Organizational Culture and Leadership Defined

California University of Management and Sciences
Part III Case Study
Professor Victor Hernandez MBA
Chih-Min Liao
2014/8/29

Table of content
CH.12 HOW CULTURE EMERGES IN NEW GROUPS------------------------------------------3
Introduction---------------------------------------------------------------------------------------3 Group Formation through Originating and Marker Events--------------------------------3 Stages of Group Evolution----------------------------------------------------------------------5 Conclusions---------------------------------------------------------------------------------------6
Ch.13 How Founders/Leaders Create Organizational Cultures------------------------------------7
Introduction --------------------------------------------------------------------------------------7
Culture Beginnings through Founder/Leader------------------------------------------------7
Example of Culture Evolution------------------------------------------------------------------9
Conclusions--------------------------------------------------------------------------------------13
CH14. How Leaders Embed and Transmit Culture--------------------------------------------------14
Primary Embedding Mechanisms--------------------------------------------------------------15
What Leaders Pay Attention to, Measure, and Control-------------------------------------15
Leader Reactions to Critical Incidents and Organizational Crises------------------------16
How Leaders Allocate Resources--------------------------------------------------------------16
How Leaders Recruit, Select, Promote, and Excommunicate-----------------------------17
Deliberate Role Modeling, Teaching, and Coaching----------------------------------------18
How Leaders Allocate Rewards and Status--------------------------------------------------18
How Leaders Recruit, Select, Promote, and Excommunicate----------------------------18
Conclusions--------------------------------------------------------------------------------------19
CH15. The Changing Role of leadership in organizational “midlife”---------------------------19
Introduction-------------------------------------------------------------------------------------19
Differentiation into Subgroups and the Growth of Subcultures-------------------------20
Functional/Occupational Differentiation---------------------------------------------------21
Geographical Differentiation-----------------------------------------------------------------22
Differentiation by Product, Market, or Technology---------------------------------------24
Divisionalization--------------------------------------------------------------------------------25
Conclusions--------------------------------------------------------------------------------------27
CH16. What Leaders Need to Know About How Culture Changes------------------------------29
Founding and Early Growth-------------------------------------------------------------------29
Incremental Change Through General and Specific Evolution--------------------------30
General Evolution-------------------------------------------------------------------------------30
Specific Evolution-------------------------------------------------------------------------------31
Managed Culture Change Through Infusion of Outsiders--------------------------------31
Conclusions--------------------------------------------------------------------------------------35

CH.12 HOW CULTURE EMERGES IN NEW GROUPS
Introduction
Culture is also created in the interactions we have with others in our normal day-to-day life, and the best way to demystify the concept of culture is first of all to become aware of culture in our own experience, to perceive how something comes to be shared and taken for granted, and to observe this particularly in new groups that we enter and belong to. We bring culture with us from our past experience but we are constantly reinforcing that culture or building new elements as we encounter new people and new experiences.
The strength and stability of culture derives from the fact that it is group based—that the individual will hold on to certain basic assumptions in order to ratify his or her membership in the group. If someone asks us to change our way of thinking or perceiving, and that way is based on what we have learned in a group that we be- long to, we will resist the change because we will not want to deviate from our group even if privately we think that the group is wrong. This process of trying to be accepted by our membership and reference groups is unconscious and, by virtue of that fact, very powerful. But how does a group develop a common way of thinking in the first place?
Group Formation through Originating and Marker Events
All groups start with some kind of originating event: (1) an environmental accident (for instance, a sudden threat that occurs in a random crowd and requires a common response), (2) a decision by an “originator” to bring a group of people together for some purpose, or (3) an advertised event or common experience that attracts a number of individuals. Human relations training groups start in the third mode: a number of people come together to participate in a one- or two-week workshop for the advertised purpose of learning more about themselves, groups, and leadership (Bradford, Gibb, and Benne, 1964; Schein and Bennis, 1965; Schein, 1993a). The workshops are typically held in a geographically remote, isolated location and require full, round-the-clock participation.
Stages of Group Evolution
Every group goes through some version of evolution that can best be described in terms of the following stages.
Stage One: Group Formation
Initially, the group is not really a group but a collection of individual members, each focused on how to make the situation safe and personally rewarding while struggling with personal issues of inclusion, identity, authority, and intimacy. In other words, even with the early marker events that create some shared emotional responses, at this stage the new members are much more preoccupied with their own feelings than with the problem of the group as a group and, most likely, they are operating on the unconscious assumption of dependency—namely, that “the leader [staff member] knows what we are supposed to do.” Therefore, the best way to achieve safety is to find out what the group is supposed to do and do it. This group stage, with its associated feelings and moods, is, in my experience, similar to what Bion (1959) described in his work as the dependence assumption and what other theories note as the first issue the group has to deal with; that is, authority (Bennis and Shepard, 1956).
Stage Two: Group Building
At stage 2, the primary operating assumption is the fusion assumption. The essence of this assumption is “We all like each other”; this, in turn, is buttressed by the assumption “We are a great group, based on the euphoria of having solved the problem of dependence and put the formal authority in its proper place. Turquet (1973) feel merged with the group and to deny internal differences. How do we know when this assumption is operating? What one observes at the overt behavior level is a marked absence of interpersonal conflict, a tendency to bend over backward to be nice to each other, emotional expressions of affection, a mood of euphoria, and group solidarity in the face of any challenge. Symptoms of conflict or lack of harmony are ignored or actively denied. Hostility is suppressed or, if it occurs, punished severely. An image of solidarity must be presented at all costs.
