Peters and Robert H. Waterma Jr., wrote In Search of Excellence and another, Allan A. Kennedy, was the coauthor of Corporate Cultures. Peters and Kennedy subsequently left the firm; Waterman heads u what McKinsey calls the organizational effectiveness group, but it’s just a handful of people with a minuscule budget.

The big consulting firms may be right to be skeptical. A review of the evidence suggests that anybody who tries to unearth a corporation’s culture, much less change it, is in for a rough time. The values and beliefs people espouse frequently have little to do with the ones they really hold; these tend to be half-hidden and elusive. Diagnosing culture calls for unusual, time-consuming techniques: auditing the content of decision-making, using an anthropologist to code the content of popular company anecdotes, holding open-ended interviews with people ranging from the man working on the loading dock to the executive in the comer office.

Having grown out of a company’s history, values are strengthened daily in a myriad of subtle ways, from observation of how people get ahead in the organization to the words employees choose to describe their companies. Moreover, people cling tightly, even irrationally, to their values and beliefs—a popular example among consultants and academics is the religious group that predicted the end of the world, and when the prophecy failed, advanced the date of doomsday, refusing any longer to specify it.

It may be easier to change the people instead. In the long term, according to many human-resource specialists, the key to culture is whom you hire and promote. People often get jobs and move up more for the degree to which they fit prevailing norms than for any objective reason. George G. Gordon, a partner at Hay Associates, which specializes in designing compensation schemes, says, “AT&T at one time had people in personnel who had been there for years hire the new marketing types. Is it any wonder the new hires turned out to be a lot like the old guard?” This is not to say that judging people solely on performance-“making the numbers”-is a good way to build a vibrant culture. “Hiring and promoting build culture and weed out incompatibles,” notes Richard E. Boyatzis of McBer. “The companies that do the worst job of it have the sink or swim philosophy, and I predict they’ll die when their main products do.” A corollary, notes Vijay Sathe, who teaches a course on corporate culture at the Harvard Business School, is the importance companies like Minnesota Mining & Manufacturing, IBM, and Procter & Gamble attach to indoctrinating new hires. “The early stages are crucial,” he thinks. “It’s your greatest chance to make real changes in people’s values.”

In extreme cases, companies pressed to transform themselves just fire the recalcitrants who harbor fusty, intractable values and norms. As William T. Ylvisaker, chairman of Gould, went on a business-buying-and-selling spree to transform that auto parts and battery company into a power in electronics, he sold off longtime executives along with their operations. Two-thirds of Gould’s current senior managers came from acquired businesses or from somewhere else outside. Directors of Burroughs and Prime Computer concluded the best way to change those companies was to bring in a chief executive from elsewhere; in both cases, the new leaders have replaced many of the old guard with recruits from IBM (see “The Blumenthal Revival at Burroughs,” FORTUNE, October 5, 1981). Such dramatic measures–in effect, cultural transplants–were deemed necessary to achieve desired financial results.

The Clarion message of the culture books is that high-performing corporations foster values beyond simple concern for the numbers. The IBM field engineer doesn’t hesitate to use his own money for traveling to soothe a grumpy customer; his devotion to the value of service makes him do it, and the company’s devotion to the same value ensures that he’ll be reimbursed. Boeing and other “excellent” companies find it easier to assemble and disperse teams that cross organizational lines because shared values are more compelling than the boxes on an organization chart or a department’s subculture. When Hewlett-Packard is forced to eliminate jobs and put the displaced workers through sometimes difficult retraining, managers reinterpret the H-P value of secure employment, building a new belief that workers are obliged to keep themselves well trained. Employees still regard H-P as a secure place to work.

If you long to instill such values in your company, can you do it? Should you? Most students of culture would answer “Probably not” to both questions. Notes Allan Kennedy: “There are only five reasons to justify large-scale cultural change: if your company has strong values that don’t fit a changing environment; if the industry is very competitive and moves with lightning speed; if your company is mediocre or worse; if the company is about to join the ranks of the very largest companies; or if it’s smaller but growing rapidly. Otherwise, don’t do it.” Kennedy’s analysis of ten cases of attempted cultural change shows that it will cost you between 5% and 10% of what you already spend on the people whose behavior is supposed to change, and even then you’re likely to get only half the improvement you want. He warns, “It costs a fortune and takes forever.” Executives who have succeeded in fundamentally transforming a culture put a more precise estimate on how long the process requires: six to 15 years.

It’s important to make sure you’re not just caught up in a fad. “Corporate culture could be the Hula-Hoop of the 1980s,” cracks one consultant. The prospect of a strong culture can seem a panacea for all your problems, much as getting the right corporate strategy did in the 1970s. “The fantasy is of some magicforce, some secret ingredient, or some mystical glue that brings together all the people in an organization in a sense of shared purpose, commitment, and direction,” notes David A. Nadler, founder of Organizational Research & Consultation Inc., a New York City firm. It’s all too easy to pin your company’s problems on an amorphous culture, forgetting the closely related, harder aspects of organization–control systems, planning meetings, divisional structures, and so forth–that both shape and express culture.

