A manager's instrumental values have little or no effect on organizational culture.

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Chapter 7 Creating and Managing Organizational Culture

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Learning Objectives

In this chapter, the concept of organizational culture is examined. Culture is

discussed in terms of the values and norms that influence employees’ behavior and

bond them to the organization and determine how they perceive and interpret the

environment and act in ways to give an organization a competitive advantage. The

global dimension of culture is also examined, and the problems that organizations

experience when they expand globally and encounter different kinds of values and

norms is addressed.

After studying this chapter you should be able to:

1. Differentiate between values and norms, understand the way culture is

shared by an organization’s members, and why organizations have different

types of culture.

2. Describe how individuals learn culture both formally (that is, the way an

organization intends them to learn it) and informally (that is, by seeing what

goes on in the organization).

3. Identify the four building blocks or foundations of an organization’s culture

that account for cultural differences among organizations.

4. Understand how an organization’s culture, like its structure, can be designed

or managed.

5. Discuss an important outcome of an organization’s culture: its stance on

corporate social responsibility.

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What Is Organizational Culture?

Previous chapters have discussed how the most important function of

organizational structure is to control—that is, coordinate and motivate—people

within an organization. In Chapter 1 , we defined organizational culture as

the set of shared values and norms that control organizational members’

interactions with each other and with suppliers, customers, and other people

outside the organization. Just as an organization’s structure is designed to achieve

competitive advantage and promote stakeholder interests, an organization’s culture

can be used to increase organizational effectiveness. 1

This is because

organizational culture controls the way members make decisions, the way they

interpret and manage the organizational environment, what they do with

information, and how they behave. 2

Culture thus affects an organization’s

performance and competitive position.

What are organizational values, and how do they affect behavior? Values are

general criteria, standards, or guiding principles that people use to determine which

types of behaviors, events, situations, and outcomes are desirable or undesirable.

The two kinds of values are terminal and instrumental (see Figure 7.1 ). 3

A

terminal value is a desired end state or outcome that people seek to achieve.

Organizations might adopt any of the following as terminal values, that is, as

guiding principles: excellence, responsibility, reliability, profitability, innovativeness,

economy, morality, quality. Large insurance companies,

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Organizational culture

The set of shared values and norms that control

organizational members’ interactions with each other

and with people outside the organization.

Values

General criteria, standards, or guiding principles that

people use to determine which types of behaviors,

events, situations, and outcomes are desirable or

undesirable.

Terminal value

A desired end state or outcome that people seek to

achieve.

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Figure 7.1 Terminal and Instrumental Values in an Organization’s Culture

for example, may value excellence, but their terminal values are often stability and

predictability because the company must be there to pay off policyholders’ claims.

An instrumental value is a desired mode of behavior. Modes of behavior that

organizations advocate include working hard, respecting traditions and authority,

being conservative and cautious, being frugal, being creative and courageous,

being honest, taking risks, and maintaining high standards.

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Instrumental value

A desired mode of behavior.

An organization’s culture thus consists of the end states that the organization seeks

to achieve (its terminal values) and the modes of behavior the organization

encourages (its instrumental values). Ideally, instrumental values help the

organization achieve its terminal goals. Indeed, different organizations have

different cultures because they possess different sets of terminal and instrumental

values. For example, a computer software and hardware company like Google and

Apple whose cultures emphasize the terminal value of innovativeness may attain

this outcome through encouraging the development of instrumental values of being

creative, taking risks, sharing new product ideas, and cooperating with other team

members. That combination of terminal and instrumental values leads to an

entrepreneurial culture. As Apple’s CEO Steve Jobs commented, “You need a very

product-oriented culture, even in a technology company. Lots of companies have

tons of great engineers and smart people. But ultimately, there needs to be some

gravitational force that pulls it all together.” 4

That compelling force is provided by

the type of control—the form of coordination and motivation—that results from an

organization’s culture.

In some organizations, however, values and norms that emphasize creative “out-of-

the-box” thinking may be inappropriate. For example, a parcel delivery company like

UPS or FedEx that desires stability and predictability to reduce costs may

emphasize caution, attention to detail, speediness, and conformity to work rules and

standard operating procedures (SOPs). The result will be a conservative culture—

the gravitational force that guides UPS, as Organizational Insight 7.1 describes.