Stage Three: Group Work and Functional Familiarity If the group deals successfully with the fusion assumption, it usually achieves an emotional state that can best be characterized as mutual acceptance. The group will have had enough experience so that members not only know what to expect of each other—what we can think of as functional familiarity—but also will have had the chance to learn that they can coexist and work together even if they do not all like each other. The emotional shift from maintaining the illusion of mutual liking to a state of mutual acceptance and functional familiarity is important in that it frees up emotional energy for work. Being dominated by either the dependence or the fusion assumption ties up emotional energy because of the denial and defensiveness required to avoid confronting the disconfirming realities. Therefore, if a group is to work effectively, it must reach a level of emotional maturity at which reality-testing norms prevail.
At this stage a new implicit assumption arises, the work assumption: “We know each other well enough, both in a positive and negative light, that we can work well together and accomplish our external goals.”
Stage Four: Group Maturity Only a few remarks will be made about this final group stage because it will receive much more focus in later chapters. If a group works successfully, it will inevitable reinforce its assumptions about itself and its environment, thus strengthening whatever culture it has developed. Because culture is a learned set of responses, culture will be as strong as the group’s learning history has made it. The more the group has shared emotionally intense experiences, the stronger the culture of that group will be.
Conclusions
To understand organizational or occupational cultures, it is necessary to understand cultural origins. In this chapter have reviewed how this happens in a group by examining the stages of group growth and development based on social psychological concepts and what we know about group dynamics. By examining in detail the interactions of members, it is possible to reconstruct how norms of behavior arise through what members do or do not do when critical incidents occur.
The basic sociopsychological forces that operate in all of us are the raw material around which a group organizes itself both to accomplish its task and to create for itself a viable and comfortable organization. Thus every group must solve the problems of member identity, common goals, mechanisms of influence, and how to manage both aggression and intimacy. Culture arises around the learned solutions to these problems.

Ch.13 How Founders/Leaders Create Organizational Cultures
Introduction
One of the most mysterious aspects of organizational culture is how it comes to be that two companies with similar external environments, working in similar technologies on similar tasks and with founders of similar origins, come to have entirely different ways of operating over the years. Explores what organizational culture is, how founders create and embed cultural elements into their firms, why first-generation companies develop distinctive cultures, and the implications present when making the transition from founders or owning families to professional managers. Organizational culture is defined as the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its external adaptation and internal integration problems. In addition, this pattern of assumptions has worked well enough to be considered valid and is taught to new members as the correct way to perceive, think, and feel in relation to those problems. Organizational culture is not the overt behavior or visible artifacts one might observe on a visit to the company; rather it is the assumptions that underlie the values and determine not only behavior patterns, but architecture, office layout, dress codes, etc.
Culture Beginnings through Founder/Leader Actions Cultures basically spring from three sources: (1) the beliefs, values, and assumptions of founder of organizations; (2) the learning experiences of group members as their organization evolves; and (3) new beliefs, values, and assumptions brought in by new members and leaders. The process of culture formation is, in each case, first a process of creating a small group. In the typical business organization, this process will usually involve some version of the following steps:
1. One or more people (founders) have an idea for a new enterprise.
2. The founder brings in one or more other people and creates a core group that shares a common goal and vision with the founder; that is, they all believe that the idea is a good one, workable, worth running some risks for, and worth the investment of time, money, and energy required.
3. The founding group begins to act in concert to create an organization by raising funds, obtaining patents, incorporating, locating work space, and so on. 4. Others are brought into the organization, and a common history begins to be built. If the group remains fairly stable and has significant shared learning experiences, it will gradually develop assumptions about itself, its environment, and how to do things to survive and grow. Founders usually have a major impact on how the group initially defines and solves its external adaptation and internal integration problems. Because they had the original idea, they will typically have their own notion, based on their own cultural history and personality, of how to fulfill the idea. Founders not only have a high level of self-confidence and determination, but they typically have strong assumptions about the nature of the world, the role that organizations play in that world, the nature of human nature and relationships, how truth is arrived at, and how to manage time and space (Schein, 1978, 1983). They will, therefore, be quite comfort- able in imposing those views on their partners and employees as the fledgling organization copes, and they will cling to them until such time as they become unworkable or the group fails and breaks up (Donaldson and Lorsch, 1983).
