How to successfully change a Corporate Culture

Nobody will probably seriously question, that there is a correlation between the culture and the success of a company. Personally I find it really striking, that even comparably young companies, such as Apple, Google, Facebook or Amazon, attach much importance to the development of a progressive corporate/business culture, which e.g. fosters the company-wide cooperation, excellent customer service or the provision of innovative products and services.

Gabler’s Economic Encyclopedia defines the term „Business Culture“ or „Corporate Culture“ as follows:

„Basic population of common values, codes and attitudes, which shape the decisions, actions and behaviors of the members of an organization. If reputation is the major goal of Corporate Communication, the Business Culture provides the frame shaping the actions of the organization. The actions of an organization are at the same time the monitoring plot for members (leadership and employees) and third parties (customers, banks, politics) und significantly contribute to the outside perception and consequently the reputation of the organization“.

According to Gabler a major instrument of cultural management are so called „general principle processes“, which should actively be influenced, to shape the desired outside perception. For this reason companies often invest millions, to formulate their „vision“ and „mission“ or their „general principles“ in a most attractive and political correct way supported by professional PR agencies. Gabler points out that it is disputed, if the so called „deep structure“ – as action-shaping layer comprising values, codes and attitudes – can sustainably be changed by communication, incentives or sanctions.

Everyone, who worked for some time in a company, knows, that almost anything is as hard to influence or change, as a corporate culture. Legions of Executive Board Members and Managing Directors probably became exasperated with this task. This is even more true, when the reputation of a company is already damaged, e.g. by contraventions, and the necessary changes have to be executed under time pressure under the jealous observation of the public. Companies, such as Siemens, Deutsche Bank or at the moment Volkswagen can sing a song about this challenge.

Some years ago I read at the internet page of the German Federal Agency for Civic Education (Bundeszentrale für Politische Bildung) a very interesting articles provided by the historical scientist Heidi Hein-Kircher under the headline „German Myths and their Effect“ (see: http://www.bpb.de/apuz/156772/deutsche-mythen-und-ihre-wirkung, note: this article is unfortunately only available in German language).

Already the first paragraph is an eye-opener: „The cultural scientist Claus Leggewie disillusioned realizes with regard to a – from his point of view – insufficient European identity, that „the European Union forgot to tell their citizens a functioning story“. This citation refers to the fact, that politically composed communities need a unifying belt primarily to be provided through a collective identity. A respective understanding of „we“ and „togetherness“ doesn’t automatically develop, instead it requires the development of a „functioning story“, which explains, why a community should consider itself as belonging together. At this point the commemorative culture plays an important role, since the „functioning stories“ are communicated through their respective elements. These elements are to be understood as versatile, historical-cultural variable concepts and practices, which belong to the basic forms of human collectivization, because they integrate and provide coherence and legitimation. For this reason commemorative cultures have an immense significance for modern societies, which are legitimatized neither in a religious, nor in a corporative way, since these commemorative cultures can be used for self-portraying and explanation of large-scale social arrays as common destiny.“

Furthermore the article says: „An important element of commemorative cultures are political myths, because they take effect as generators for the meaning of political composed communities. Every large-scale social array has a certain repertoire of political myths, which is adapted in course social and/or political changes to the respective circumstances and can be particularly activated or emphasized depending on the respective situation of the society. This applies as well for democratic composed societies, which means, that the widespread idea, political myths were only characteristic for non-democratic composed societies, is not true. The articles illustrates that „German myths“ are constitutive for the cohesion of the society in Germany.“

Meaningful „German myths“ are besides others the „economic miracle“ („Wirtschaftswunder“) in Germany after WWII, the „miracle of Bern“ (das „Wunder von Bern“), when the German soccer national team surprisingly won the soccer world championship in 1954, and the successful rescue of hostages out of the Lufthansa aircraft „Landshut“ in Mogadishu (Somalia) in 1977 by the German anti-terror unit GSS-9.

