Through painstaking research at such firms as Hewlett-Packard, Xerox, ICI, Nissan, and First Chicago, as well as a quantitative study of the relationship between culture and performance in more than companies, the authors describe how shared values and unwritten rules can profoundly enhance economic success or, conversely, lead to failure to adapt to changing markets and environments. With penetrating insight, Kotter and Heskett trace the roots of both healthy and unhealthy cultures, demonstrating how easily the latter emerge, especially in firms which have experienced much past success. Fundamental to the process of reversing unhealthy cultures and making them more adaptive, the authors assert, is effective leadership. At the heart of this groundbreaking book, Kotter and Heskett describe how executives in ten corporations established new visions, aligned and motivated their managers to provide leadership to serve their customers, employees, and stockholders, and thus created more externally focused and responsive cultures.
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Through painstaking research at such firms as Hewlett-Packard, Xerox, ICI, Nissan, and First Chicago, as well as a quantitative study of the relationship between culture and performance in more than companies, the authors describe how shared values and unwritten rules can profoundly enhance economic success or, conversely, lead to failure to adapt to changing markets and environments.
With penetrating insight, Kotter and Heskett trace the roots of both healthy and unhealthy cultures, demonstrating how easily the latter emerge, especially in firms which have experienced much past success. Fundamental to the process of reversing unhealthy cultures and making them more adaptive, the authors assert, is effective leadership. At the heart of this groundbreaking book, Kotter and Heskett describe how executives in ten corporations established new visions, aligned and motivated their managers to provide leadership to serve their customers, employees, and stockholders, and thus created more externally focused and responsive cultures.
Chapter 1 The Power of Culture We encounter organizational cultures all the time. When they are not our own, their most visible and unusual qualities seem striking: the look of the traditionally dressed IBM salesman, the commitment to firm and product expressed by employees at Honda or Matsushita, the informality of Apple and many other high-tech companies. When the cultures are our own, they often go unnoticed -- until we try to implement a new strategy or program which is incompatible with their central norms and values.
Then we observe, first hand, the power of culture. The term "culture" originally comes from social anthropology. Late nineteenth- and early twentieth-century studies of "primitive" societies -- Eskimo, South Sea, African, Native American -- revealed ways of life that were not only different from the more technologically advanced parts of America and Europe but were often very different among themselves. The concept of culture was thus coined to represent, in a very broad and holistic sense, the qualities of any specific human group that are passed from one generation to the next.
The American Heritage Dictionary defines "culture," more formally, as "the totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought characteristics of a community or population. At the deeper and less visible level, culture refers to values that are shared by the people in a group and that tend to persist over time even when group membership changes.
These notions about what is important in life can vary greatly in different companies; in some settings people care deeply about money, in others about technological innovation or employee well-being. At this level culture can be extremely difficult to change, in part because group members are often unaware of many of the values that bind them together. At the more visible level, culture represents the behavior patterns or style of an organization that new employees are automatically encouraged to follow by their fellow employees.
We say, for example, that people in one group have for years been "hard workers," those in another are "very friendly" to strangers, and those in a third always wear very conservative clothes.
Culture, in this sense, is still tough to change, but not nearly as difficult as at the level of basic values. Each level of culture has a natural tendency to influence the other. But causality can flow in the other direction too -- behavior and practices can influence values. When employees who have never had any contact with the marketplace begin to interact with customers and their problems and needs, they often begin to value the interests of customers more highly.
Strategy is simply a logic for how to achieve movement in some direction. When they are not, a company usually finds it difficult to implement the strategy successfully.
But even when successfully implemented, the behavior patterns that represent a given strategy are not cultural unless most group members tend actively to encourage new members to follow those practices.
Structure refers to certain formal organizational arrangements. Such arrangements may call for behavior that is already pervasive in a firm for cultural reasons. They may call for actions that are not in the culture but are in no way incompatible with it. Or they may call for practices that are at odds with the culture.
In this last case, we often find that people differentiate the "formal organization" from the "informal organization. Even within a relatively small subunit, there may be multiple and even conflicting subcultures.
Large and geographically dispersed organizations might have hundreds of different cultures. When people talk of "the corporate culture," they usually mean values and practices that are shared across all groups in a firm, at least within senior management. Using the same logic, a "divisional culture" would be the culture that is shared by all the functional and geographical groups in a division of a corporation.