Example of Culture Evolution Sam Steinbergs Sam Steinberg was an immigrant whose parents had started a corner grocery store in Montreal. His parents, particularly his mother, taught him some basic attitudes toward customers and helped him form the vision that he could succeed in building a successful enterprise. He assumed from the beginning that if he did things right, he would succeed and could build a major organization that would bring him and his family a fortune. Ultimately, he built a large chain of supermarkets, department stores, and related businesses that became for many decades the dominant force in its market area. Sam Steinberg was the major ideological force in his company throughout its history and continued to impose his assumptions on the company until his death in his late seventies. He assumed that his primary mission was to supply a high-quality, reliable product to customers in clean, attractive surroundings and that his customers’ needs were the primary consideration in all major decisions. There are many stories about how Sam Steinberg, as a young man operating the corner grocery store with his wife, gave customers credit and thus displayed trust in them. He always took products back if there was the slightest complaint, and he kept his store absolutely spotless to inspire customer confidence in his products. Each of these attitudes later became a major policy in his chain of stores and was taught and reinforced by close personal supervision. Sam Steinberg believed that only personal examples and close supervision would ensure adequate performance by subordinates. He would show up at his stores unexpectedly, inspect even minor de- tails, and then—by personal example, by stories of how other stores were solving the problems identified, by articulating rules, and by exhortation—would “teach” the staff what they should be doing. He often lost his temper and berated subordinates who did not follow the rules or principles he had laid down. Sam Steinberg expected his store managers to be highly visible, to be very much on top of their own jobs, and to supervise closely in the same way he did, reflecting deep assumptions about the nature of good management. These assumptions became a major theme in later years in his concept of “visible management”—the assumption that a good manager always has to be around to set a good example and to teach subordinates the right way to do things. Most of the founding group in this company consisted of Sam Steinberg’s three brothers, but one “lieutenant” who was not a family member was recruited early and became, in addition to the founder, the main leader and culture carrier. He shared the founder’s basic assumptions about how to run a business and he set up formal systems to ensure that those assumptions became the basis for operating realities. After Sam Steinberg’s death this man became the CEO; he continued to articulate the theory of visible management and tried to set a personal example of how to perpetuate this by continuing the same close supervision policies that Sam Steinberg had used. Sam Steinberg assumed that one could win in the marketplace only by being highly innovative and technically in the forefront. He always encouraged his managers to try new approaches; brought in a variety of consultants who advocated new approaches to human resource management; started selection and development programs through assessment centers long before other companies tried this approach; and traveled to conventions and other businesses where new technological innovations were displayed. This passion for innovation resulted in Steinbergs being one of the first companies in the supermarket industry to introduce the bar code technology and one of the first to use assessment centers in selecting store managers. Steinberg was always willing to experiment in order to improve the business. His view of truth and reality was that one had to find them wherever one could; therefore, one must be open to one’s environment and never take it for granted that one has all the answers. If things worked, Sam Steinberg encouraged their adoption; if they did not, he ordered them to be dropped. Measuring results and solving problems were, for him, intensely personal matters, deriving from his theory of visible management. In addition to using a variety of traditional business measures, he always made it a point to visit all his stores personally. If he saw things not to his liking, he corrected them immediately and decisively even if that meant going around his own authority chain. He trusted only those man- agers who operated by assumptions similar to his own and he clearly had favorites to whom he delegated more authority. Power and authority in this organization remained very centralized, in that everyone knew that Sam Steinberg or his chief lieu- tenant could and would override decisions made by division or other unit managers without consultation and often in a very peremptory fashion. The ultimate sources of power, the voting shares of stock, were owned entirely by Sam Steinberg and his wife, so that after his death his wife was in total control of the company. Sam Steinberg was interested in developing good managers throughout the organization, but he never assumed that sharing ownership through granting stock options would contribute to that process. He paid his key managers very well, but his assumption was that ownership was strictly a family matter, to the point that he was not willing to share stock even with his chief lieutenant, close friend, and virtual co-builder of the company. Sam Steinberg introduced several members of his own family into the firm and gave them key managerial positions and favored treatment in the form of good developmental jobs that would test them early for ultimate management potential. As the firm diversified, family members were made heads of divisions, often with relatively little management experience. If a family member performed poorly, he would be bolstered by having a good manager introduced under him. If the operation then improved, the family member would likely be given the credit. If things continued badly, the family member would be moved out, but with various face-saving excuses. Peer relationships among nonfamily members inevitably became highly politicized. They were officially defined as competitive, and Sam Steinberg believed firmly in the value of interpersonal competition. Winners would be rewarded and losers discarded. However, since family members were in positions of power, one had to know how to stay on the good side of those family members without losing the trust of one’s peers, on whom one was dependent.
Sam Steinberg wanted open communication and a high level of trust among all members of the organization, but his own assumptions about the role of the family and the correct way to manage were, to a large degree, in conflict with each other. Therefore, many members of the organization banded together in a kind of mutual protection society that developed a culture of its own. They were more loyal to each other than to the company and had a high rate of interaction with each other, which bred assumptions and norms that became to some degree countercultural to the founder’s.
Several points should be noted about the description given thus far. By definition, something can become part of the culture only if it works in the sense of making the organization successful and reducing the anxiety of the members, including Sam Steinberg. His assumptions about how things should be done were congruent with the kind of environment in which he operated, so he and the founding group received strong reinforcement for those assumptions. As the company grew and prospered, Sam Steinberg felt more and more confirmation of his assumptions and thus more and more confidence that they were correct. Throughout his lifetime he steadfastly adhered to those assumptions and did everything in his power to get others to accept them. However, as already noted, some of those assumptions made nonfamily managers anxious and led to the formation of a counterculture.
Summary and Conclusions
The case presented in this chapter illustrate how organizations begin to create cultures through the actions of founders who operate as strong leaders. It is important to recognize that even in mature companies one can trace many of their assumptions to the beliefs and values of founders and early leaders. The special role that these leaders play is to propose the initial answers to the young group’s questions about how to operate internally and externally. The group cannot test potential solutions if nothing is proposed. Once a leader has activated the group, it can determine whether its actions solve the problems of working effectively in its environment and create a stable internal system. Other solutions can then be proposed by strong group members, and the cultural learning process becomes broadened. Nevertheless, we cannot overlook the tremendous importance of leadership at the very beginning of any group process. The author is not suggesting that leaders consciously set out to teach their new group certain ways of perceiving, thinking, and feeling. Rather, it is in the nature of entrepreneurial thinking to have strong ideas about what to do and how to do it. Founders of groups tend to have well-articulated theories of their own about how groups should work, and they tend to select as colleagues and subordinates others who they sense will think like them. Both founders and the new group members will be anxious in the process of group formation and will look for solutions. The leader’s proposal, therefore, will always receive special attention in this phase of group formation. Early group life also will tend toward intolerance of ambiguity and dissent. In the early life of any new organization one can see many examples of how partners or cofounders who do not think alike end up in conflicts that result in some people leaving, thus creating a more homogeneous climate for those who remain. If the original founders do not have proposals to solve the problems that make the group anxious, other strong members will step in and leaders other than the founders will emerge. He did not observe this in the cases reviewed in this chapter, but have seen it happen in many other organizations. The important point to recognize is that the anxiety of group formation is typically so high and covers so many areas of group functioning that leadership is highly sought by group members. If the founder does not succeed in reducing the group’s anxiety, other leaders will be empowered by the group. Because founder leaders tend to have strong theories of how to do things, their theories get tested early. If their assumptions are wrong, the group fails early in its history. If their assumptions are correct, they create a powerful organization whose culture comes to reflect their original assumptions. If the environment changes and those assumptions come to be incorrect, the organization must find a way to change its culture—a process that is exceptionally difficult if the founder is still in control of the organization. Such change is difficult particularly because over time the founder leaders have multiple opportunities to embed their assumptions in the various routines of the organization. How this process occurs is detailed in Chapter Thirteen.