FedEx has imitated UPS’s approach. For example to save high-priced gasoline,

FedEx uses a GPS positioning system to instruct its drivers on the most

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efficient ways to drive their routes. For example, they turn right at intersections

when possible to reduce delivery time and distance; no doubt UPS uses a similar

system.

Terminal values can often be found by studying an organization’s mission statement

and official goals, which tell organization members and other stakeholders what

kinds of values and ethical standards it wishes its members to use in their decision

making. So that members understand instrumental values—that is, the styles of

behavior they are

expected to follow as they pursue desired end states—an organization develops

specific norms, rules, and SOPs that embody its instrumental values. In

Chapter 4 , we defined norms as standards or styles of behavior that are

considered acceptable or typical for a group of people. The specific norms of being

courteous and keeping the work area clean and safe, for example, will develop in

an organization whose instrumental values include being helpful and working hard.

Norms

Standards or styles of behavior that are considered

acceptable or typical for a group of people.

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Organizational Insight

7.1 UPS Says There Is a Right Way to Deliver

Parcels

United Parcel Service (UPS) controls more than three-fourths of the U.S.

ground and air parcel service, delivering over 10 million packages a day in

its fleet of 150,000 trucks. 5

It is also the most profitable company in its

industry. UPS employs over 250,000 people, and since its founding as a

bicycle messenger service in 1907 by James E. Casey, UPS has developed

a culture that has been a model for competitors such as FedEx and the U.S.

Postal Service.

From the beginning, Casey made efficiency, economy, and thrift the

company’s terminal values and loyalty, humility, discipline, dependability,

and intense effort the key instrumental values that UPS employees should

adopt. UPS has always gone to extraordinary lengths to develop and

maintain these values and associated norms in its workforce, not least

because UPS started out as an employee-owned company.

First, its operating systems from the top of the company down to its trucking

operations are the subject of intense scrutiny by the company’s 3,000

industrial engineers. These engineers are constantly on the lookout for

ways to measure outputs and behaviors to improve efficiency; for example,

they time every part of an employee’s job. Truck drivers, for example, are

instructed in extraordinary detail on how to perform their tasks: They must

step from their truck with their right foot first, fold their money face up, carry

packages under their left arm, walk at a pace of 3 feet per second, and slip

the key ring holding their truck keys over their third finger. 6

Male employees

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are not allowed to have beards. All employees must be carefully groomed,

and they are instructed on how to deal with customers. Drivers who perform

below average receive visits from training supervisors who accompany

them on their delivery routes and teach them how to raise their performance

level. Not surprisingly, as a result of this intensive training and close

behavior control, UPS employees internalize the company’s strong norms

about the appropriate ways to behave to help the organization achieve its

values of economy and efficiency.

Its search to find the best set of output controls leads UPS to constantly

develop and introduce the latest in IT into the company’s operations,

particularly its materials management operations. In fact, today UPS offers

a consulting service to other companies in the area of global supply chain

management. Its goal is to teach other companies how to pursue its values

of efficiency and economy, values that the company has been pursuing for

the last 100 years as a result of the values of its founder.

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iStockphoto.com/Mark Jensen

Many of the most powerful and crucial values of an organization are not written

down. They exist only in the shared norms, beliefs, assumptions, and ways of

thinking and acting that people within an organization use to relate to each other

and to outsiders and to analyze and deal with problems facing the organization.

Members learn from one another how to interpret and respond to various situations

in ways that are consistent with the organization’s accepted values. Eventually,

members choose and follow appropriate values without even realizing they are

making a choice. Over time, they internalize the organization’s values and the

specific rules, norms, and SOPs that govern behavior; that is, organizational values

become part of members’ mindsets—people’s own values systems—and affect

their interpretation of a situation. 7

Once again, this is why the cultures of different

companies can diverge so widely.

Organizational culture is based on relatively enduring values embodied in

organizational norms, rules, SOPs, and goals. People in an organization draw on

these cultural values when making decisions and acting upon them, and when

dealing with ambiguity and uncertainty inside and outside the organization. 8

The

values in an organization’s culture are important shapers of members’ behavior and

responses to situations, and they increase the reliability of members’ behavior. 9

In

this context, reliability does not necessarily mean consistently obedient or passive

behavior; it may also mean consistently innovative or creative behavior as in the

case of Google and Apple, or consistently attentive, cautious, and speedy behavior

as in the case of UPS or FedEx. 10

However, it can also mean totally unethical

behavior.

