Read the case study " IDEO's Culture Reinforces Helping Behavior" and respond to the following question
Using the competing values framework as a point of reference, how would you describe the current organizational culture at IDEO?
Remember to support your conclusion with examples if possible, and/or outside sources
and outside sources
Aligning Strategy, Culture, and Structure
MAJOR QUESTION Why is it important for managers to align a company’s vision and strategies with its organizational culture and structure?
THE BIG PICTURE
The study of organizing, the second of the four functions in the management process, begins with the study of organizational culture and structure, which managers must determine so as to implement a particular strategy. Organizational culture consists of the set of shared, taken-for-granted implicit assumptions that a group holds in the workplace. Organizational structure describes who reports to whom and who does what.
How important is culture, the “social glue” that binds together organizations?
“Culture and people are everything,” says Brett Wilson, CEO of TubeMogul, a video advertising software company. “Nothing else matters, and our ability to stay ahead is a function of having the best people and moving faster than our competitors. … Creating an exceptional culture is the only way to build a sustainable competitive advantage.” 10
How an Organization’s Culture and Structure Are Used to Implement Strategy
“A leader’s job is to help inspire every employee to help execute strategy,” says one report. “This requires consistently and constantly demonstrating, celebrating, and modeling the cultural traits that reinforce strategy.”11 Or, for better performance, perhaps the leader’s style should even be different from the organization’s culture (as we’ll discuss later).12
Strategy, as we saw in Chapter 6 , consists of the large-scale action plans that reflect the organization’s vision and are used to set the direction for the organization. To implement a particular strategy, managers must determine the right kind of (1) organizational culture and (2) organizational structure, which mutually influence each other. (See Figure 8.1 .)
FIGURE 8.1 Drivers and flow of organizational culture
Realizing the Organizational Vision and Strategy: Get the Right Culture and the Right Structure
Let’s consider these two concepts—organizational culture and organizational structure.
Organizational Culture: The Shared Assumptions That Affect How Work Gets Done
We described the concept of culture in Chapter 4 on global management as “the shared set of beliefs, values, knowledge, and patterns of behavior common to a group of people.” Here we are talking about a specific kind of culture called an organizational culture.
According to scholar Edgar Schein, organizational culture, sometimes called corporate culture, is defined as the set of shared, taken-for-granted implicit assumptions that a group holds and that determines how it perceives, thinks about, and reacts to its various environments. 13 These are the beliefs and values shared among a group of people in the workplace that are passed on to new employees by way of socialization andPage 243 mentoring, which significantly affect work outcomes at all levels. 14 As we said, culture is the “social glue” that binds members of the organization together. Just as a human being has a personality—fun-loving, warm, uptight, competitive, or whatever—so an organization has a “personality,” too, and that is its culture. The culture helps employees understand why the organization does what it does and how it intends to accomplish its long-term goals.
The cultural tone is often set in the hiring process. “The ultimate filter we use is that we only hire nice people,” says Peter Miller, CEO of Optinose, a pharmaceutical company. 15 MuleSoft, a software company, looks for people with “high integrity, being a great team player, and they want to win as a company first, team second, individually third,” says CEO Greg Schott. 16
TubeMogul CEO Brett Wilson, mentioned earlier, also prefers nice people. “I … really value people who are kind to one another,” he says. “That makes the workplace better, and they end up having a deeper sense of empathy with our clients.” In addition, “we want a culture where people aren’t afraid to make mistakes. … Our ability to win is a function of how innovative we are. So making mistakes is encouraged.” Finally, he says, “it’s a culture where we value the people who do what they say—they have a high ‘do-to-say’ ratio.” 17
Freewheeling culture. Mic, a New York City news website created by and for Millennials, which has 106 mostly Millennial employees, is described as having a “playful vibe.” 18 Here CEO Chris Altchek (right) talks with an employee. At Mic, oversharing, acting entitled, and second-guessing the boss are the norm. Dogs wander between desks, some employees use a megaphone for impromptu announcements, others ride hoverboards into the kitchen for free snacks. Could the Mic culture work in, say, the labs of Pfizer Inc., the global pharmaceutical company, where drug discovery is a high-risk, costly endeavor? © Jennifer S. Altman/The New York/Redux Pictures
Culture can vary considerably, with different organizations having differing emphases on risk taking, treatment of employees, teamwork, rules and regulations, conflict and criticism, and rewards.