CH14. How Leaders Embed and Transmit Culture
The simplest explanation of how leaders get their message across is that they do it through charisma—that mysterious ability to capture the subordinates’ attention and to communicate major assumptions and values in a vivid and clear manner (Bennis and Nanus, 1985; Conger, 1989; Leavitt, 1986). The problem with charisma as an embedding mechanism is that leaders who have it are rare and their impact is hard to predict. Historians can look back and say that certain people had charisma or had a great vision. It is not always clear at the time, however, how they transmitted the vision. On the other hand, leaders without charisma have many ways of getting their message across and it is these other ways that will be the focus of this chapter.
Primary Embedding Mechanisms
Taken together, the six primary embedding mechanisms shown in Exhibit 14.1 are the major tools that leaders have available to them to teach their organizations how to perceive, think, feel, and behave based on their own conscious and unconscious convictions. They are discussed in sequence but they operate simultaneously. They are visible artifacts of the emerging culture and they directly create what would typically be called the “climate” of the organization (Schneider, 1990; Ashkanasy, Wilderom, and Peterson, 2000). Exhibit14.1 |
Primary Embedding Mechanisms * What leaders pay attention to, measure, and control on a regular basis * How leaders react to critical incidents and organizational crises * How leaders allocate resources * Deliberate role modeling, teaching, and coaching * How leaders allocate rewards and status * How leaders recruit, select, promote, and excommunicate
What Leaders Pay Attention to, Measure, and Control
One of the most powerful mechanisms that founders, leaders, managers, or even colleagues have available for communicating what they believe in or care about is what they systematically pay attention to. This can mean anything from what they notice and comment on to what they measure, control, reward, and in other ways deal with systematically. Even casual remarks and questions that are consistently geared to a certain area can be as potent as formal control mechanisms and measurements.
Leader Reactions to Critical Incidents and Organizational Crises
When an organization faces a crisis, the manner in which leaders and others deal with it creates new norms, values, and working procedures and reveals important underlying assumptions. Crises are especially significant in culture creation and transmission because the heightened emotional involvement during such periods increases the intensity of learning. Crises heighten anxiety, and the need to reduce anxiety is a powerful motivator of new learning. If people share intense emotional experiences and collectively learn how to reduce anxiety, they are more likely to remember what they have learned and to ritually repeat that behavior in order to avoid anxiety.
How Leaders Allocate Resources
The creation of budgets in an organization is another process that reveals leader assumptions and beliefs. For example, a leader who is personally averse to being in debt will bias the budget-planning process by rejecting plans that lean too heavily on borrowing and favoring the retention of as much cash as possible, thus undermining potentially good investments. As Donaldson and Lorsch (1983) show in their study of top-management decision making, leader beliefs about the distinctive competence of their organization, acceptable levels of financial crisis, and the degree to which the organization must be financially self-sufficient strongly influence their choices of goals, the means to accomplish them, and the management processes to be used. Such beliefs not only function as criteria by which decisions are made but are constraints on decision making in that they limit the perception of alternatives.
Deliberate Role Modeling, Teaching, and Coaching
Founders and new leaders of organizations generally seem to know that their own visible behavior has great value for communicating assumptions and values to other members, especially newcomers. At DEC, Olsen and some other senior executives made videotapes that outlined their explicit philosophy, and these tapes were shown to new members of the organization as part of their initial training. However, there is a difference between the messages delivered by videos or from staged settings, such as when a leader gives a welcoming speech to newcomers, and the messages received when that leader is observed informally. The informal messages are the more powerful teaching and coaching mechanism.
How Leaders Allocate Rewards and Status
Members of any organization learn from their own experience with promotions, from performance appraisals, and from discussions with the boss what the organization values and what the organization punishes. Both the nature of the behavior rewarded and punished and the nature of the rewards and punishments themselves carry the messages. Leaders can quickly get across their own priorities, values, and assumptions by consistently linking rewards and punishments to the behavior they are concerned with.
How Leaders Recruit, Select, Promote, and Excommunicate
One of the most subtle yet most potent ways in which leader assumptions get embedded and perpetuated is the process of selecting new members. For example, Olsen assumed that the best way to build an organization was to hire very smart, articulate, tough, independent people and then give them lots of responsibility and autonomy. Ciba-Geigy, on the other hand, hired very well educated, smart people who would fit into the more structured culture that had evolved over a century.
Summary and Conclusions
This chapter examined how leaders embed the assumptions that they hold and thereby create the conditions for culture formation. Six of the mechanisms discussed are powerful primary means by which founders or leaders are able to embed their own assumptions in the ongoing daily life of their organizations. Through what they pay attention to and reward, through the ways in which they allocate resources, through their role modeling, through the manner in which they deal with critical incidents, and through the criteria they use for recruitment, selection, promotion, and excommunication, leaders communicate both explicitly and implicitly the assumptions they actually hold. If they are conflicted, the conflicts and inconsistencies are also communicated and become a part of the culture or become the basis for subcultures and counter cultures.