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Arthur Andersen, the disgraced, now-defunct accounting firm, was well known for its

insistence that its employees abide by its rigid, constraining rules of behavior. Its

employees had to wear dark blue suits, black shoes, and in some branches the

managers insisted those shoes be the lace-up type or employees were told off. It

also had in place an extensive and thorough MBO system and employees’

performance was continually evaluated. Its values were based on obedience to

company rules and norms, respect for partners, and the importance of following its

well-established rules and SOPs. On the surface, the firm’s demand that its

employees follow its cultural values and norms would seem sound practice for a

company whose business depends on the accurate measurement and accounting

of the resources used by its clients. Accounting is a relatively precise science, and

the last thing an accounting company needs is for its employees to practice

“creative accounting.”

Small wonder, then, that the business world was astounded in the early 2000s

when it became clear that some of Arthur Andersen’s most senior partners had

been instructing their subordinates to overlook or ignore anomalies in its client

books to obtain large consulting fees in order to maintain the clients’ business, and

to shred documents that revealed its unethical and illegal dealings with Enron

before government regulators could examine them, which led to its collapse.

The paradox is that Arthur Andersen’s values were so strong that they led

subordinates to forget the “real” ethics of what they were doing and they followed its

“distorted” ethics. Apparently, Arthur Andersen’s culture was so strong it had an

almost cult-like effect on its members, who were afraid to question what was going

on because of the enormous status and power the partners wielded—and the threat

of sanction if anyone disobeyed the rules.

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Differences in Global Values and Norms

The values and norms of different countries also affect organizational culture.

Indeed, differences between the cultures of different countries that arise because of

differences in their national values and norms help reveal the powerful effect of

organizational culture on behavior. 11

For example, today global outsourcing is a

major organizing method that companies use to reduce costs, which obviously

requires managers and employees in different countries to coordinate their actions.

However, one recent study found that differences in culture are a major problem in

getting coordination to work.

Cultural differences such as diverse communication styles, different approaches to

completing tasks, different attitudes toward conflict, and different decision-making

styles are major factors that hamper coordination in outsourcing relationships that

require contact between people from different countries.

To get a feel for the effects of these differences in cultural values and norms on

organizational behavior, consider what happened when a U.S. and a Mexican

company attempted to cooperate in a joint venture. After much negotiation,

Pittsburgh-based Corning Glass and Vitro, a Mexican glassmaking company,

formed a joint venture to share technology and market one another’s glass products

throughout the United States and Mexico. They formed their alliance to take

advantage of the opportunities presented by the North American Free Trade

Agreement (NAFTA), which opened up the markets of both countries to one

another’s products. At the signing of the joint venture, both companies were

enthusiastic about the prospects for their alliance. Managers in both companies

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claimed they had similar organizational cultures. Both companies had a top-

management team that was still dominated by members of the founding families;

both were global companies with broad product lines; and both had been successful

in managing alliances with other companies in the past. Nevertheless, two years

later Corning Glass terminated the joint venture and gave Vitro back the $150

million it had given Corning for access to Corning’s technology.12

Why had the venture failed? The cultures and values of the two companies were so

different that Corning managers and Vitro managers could not work together. Vitro,

the Mexican company, did business the Mexican way, in accordance with values

prevailing in Mexican culture. In Mexico, business is conducted at a slower pace

than in the United States. Used to a protected market, Mexican companies are

inclined to sit back and make their decisions in a “very genteel,” consensual kind of

way. Managers typically come to work at 9 a.m., spend two or more hours at lunch,

often at home with their families, and then work late, often until 9 p.m. Mexican

managers and their subordinates are also intensely loyal and respectful to their

superiors; the corporate culture is based on paternalistic, hierarchical values; and

most important decision making is centralized in a small team of top managers. This

centralization slows decision making because middle managers may come up with

a solution to a problem but will not take action without top-management approval. In

Mexico, building relationships with new companies takes time and effort because

trust develops slowly. Thus personal contacts that develop slowly between

managers in different companies are an important prerequisite for doing business in

Mexico.