If you still covet the mystical glue, consider the obvious, low-cost adhesives. A tactic fairly standard by now is to develop a statement of corporate purpose, an awesome list of what the company believes in, and then remind everyone of it constantly. To be consistent, tailor your formal systems, structures, and personnel policies to reflect those declarations. You should reinforce the message by giving special awards for behavior in accordance with key values–inventiveness, say, or customer service–taking care to publicly shower “attaboys” on the folks with the right stuff. You can work your company’s informal structures and processes, holding picnics for the elect and spreading stories about what Joe, the star salesman, did to get the big order. Some poetic license will help. Like McDonald’s, Apple, and others, you could set up an internal “university” to indoctrinate employees.

These fixes may well change behavior, but they won’t do much by themselves to instill the compelling culture you seek. As attentive readers of In Search of Excellence recall, the book posits that the great majority of outstanding companies trace their cultures back to an influential founder or other top manager who personified the value system. These revered characters–Robert Wood Johnson, Harley Procter, Thomas J. Watson Sr.–relentlessly hammered at a few basics that became the cultural core of their companies. Subsequent managements perpetuated the legacy. The despair of many corporations is that they can’t point to such seeming superhumans in their past.

The lament for the extraordinary man doesn’t cut much ice with the culturalists. Many of the stories that grow up around a Watson, they point out, are just legends born of the human tendency to attribute all values to an omnipotent, omniscient, preferably dead person. Legendary leaders, they insist, aren’t uniquely charismatic, just savvy. They are smart enough to know what kind of culture is best for the business, persistent enough to harp on values in word and deed for decades, and dedicated enough to tailor all their actions to the value system. The top managers of Walt Disney Productions, for example, are known to instinctively pick up any gum wrappers and cigarette butts they spot defiling Walt’s vision of Disneyland. They have followed the advice of IBM’s Watsonn to put the business into their hearts.

Leaders driven by values are, above all, tuned in to symbolism. “They’re showmen,” says Tom Peters. Rene McPherson, one of the few executives Peters will credit with having transformed a culture, dramatized new values at Dana Corp. by tossing the auto parts company’s multi-volume policy manuals into a wastebasket during a staff meeting and replacing them with a one-page statement of beliefs. Renn Zaphiropoulos, the flamboyant cofounder and president of Versatec, a Xerox subsidiary that makes graphics plotters for computers, places a high value on loyalty—understandably, since Versatec sits in the middle of California’s high-turnover Silicon Valley. Whenever a Versatec employee reaches his fifth or tenth anniversary with the company, he’s invited to lunch with the president, who carries off the feted individual in one of his Rolls-Royces. The main features of Versatec’s lobby are two plaques listing the names of five- and ten-year veterans. It comes as no great surprise that as a young man Zaphiropoulos was a three-time winner on Ted Mack’s Original Amateur Hour.

By the standards of most companies, managers given to such symbolic behavior would be considered near-fanatics who indulge themselves in grandstanding, corny stories, and other sundry foolishness. Indeed, Peters calls them “maniacs who overkill.” The corporations they inspire are intolerant, at least when it comes to central values. A chief executive who wants to beef up his culture may well have to hire an extremely forceful, close-to-obsessive new leader or, if he doesn’t want to replace himself, become a true believer. It’s quite an unlikely transformation, suggests one student of corporate culture, because the real constituency of most top managers is not their organization at large, but their peers and immediate subordinates. The other fellows at the country club may not be amused.

The importance of management by symbolic behavior makes life awkward for consultants. Since most chief executives lack the theatrical skills to trumpet values powerfully, the hired gun must play drama coach. MAC, for instance, usually meets monthly with clients’ chief executives to help them manage their daily behavior and review the kinds of signals they give out at company meetings. But few senior managers are likely to welcome tinkering with their personal styles, and few consultants are likely to be good at doing it. “To help out with cultural change,” says Bob Waterman of McKinsey, “you have to be a concerned analyst, a role model, a coach, a counselor, and a catalyst who will help the client’s internal teams make their own decisions. Those activities undermine our traditional value-special knowledge-and haven’t fallen within the skill sets of most MBAs and consultants.” Waterman says that McKinsey can do such cultural consulting, but that his firm and others have good reason to approach the subject gingerly, at least for now.

If they listen to the academics, consultants may never enter the culture biz at all. Theoretically, charismatic founders of companies are ideally situated to shape culture. But according to Joanne Martin, an associate professor of organizational behavior at the Stanford Graduate School of Business Administration, who is studying several nascent Silicon Valley companies, fewer than half of a new company’s values are those of the founder and chief executive. The rest develop because of the business environment and employees’ need to attach meaning to their work. Says Martin, “Culture may simply exist.”

In established firms, conclude experts who don’t have a consulting ax to grind, the possibilities for influencing culture may be even slimmer. Says William P. Nilsson, who runs management development for Hewlett-Packard, “I don’t think [President) John Young could fundamentally change our values if he wanted to.” In sum, says Vijay Sathe of Harvard, it is exceedingly difficult to transform a culture. Waterman and Peters, he suggests, should have ended In Search of Excellence with a boldface warning: Caution—this may be impossible to duplicate.