CH15. The Changing Role of leadership in organizational “midlife”
Introduction
If an organization is successful in fulfilling its mission it will mature and probably grow. Founders will age or die and be replaced by leaders who have been promoted within the organization. Ownership by founders or founding families will evolve into public ownership and governance by boards of directors. The decision whether to retain private ownership or go public may appear to be a financial decision, but it has enormous cultural consequences. With private ownership the leaders can continue to enforce their own values and assumptions through all of the mechanisms cited in the last chapter. Once governance has shifted to a CEO and a board of directors, the leadership role becomes more diffuse and transient because CEOs and board members usually have limited terms of office and are more accountable to stock holders.
On the one hand, this means that treasured values will be eroded if new CEOs don’t adhere to them; on other hand, it makes it possible for the organization to make necessary changes in its goals and means, and, if necessary, to change elements of the culture. Founders may be blind to these issues and may, therefore, have to be made aware of them by their own managements or outside board members if such are in the picture.
The culture of the organization that has been built on past success may become, to varying degrees, dysfunctional, requiring what the leader may come to perceive as a need for “culture change,” and the way in which growth is managed can facilitate such change. All of these organizational midlife phenomena produce new culture dynamics that require a very different kind of leadership behavior if the organization is to continue to survive.
Differentiation into Subgroups and the Growth of Subcultures All organizations undergo a process of differentiation as they age and grow. This is variously called division of labor, functionalization, divisionalization, or diversification. The common element, however, is that as the number of people, customers, goods, and services increases, it becomes less and less efficient for the founder to coordinate everything. If the organization is successful, it inevitably creates smaller units that begin the process of culture formation on their own with their own leaders. The major bases on which such differentiation occurs are as follows:
1. Functional/occupational differentiation
2. Geographical decentralization
3. Differentiation by product, market, or technology
4. Divisionalization
Functional/Occupational Differentiation
The forces creating functional subcultures derive from the technology and occupational culture of the function. The production department hires people trained in manufacturing and engineering, the finance department hires economics and finance types, the sales department hires sales types, research and development hires technical specialists, and so on. Even though these newcomers to the organization will be strongly socialized into the basic culture, as described in Chapters Twelve and Thirteen, they will bring with them other cultural assumptions derived from their education and from association with their occupational community (Van Maanen and Barley, 1984). Such differences arise initially from personality differences that cause people to choose different occupations and from the subsequent education and socialization into an occupation (Holland, 1985; Schein, 1971, 1978, 1987b; Van Maanen and Schein, 1979).
The cultures of different occupations, in the sense of the shared assumptions that members of that occupation hold, will differ because of the core technology that is involved in each occupation. Thus engineers, doctor, lawyers, accountants, and so on will differ from each other in their basic beliefs, values, and tacit assumptions because they are doing fundamentally different things, have been trained differently, and have acquired a certain identity in practicing their occupation. One therefore will find in each functional area a blend of the founder assumptions and the assumptions associated with that functional/occupational group.
In summary, functional subcultures bring in the diversity that is associated with the occupational communities and technologies that underlie the functions. This diversity creates the basic problem of integration and coordination that is often the most difficult part of general management, in that the leader now has to bring into alignment organizational members who have genuinely different points of view based on their education and experience in the organization. If these problems are anticipated, the leader can either avoid organizing by function, or bring the different functions together in dialogues that stimulate mutual understanding of each other’s taken-for-granted assumptions. To facilitate such communication across subcultural boundaries requires cultural humility from the leader and the ability not only to perceive subcultural differences but also to respect them.
Geographical Differentiation
A second and equally powerful basis for the creation of subcultures is established when the organization grows to the point that the leadership decides to break it into several geographical units because of any of the following imperatives: * The need to get closer to different customer bases and the discovery that geographically dispersed customers often require genuinely different goods and services * The need to take advantage of local labor costs in some geographical areas * The cost advantages of getting closer to where raw materials, sources of energy, or suppliers are located * The requirement by local customers that if products are to be sold in a local market, they must be produced in that market area as well, to protect local labor and to gain knowledge of relevant manufacturing technology.
The cultural consequences, however, are often unanticipated because the geographical units inevitably adopt some of the assumptions of the host culture in which they operate. Subsidiaries or sales units that operate in different countries are inevitably influenced by the cultures of those countries, even if they are staffed primarily by employees and managers from the home country. If local nationals are hired, this influence of course becomes even greater. The process of local influence becomes most salient where business ethics are involved, as when giving money to suppliers or local government officials in one country is defined as a bribe or kickback and deemed illegal and unethical, while in another country the same act is not only legal but considered an essential and normal part of doing business.
The important point to recognize is that the difficulty often encountered between these functions can be seen to result from genuine subcultural differences that are predictable and can be analyzed. To get marketing and sales to work together effectively requires more than a proper reward and incentive system. It requires the development of a common language and common shared experiences.
In summary, as geographical units mature and become divisions and integrated subsidiaries, one will find in them a number of cultural and subcultural phenomena: (1) a blend of the total organization’s culture and the geographic host culture, (2) a local version of the functional subcultural issues that exist in the total organization, and (3) more complicated communication problems based on the fact that the functional subcultures will also take on a local character as they hire locals to perform tasks and thereby introduce host country assumptions. Leaders must recognize these cultural issues as inevitable consequences of the kind of organization they have fostered, have the humility to accept them as real issues to be dealt with, and stimulate the necessary dialogue to foster cross cultural understanding.