Corning, the American company, did business the American way, in accordance

with values prevailing in American culture. Managers in the United States take short

lunch breaks or work through lunch so they can leave early in the evening. In many

U.S. companies, decision-making authority is decentralized to lower-level

managers, who make important decisions and commit their organization to certain

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courses of action. U.S. managers like to make decisions quickly and worry about

the consequences later.

Aware of the differences in their approaches to doing business, managers from

Corning and from Vitro tried to compromise and find a mutually acceptable working

style. Managers from both companies agreed to take long working lunches

together. Mexican managers agreed to forgo going home at lunchtime, and U.S.

managers agreed to work a bit later at night so they could talk to Vitro’s top

managers and thus speed decision making. Over time, however, the differences in

management style and approach to work became a source of frustration for

managers from both companies. The slow pace of decision making was frustrating

for Corning’s managers. The pressure by Corning’s managers to get everything

done quickly was frustrating for Vitro’s managers. Corning’s managers working in

Mexico discovered that the organizational cultures of Vitro and Corning were not so

similar after all, and they decided to go home. Vitro’s managers also realized it was

pointless to prolong the venture when the differences were so great.

Corning and countless other U.S. companies that have entered into global

agreements have found that doing business in any other country is different from

doing business at home. U.S. managers living abroad should not expect to do

business the U.S. way. Because values, norms, customs, and etiquette differ from

one country to another, managers working abroad must learn to appreciate and

respond to those differences.

Because many mergers fail due to the fact that differences between organizational

cultures can be so great, companies that acquire other companies, even U.S. companies,

such as Microsoft, Google, and Oracle, use seasoned teams of “merger culture” experts

who take the steps necessary to blend the cultures of the merged companies. Likewise,

some companies recognize beforehand that their cultures are so different that a merger

would be impossible. For example, Microsoft contemplated merging with another leading

global software company, German-based SAP. But after their top managers began

negotiations, it became clear that despite the advantages of the merger, their two cultures

were so different they could never successfully merge their skills and resources to create

more value. Similarly, when Google sought to acquire Groupon in 2010 for $6 billion,

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Groupon’s top managers decided they wanted to maintain their own culture and grow the

company their own way, as we discussed in Chapter 1.

In sum, there are many ways in which culture can inspire and facilitate the intense

kind of personal and team interactions that are necessary to develop organizational

competences and obtain a competitive advantage. First, cultural values are

important facilitators of mutual adjustment in an organization. When shared cultural

values provide a common reference point, employees do not need to spend much

time establishing rapport and overcoming differences in their perceptions of events.

Cultural values can smooth interactions among organizational members. People

who share an organization’s values may come to identify strongly with the

organization, and feelings of self-worth may flow from their membership in it.13

Employees of companies like Google, Southwest Airlines, and Groupon, for

example, seem to value their membership in the organization and are committed to

it.

Second, organizational culture is a form of informal organization that facilitates the

workings of the organizational structure. It is an important determinant of the way

employees view their tasks and roles. It tells them, for example, if they should stay

within established rules and procedures and simply obey orders or whether they are

allowed to make suggestions to their superiors, find better or more creative ways of

performing their roles, and feel free to demonstrate their competency without fear of

reprisal from their peers or superiors.

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This is not trivial. One of the most common complaints of employees and junior

managers in organizations is that although they know certain tasks or roles could be

accomplished better and should be performed in different ways, their organization’s

values and norms do not permit them to advise or question their superiors up the

organizational hierarchy. They feel trapped, become unhappy, and often leave an

organization, causing high turnover. To mitigate this problem, some companies like

GE, Google, and Microsoft have open lines of communication to the CEO that

bypass the immediate superior. These companies also go out of their way to

develop values of equity and fairness that demonstrate their commitment to reward

employees who work toward organizational goals, rather than behaving in their own

self-interest. GE even has a name for the managers who are out for themselves—

“Type 4” managers—and based on feedback from subordinates, these managers

are routinely asked to leave to make room for those who can develop empowered,

motivated subordinates. GE’s work practices demonstrate its values to its members.

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