Apple, from my point of view, is a excellent example to illustrate, that the concept of „meaningful myths“ does not only work for nations or political entities, but as well for companies. Already the foundation of Apple in the vehicle hall of Steve Jobs‘ parents has developed into a myth, as well as the fight of Apple as underdog against the predominant IBM – illustrated and emotionalized through the commercial „1984“ for the Apple Macintosh, which was staged at first in course of the Apple keynote in 1983 (see: https://youtu.be/lSiQA6KKyJo). Same applies for the presentation of the iPhone in 2007 as „next big thing“, a term used by Steve Jobs, which became in the meantime a familiar quotation or even dictum. The personality cult around Steve Jobs was lighted by the (really excellent) biography, written by Walter Isaacson and authorized by Steve Jobs.

The turnaround of Apple after Steve Jobs returning in 1997 provides additional critical success factors, which are significant for the development of a specific corporate culture. A very important aspect from my point of view are the side effects, which result from official targets, rules and guidelines of a company, because they are interpreted by employees  – under consideration of their personal ambitions and apprehensions – and translated into specific (not rarely unwanted) behavioral pattern.

I already described this phenomenon in my professional article „The unwritten rules of the game“ (see: https://www.linkedin.com/pulse/unwritten-rules-game-kurt-brand) and illustrated it by using the following example, which again is related to Apple.

Citation: „In course of an interview with „The Times of India“, which was published on April 1, 2017 (http://timesofindia.indiatimes.com/business/india-business/india-has-grown-dramatically-for-apple-says-philip-schiller/articleshow/57954599.cms) Phil Schiller, Apple’s Senior Vice President of worldwide marketing and one of Steve Jobs’s closest friends and confidantes, was asked the following question: „Apple’s fortunes sank in 1997, the year you rejoined the firm. How did Jobs and his team including you think about resurrecting a company, that was nearly out of business?“ Phil Schiller’s response was: „Apple was almost out of business. Steve tried to bring together a bunch of us to save the company and it seemed an impossible task at that time. One of the great things Steve did and taught us all was how to stay focused, how to make tough choices and to say no to a lot of things that were going on and that were good but were diluting resources and we needed to all come together and just make a few great things that could help save Apple at the time. We had to first get back to doing things that mattered. One of the things he did that’s fascinating to me organizationally is he reorganized Apple in a way like a startup. Apple was then divisionalized, like most large corporations are, and in order to pull everyone together, he got rid of that division structure. And no one ever imagined Apple could grow to become a large company maintaining that functional structure like a startup.“ – end of citation.

The „divisionalization“ of a company – usually accompanied by the assignment of the profit-and-loss responsibility to the heads of various divisions – leads in most cases to internal competition and power struggles between the divisions – which causes „suboptimization“ and is counterproductive for the overall success of the company. Each key performance indicator utilized to steer and control the company needs to be analyzed with regard to undesired side effects. The more complex an organization and its parameters for steering and controlling of the company, the higher is the likelihood that the company will be paralyzed by undesired side effects.

In his really excellent article „The dilemma of the Goliath – why Corporates struggle to be as innovative as startups“ (see: https://www.linkedin.com/pulse/das-dilemma-des-goliath-warum-es-corporates-so-schwer-marc-frey, note: this article is unfortunately only available in German language), Marc Frey has carved out additional important aspects, which significantly impact a corporate culture. One of the core statements of this article says: „What makes companies so vulnerable and incapable for innovations are the same characteristics, which made these companies once big and profitable: By focussing on return on investment and shareholder value they deprived themselves from the opportunity of disruptive innovation.“

Niels Pfläging points out in his very enlightening essay „Why managers cannot learn anything in the Silicon Valley“ (see: https://www.linkedin.com/pulse/warum-manager-im-silicon-valley-nichts-lernen-können-niels-pflaeging, note: this article is unfortunately only available in German language) that our imagination of the people around us – the missing trust in other people or our own primarily negative „idea of man“ -as well heavily impacts the capability of companies for transforming their corporate culture. This phenomenon was called „theory x“ by the organizational scientist Douglas McGregor already in 1960 in his book „The Human Side of Enterprise“ in course of his professorship at the Massachusetts Institute of Technology (MIT).