Differentiation by Product, Market, or Technology
As organizations mature, they typically differentiate themselves in terms of the basic technologies they employ, the product sets this leads to, and the types of customers they ultimately deal with. Founders and promoted leaders in older companies must recognize and decide at what point it is desirable to differentiate products, markets, or technologies, knowing that this will create a whole new set of cultural integration problems down the line. For example, the Ciba-Geigy Company started out as a dyestuffs company, but its research on chemical compounds led it into pharmaceuticals, agricultural chemicals, and industrial chemicals. Though the core culture was based on chemistry, as described previously, one could clearly observe subcultural differences that reflected the different product sets.
The forces that created such subcultural differences were of two kinds. First, different kinds of people with different educational and occupational origins were attracted into the different businesses; second, the interaction with the customer required a different mindset and led to different kinds of shared experiences. I remember at one point suggesting a marketing program that would cut across the divisions and was asked, “Professor Schein, what do you really think an educated salesman who deals all day with doctors and hospital administrators has in common with an ex-farm boy slogging around in manure talking farmers into buying the newest pesticide?”
Contact with customers is a very powerful force in creating local subcultures that can appropriately interact with the customer’s culture. A vivid example is provided by Northrop, a large aerospace company that prided itself on its egalitarianism, high trust, and participative approach to its employees. An analysis of the company’s artifacts revealed that the headquarters organization based in Los Angeles was very hierarchical; even the architecture and office layout of the headquarters building strongly reflected hierarchy and status. The managers themselves felt this to be anomalous, but upon reflection they realized that they had built such a headquarters organization to make their primary customers, representatives of the U.S. Defense Department, feel comfortable. They pointed out that the Pentagon is highly structured in terms of hierarchy and that customer teams on their visits to this company were only comfortable if they felt they were talking to managers of a status equivalent to or higher than their own. To make this visible, the company introduced all kinds of status symbols, such as graded office sizes, office amenities, office locations in the building, private dining rooms, and reserved parking spaces.
A trivial but amusing example of the same phenomenon occurred at DEC, when a young employee who ordinarily drove vans to deliver mail or parts internally was assigned to drive board members and other outsiders with high status to special meetings. On one such occasion, he was allowed to drive the one fancy company car, and he dressed for the event by putting on a black pinstriped suit! Only if the passenger interrogated the driver would he or she discover that this was a special assignment, not a routine job.
Divisionalization
As organizations grow and develop different markets, they often divisionalized in the sense of decentralizing most of the functions into the product, market, or geographical units. This process has the advantage of bringing all the functions closer together around a given technology, product set, or customer set, allowing for more integration across the functional subculture boundaries. The forces driving subculture formation then begin to play out more at the divisional level.
Typically, to run an integrated division requires a strong general manager, and that manager is likely to want a fair amount of autonomy in the running of his or her division. As that division develops its own history, it will begin to develop a divisional subculture that reflects its particular technology and market environment, even if it is geographically close to the parent company. Strong divisional subcultures will not be a problem to the parent organization unless the parent wants to implement certain common practices and management processes. Two examples from my own experience highlight this issue. In the first case, I was asked to work with the senior management of the Swedish government owned conglomerate of organizations to help headquarters decide whether or not it should work toward developing a common culture. This conglomerate included ship building, mining, and, at the other extreme, consumer products like Ramlosa bottled water. We spent two days examining all of the pros and cons and finally decided that the only two activities that required a common perspective were financial controls and human resource development. In the financial area the headquarters staff had relatively little difficulty establishing common practices, but in the human resource area they ran into real difficulty.
From the point of view of headquarters it was essential to develop a cadre of future general managers, requiring that divisions allow their high-potential young managers to be rotated across different divisions and headquarters functional units. But the division subcultures differed markedly in their assumptions about how to develop managers. One division considered it essential that its entire people be promoted from within because of their knowledge of the business, so its members rejected out of hand the idea of cross divisional rotation of any sort. In another division, cost pressures were so severe that the idea of giving up a high-potential manager to a development program was unthinkable. A third division’s norm was that one rose by staying in functional stovepipes, and managers were rarely evaluated for their generalist potential. When the development program called for that division to accept a manager from another division in a rotational developmental move, it rejected the candidate outright as not knowing enough about the division’s business to be acceptable at any level. The divisional subcultures won out and the development program was largely abandoned, to the possible detriment of the parent organization.
Summary and Conclusions
Organizational success usually produces the need to grow, and with growth and aging organizations need to differentiate themselves into functional, geographic, product, market, or hierarchical units. One of the critical functions of leadership in this process is to recognize the cultural consequences of various ways of differentiating. New subgroups will eventually share enough experience to create subcultures based on occupational, national, and uniquely historic experiences. Once such differentiation has taken place, the leader’s task is to find ways of coordinating, aligning, or integrating the different subcultures.
Leaders should not be surprised when they find that different functions seem to be talking completely different languages, or that geographically isolated managers do not interpret headquarters memos accurately, or that the concerns of senior management about costs and productivity are not shared by employees. Building an effective organization is ultimately a matter of meshing the different subcultures by encouraging the evolution of common goals, common language, and common procedures for solving problems. It is essential that leaders recognize that such cultural alignment requires not only cultural humility on the leader’s part, but skills in bringing different subcultures together into the kind of dialogue that will maintain mutual respect and create coordinated action. Some ideas for how to do this will be covered in the Chapters Seventeen, Eighteen, and Nineteen on leaders as change agents.