Firms have cultures because the conditions needed for their creation are commonplace. Solutions that repeatedly appear to solve the problems they encounter tend to become a part of their culture. The longer the solutions seem to work, the more deeply they tend to become embedded in the culture. Depending upon the specific circumstances, a related value or belief -- perhaps "Ads are great in a downturn," or "Selective advertising is valuable" -- may also become a part of that culture.
Ideas or solutions that become embedded in a culture can originate anywhere: from an individual or a group, at the bottom of the organization or the top. But in firms with strong corporate cultures, these ideas often seem to be associated with a founder or other early leaders who articulate them as a "vision," a "business strategy," a "philosophy," or all three. Once established, organizational cultures often perpetuate themselves in a number of ways.
Potential group members may be screened according to how well their values and behavior fit in. Managers may explicitly try to act in ways that exemplify the culture and its ideals. Senior members of the group may communicate key values over and over in their daily conversations or through special rituals and ceremonies. People who successfully achieve the ideals inherent in the culture may be recognized and made into heroes. The natural process of identification between younger and older members may encourage the younger members to take on the values and styles of their mentors.
Perhaps most fundamental, people who follow cultural norms will be rewarded but those who do not will be penalized. Crises sometimes force a group to reevaluate some values or set of practices.
New challenges can lead to the creation of new ways of doing things. Turnover of key members, rapid assimilation of new employees, diversification into very different businesses, and geographical expansion can all weaken or change a culture. Sufficient crises and turnover, coupled with the lack of perpetuating mechanisms, can destroy a culture or make it very weak. But conversely, cultures can grow to be extremely strong -- where there are many common values, behavior patterns, and practices, and where the levels of culture are tightly interconnected.
Continuity of leadership, stable group membership, geographical concentration, small group size, and considerable success all contribute to the emergence of strong cultures. Cultures can have powerful consequences, especially when they are strong. They can enable a group to take rapid and coordinated action against a competitor or for a customer. They can also lead intelligent people to walk, in concert, off a cliff. This idea received limited attention outside academia until the late s when an interrelated group of people, most of them associated with a small set of universities and consulting firms Harvard, Stanford, MIT, McKinsey, and MAC , began asserting the importance of what they called "corporate" or "organizational" culture.
Their claims were based mostly on three kinds of research: of Japanese firms that consistently outperformed their American competition; of U. In each of these cases, despite differences in initial research focus, terminology, and methodology, the fundamental conclusions were very similar and very dramatic: all firms have corporate cultures, although some have much "stronger" cultures than others; these cultures can exert a powerful effect on individuals and on performance, especially in a competitive environment; this influence may even be greater than all those factors that have been discussed most often in the organizational and business literature -- strategy, organizational structure, management systems, financial analysis tools, leadership, etc.
The first book-length reports of this work received a great deal of attention. After a decade of increasing competitive intensity in most U. In Search of Excellence broke nonfiction book sales records.
The resulting impact on both management and public opinion was unusually large. In , less than a decade after the term "corporate culture" came into general use, Time, Inc. Some of these subsequent studies offered theories about the relationship of culture and performance that depart radically from those found in the first four. A few scholars have even questioned whether there is any generalizable relationship between culture and performance. This more recent work was also critical of earlier ideas about cultural change.
It was against this background that we launched our research in
Corporate Culture and Performance
One of the possibilities to create a unique market share is innovation. The purpose of this study was to investigate the level of innovative work behavior, type of organizational culture and the relation between innovative work behavior and organizational culture. This case study was conducted at a manufacturer of packaging machines and could be used as an example for other companies that worked within a highly innovative work field. The employees perceived the current dominant culture as a market culture and were convinced they could improve their innovative work behavior as shown by the higher average scores on preferred innovative work behavior than the current level of innovative work behavior. The preferred organizational culture was a family culture. Even though the literature confirms that family and market cultures will enhance innovative work behavior, the results from the questionnaire only show a significant correlation between the market culture and innovative work behavior in the organization. It is concluded that a transition of the current market culture towards a more family culture is needed, but in the meantime the market culture should be preserved.
Does corporate culture drive financial performance?
Of course there are countless confounding variables. We examined many of them in our work. But suffice it to say that we took great care to ensure that the study was robust. And the results shine through the fog of confounding variables. We even compared companies that were strikingly similar in nearly every other way — like American Airlines versus Northwest or Albertsons versus Winn-Dixie — to isolate the effect of corporate culture, and we still found it to be a strong predictor of financial performance. This is the first of a series of posts on corporate culture, its relation to financial performance, its place in large scale organizational changes, and whose job it should be to watch, create, and change culture.