Extremely important for the development of a corporate culture is the so called „tone from the top“. Even the world’s best values and codes – defined, noted down and continuously communicated to the employees – will not lead to a change of the corporate culture, if the corporate management and the leadership of the company do not exemplify it through their one’s own life, reward positive behavior of the subordinated levels or sanction negative behavior of the subordinated levels. In this context a consistent and authentic behavior of the corporate management is of vital importance – indeed not only at the company’s annual „business conference“ or general meeting, but as well in the daily cooperation with the company’s leadership and employees.

Informal networks or „grassroot movements“ can have a very positive influence on the transformation of a corporate culture. Such groups can, for example, be systematically developed as part of management trainings or assessments or can form self-organizing, e.g. in the form of Connected Culture Clubs, Working Out Loud working groups or women’s networks. Company sports groups can also have a very positive effect on the corporate culture – especially if they are heterogeneously staffed. Informal networks or grassroots movements can certainly develop great power in a company, e.g. if they have access to or are supported by high positions in the hierarchy.

Last but not least, a corporate culture can be positively influenced by target oriented staffing of key positions with managers and staff members from the external market (in terms of „blood replacement“) – however these externals need at least at the beginning of their engagement the strong backing of the corporate management, if they should make a visible positive impact.

The corporate culture has a particular influence on a company’s ability to innovate. Gunter Dueck coined the phrase „The process is the innovation’s death“ – which means that in an overly formalised and regulated environment, in which risks and failures are pursued particularly critically or even sanctioned, innovations can only prosper with difficulty.

Taking risks, breaking rules and blazing new trails entails failure. Therefore, a leader’s perception and management of failure is crucial to successfully lead innovation. This is one flip side of the coin. The other flip side is determined by a well known citation from Steve Gruenert and Todd Whitaker stating: „The culture of any organization is shaped by the worst behavior the leader is willing to tolerate“.

Somewhere between these two guardrails lies the right balance, which a leader must find in order to let an organization act dynamically, agile and innovatively without violating indispensable basic rules, such as compliance security or fairness.

A blog published by Josephine Kühl at Medium.com on September 28, 2017, under the headline „Failure Culture  –  the Key Ingredient for Innovation Leadership“ provides interesting food for thoughts: https://medium.com/cdtm/failure-culture-the-key-ingredient-for-innovation-leadership-37735a48057a.

From this blog comes the following graphic, in which 5 essential success principles of innovation-oriented leadership are listed:

Conclusion:

Vision, mission and general principles are important, but not sufficient, to sustainably develop or change a corporate culture. At least equally important are the organization and the processes of a company, its rules, regulations and key performance indicator for steering and controlling of the company including the related side effect („The unwritten rules of the game“) and the „tone from the top“ of the corporate management and the behavior the corporate management shows in the daily cooperation with the company’s leadership and employees. In addition „meaningful myths“ can deliver an essential contribution for the development of a certain corporate culture, if the are build up and promoted in an active and target oriented way. Without confidence-building measures for building up mutual trust within the company’s leadership team (but as well between the leadership team and their employees) and for overcoming the often negative „idea of man“, a corporate culture cannot sustainably be changed. The more heterogeneous a company or its organizational units, the more important is the execution of confidence-building measures – indeed beyond the scope of regular „change management“ workshops. I have personally made very good experiences with outdoor workshops, in which leadership and employees together have to resolve challenging tasks in an extraordinary environment (e.g. white-water rafting, mountain climbing or survival training). This certainly costs money, however it leads to visible results and you don’t get change at free admission. Finally the assignment of key positions with managers and staff members from the external market is a proven measure for changing a corporate culture. There is not THE ONE AND ONLY measure, which could change a corporate culture, instead it requires a variety of different measures. However the good news is: A corporate culture can be changed, if you are willing to invest time, money and effort into this challenge …