CH16. What Leaders Need to Know About How Culture Changes
The role of the leader in “managing” culture differs at the different stages of organizational evolution. We have already discussed in Chapter Twelve how founders of organizations initially impose their assumptions on a new group and how that group evolves its culture as a result of success. We have also shown, in Chapter Thirteen, how leaders embed their assumptions as groups evolve. Chapter Fourteen examined how organizations evolve as they become larger and more differentiated. We now need to analyze the processes by which culture evolves and changes as organizations grow and age, and we need to examine how leaders can influence these processes. In this chapter we will examine culture evolution and change mechanisms that tend to occur naturally at different stages of organizational evolution. In Chapters Sixteen and Seventeen we will examine “planned managed culture change”—which is undertaken if and when a leader decides that the evolutionary processes are too slow or inappropriate.
Founding and Early Growth
In the first stage—the founding and early growth of a new organization— the main cultural thrust comes from the founders and their assumptions. The cultural paradigm that becomes embedded, if the organization succeeds in fulfilling its primary task and survives, can then be viewed as that organization’s distinctive competence, the basis for member identity, and the psychosocial “glue” that holds the organization together. The emphasis in this early stage is on differentiating the organization from the environment and from other organizations, as the organization makes its culture explicit, integrates it as much as possible, and teaches it firmly to newcomers (and/or selects them for initial compatibility).
The distinctive competences in young companies are usually biased toward certain business functions reflecting the occupational biases of the founders. At DEC the bias was clearly in favor of engineering and manufacturing. Not only was it difficult for the other functions to acquire status and prestige, but professionals in those functions, such as professional marketers, were often told by managers who had been with the company from its origin that “marketers never know what they are talking about.” At Ciba-Geigy a similar bias persisted for science and research, even though the company was much older. Because R&D was historically the basis of Ciba-Geigy’s success, science was defined as the distinctive competence, even though more and more managers were admitting overtly that the future hinged more on marketing, tight financial controls, and efficient operations.
The implications for change at this stage are clear. The culture in young and successfully growing companies is likely to be strongly adhered to because (1) the primary culture creators are still present, (2) the culture helps the organization define itself and make its way into a potentially hostile environment, and (3) many elements of the culture have been learned as defenses against anxiety as the organization struggles to build and maintain itself.
It is therefore likely that proposals to deliberately change the culture from either inside or outside will be totally ignored or strongly resisted. Instead, dominant members or coalitions will attempt to preserve and enhance the culture. The only force that might unfreeze such a situation is an external crisis of survival in the form of a sharp drop in growth rate, loss of sales or profit, a major product failure, or some other event that cannot be ignored. If such a crisis occurs, the founder may be discredited and a new senior manager may be brought into the picture. If the founding organization itself stays intact, so will the culture. How then does culture change in the growth phase of an organization? Several change mechanisms can be identified.
Incremental Change Through General and Specific Evolution
If the organization is not under too much external stress and if the founder or founding family is around for a long time, the culture evolves in small increments by continuing to assimilate what works best over the years. Such evolution involves two basic processes: general evolution and specific evolution (Sahlins and Service, 1960).
General Evolution.
General evolution toward the next stage of development involves diversification, growing complexity, higher levels of differentiation and integration, and creative syntheses into new and higher-level forms. The various impacts of growth and success, which were described in Chapter Fourteen, provide the basis for a more detailed analysis of how this occurs. Implicit in this evolutionary model is the assumption that social systems do have an evolutionary dynamic. Just as groups go through logical stages, so organizations go through logical stages, especially with respect to changing their ownership structure from private to public. However, if a crisis brings in new leadership, there is evidence to suggest that the new direction in which the culture will move is quite unpredictable (Gersick, 1991; Tushman and Anderson, 1986).
The elements of the culture that operate as defenses are likely to be retained and strengthened over the years, but they may be refined and developed into an integrated and more complex structure. Basic assumptions may be retained, but the form in which they appear may change, creating new behavior patterns that ultimately feed back into the basic assumptions. For example, at DEC the assumptions that one must find “truth through debate” and always “do the right thing” evolved from being individual-level principles to being embedded in intergroup dynamics. Whereas in the early DEC culture individuals were able to stay logical in their debate, as DEC became a large conglomerate of powerful groups those same individuals argued from their positions as representatives and defenders of their projects and groups. Doing the right thing for DEC became doing what that particular group wanted to do.
Specific Evolution
Specific evolution involves the adaptation of specific parts of the organization to their particular environments and the impact of the subsequent cultural diversity on the core culture. This is the mechanism that causes organizations in different industries to develop different industry cultures and causes subgroups to develop different subcultures. Thus, a high-technology company will develop highly refined R&D skills, whereas a consumer products company in foods or cosmetics will develop highly refined marketing skills. In each case such differences will come to reflect important underlying assumptions about the nature of the world and the actual growth experience of the organization. In addition, because the different parts of the organization exist in different environments, each of those parts will evolve to adapt to its particular environment, as discussed in Chapter Fourteen. As subgroups differentiate and subcultures develop, the opportunity for more major culture change will arise later, but in this early stage those differences will only be tolerated and efforts will be made to minimize them. For example, it was clear that the service organization at DEC was run more autocratically, but this was tolerated because everyone recognized that a service organization required more discipline if the customers were to get timely and efficient service. The higher-order principle of “do the right thing” justified all kinds of managerial variations in the various functions.
Managed Culture Change Through Infusion of Outsiders
Shared assumptions can be changed by changing the composition of the dominant groups or coalitions in an organization—what Kleiner in his research has identified as “the group who really matters” (Kleiner, 2003). The most potent version of this change mechanism occurs when a board of directors brings in a new CEO, or when a new CEO is brought in as a result of an acquisition, merger, or leveraged buyout. The new CEO usually brings in some of his or her own people and gets rid of people who are perceived to represent the old and increasingly ineffective way of doing things. In effect, this destroys the group or hierarchical subculture that was the originator of the total culture and starts a process of new culture formation. If there are strong functional, geographic, or divisional subcultures, the new leaders usually have to replace the leaders of those units as well.
Dyer (1986) has examined this change mechanism in several organizations and found that it follows certain patterns: 1. The organization develops a sense of crisis, because of declining performance or some kind of failure in the marketplace, and concludes it needs new leadership 2. Simultaneously, there is a weakening of “pattern maintenance” in the sense that procedures, beliefs, and symbols that support the old culture break down 3. A new leader with new assumptions is brought in from theoutside to deal with the crisis 4. Conflict develops between the proponents of the old assumptions and the new leadership 5. If the crisis is eased and the new leader is given the credit, he or she wins out in the conflict and the new assumptions begin to be embedded and reinforced by a new set of pattern maintenance activities
People may feel “We don’t like the new approach, but we can’t argue with the fact that it made us profitable once again, so maybe we have to try the new ways.” Members who continue to cling to the old ways are either forced out or leave voluntarily because they no longer feel comfortable with where the organization is headed and how it does things. However, if improvement does not occur, or the new leader is not given credit for the improvement that does occur, or the new assumptions threaten too much of the core of the culture, the new leader will be discredited and forced out. This situation occurs frequently when this mechanism is attempted in young companies in which the founders or owning families are still powerful. In those situations the probability is high that the new leader will violate the owners’ assumptions and be forced out by them. To understand fully the dynamics of the process described by Dyer, one would, of course, need to know more about why and how the pattern maintenance mechanisms have become weakened. One common cause of such weakening is a change in ownership. For example, when founders or founding families give up ownership of the company or ownership changes as a result of a merger, acquisition, or leveraged buyout, this structural change substantially reduces the supports to the present cultural assumptions and opens the door to power struggles among diverse elements, which further weakens whatever cultural assumptions were in place. If strong subcultures have formed and if one or more of those subcultures is strongly tied to outside constituencies that hold different assumptions, the existing culture is further weakened. For example, when employees vote in a union and that union is part of a strong international union, management loses some degrees of freedom and new assumptions are likely to be introduced in the internal integration area. A similar effect can occur when senior management is increasingly selected from one function, such as finance, and that function becomes more responsive to the stockholders, whose interests may not be the same as those of the marketing, manufacturing, or technical people inside the organization.
Culture change is sometimes stimulated by systematically bringing outsiders into jobs below the top management level and allowing them gradually to educate and reshape top management’s thinking. This is most likely to happen when those outsiders take over subgroups, reshape the cultures of those subgroups, become highly successful, and thereby create a new model of how the organization can work (Kuwada, 1991). Probably the most common version of this process is that of bringing in a strong outsider or an innovative insider to manage one of the more autonomous divisions of a multidivisional organization. If that division becomes successful, it not only generates a new model for others to identify with but it also creates a cadre of managers who can be promoted into more senior positions and thereby influence the main part of the organization.
For example, the Saturn division of General Motors and the NUMMI plant—a joint venture of GM and Toyota—were deliberately given freedom to develop new assumptions about how to involve employees in the design and productions of cars and thus learned what amount to some new cultural assumptions about human relationships in a manufacturing plant context. Similarly, GM also acquired EDS (Electronic Data Systems) as a technological stimulus to organizational change. But in each of these cases we also see that having an innovative subculture within the larger culture does not guarantee that the larger culture will reexamine or change its culture. The innovative subculture helps in disconfirming some of the core assumptions, but again, unless there is sufficient anxiety or sense of crisis, the top management culture may remain impervious to the very innovations they have created. The infusion of outsiders inevitably brings various cultural assumptions into conflict with each other, raising discomfort and anxiety levels. Leaders who use this change strategy therefore also have to figure out how to manage the high levels of anxiety and conflict that they have wittingly or unwittingly unleashed.
Summary and Conclusions All those chapters just have described various mechanisms and processes by which culture changes. As was noted, different functions are served by culture at different organizational stages, and the change issues are therefore different at those stages. In the formative stage of an organization, the culture tends to be a positive growth force, which needs to be elaborated, developed, and articulated. In organizational midlife the culture becomes diverse, in that many subcultures will have formed. Deciding which elements need to be changed or preserved then becomes one of the tougher strategic issues that leaders face, but at this time leaders also have more options to change assumptions by differentially rewarding different subcultures. In the maturity and decline stage, the culture often becomes partly dysfunctional and can only be changed through more drastic processes such as scandals and turnarounds.
Culture change also occurs from the entry into the organization of people with new assumptions and from the different experiences of different parts of the organization. For purposes of this analysis, those changes are captured in the observation that organizations differentiate themselves over time into many subcultures. But the important point to focus on is that it is within the power of leaders to enhance diversity and encourage subculture formation, or they can, through selection and promotion, reduce diversity and thus manipulate the direction in which a given organization evolves culturally.
Cultural change in organizational midlife is primarily a matter of deliberately taking advantage of the diversity that the growth of subcultures makes possible. Unless the organization is in real difficulty, there will be enough time to use systematic promotion, organization development, and technological change as the main mechanisms in addition to normal evolution and organizational therapy.

References
Summary of "The Corporate Culture Survival Guide: New and Revised Edition" retrieved from http://petersposting.blogspot.com/2013/09/summary-of-corporate-culture-survival.html Organizational Culture and Leadershi retrieved from 4th Edition, by Edgar H. Schein