As such, culture can have both positive and negative effects on employees and overall corporate performance. Zenefits, a San Francisco health-insurance brokerage start-up, for example, is being sued for actions associated with a negative culture. Its director of real estate and workplace services had to send employees a note asking them to cut out using the headquarters stairwells for smoking, drinking, eating, and sex. 19
Some other organizations, believing that the office has become “too nice,” have embraced a culture known as “radical candor” or “front-stabbing,” in which workers are encouraged “to drop the polite workplace veneer and speak frankly to each other no matter what,” according to one report. 20 Still other companies go beyond candor to fraudulent behavior: The serious blow the auto industry took to its reputation when Volkswagen admitted in 2015 that its culture had led to cheating on emissions tests was followed by another one when Mitsubishi admitted to 25 years of company engineers’ intentionally manipulating fuel-economy tests. 21
In addition, the elements that drive an organization’s culture also vary. They may represent the values of the founder, the industry and business environment, the national culture, the organization’s vision and strategies, and the behavior of leaders. (See Table 8.1 .)
TABLE 8.1 What Drives an Organizational Culture?
· Founder’s values
· Industry & business environment
· National culture
· Organization’s vision & strategies
· Behavior of leaders
Organizational Structure: Who Reports to Whom and Who Does What
Organizational structure is a formal system of task and reporting relationships that coordinates and motivates an organization’s members so that they can work together to achieve the organization’s goals. As we describe in Sections 8.4 – 8.6 , organizational structure is concerned with who reports to whom and who specializes in what work.
Whether an organization is for-profit or nonprofit, the challenge for top managers is to align the organization’s vision and strategies with its organizational culture and organizational structure, as shown in the two gold boxes in the drawing. (See Figure 8.1 .)
Figure 8.1 shows that the consistency among these elements in turn impacts (see the three green boxes) group and social processes (discussed in Chapters 13 – 15 ), individual work attitudes and behaviors (discussed in Chapters 11 – 12 ), and the organization’s overall performance. As you can see from the diagram, consistency across strategy, culture, and structure leads to higher performance.
How Strategy Affects Culture and Culture Affects Structure: EndoStim, a Medical Device Start-up, Operates Virtually
Nowadays a firm can be completely international. An example is the medical device start-up EndoStim, nominally based in St. Louis but operating everywhere.
The company, reports New York Times columnist Thomas Friedman, came together as a result of some chance encounters: 22 Cuban immigrant Raul Perez, a physician, came to St. Louis, where he met Dan Burkhardt, a local investor, with whom he began making medical investments. Perez also suffered from acid reflux (abnormal heartburn caused by stomach acid rising in the esophagus) and went to Arizona for treatment by an Indian American physician, V. K. Sharma. During the visit, Sharma proposed an idea for a pacemaker-like device to control the muscle that would choke off acid reflux.
The Strategy: Creating a New Medical Device. Perez, Burkhardt, and Sharma all agreed they wanted to build such an electrical-stimulation device. They joined forces with South Africa–born Bevil Hogg, a founder of Trek Bicycle Corporation, who became the CEO of the company they named EndoStim and who helped to raise initial development funds. (Hogg was succeeded later by Rohan Hoare, PhD, of The Netherlands, educated in Australia and at Harvard.) 23 This strategy then began to dictate whom they had to work with, which in turn influenced the company’s culture and structure.
The Culture: An International “Adhocracy.” To advance their strategy of building the device, the four principals recruited two Israelis, a medical engineer and a gastroenterologist. The Israelis collaborated with a Seattle engineering team to develop the design. A company in Uruguay specializing in pacemakers was lined up to build the EndoStim prototype. It was arranged for the clinical trials to be conducted in India and Chile. How much more international can you get?
Thus, the culture of the company could be called an adhocracy, which (as we’ll describe a little later in the chapter) is a risk-taking culture that values flexibility and creativity and that is focused on developing innovative products.
The Structure: A Virtual, Boundaryless Company. As a very lean start-up operating all over the world, with the principals rarely in the same office at the same time, EndoStim is clearly very different from, say, the usual top-down organization operating in one locality. To access the best expertise and high-quality materials and obtain low-cost manufacturing anywhere around the globe, EndoStim thus was forced to take advantage of all the technological tools—teleconferencing, e-mail, the Internet, and faxes—to maintain communications.
This EndoStim structure, then, is that of a virtual, boundaryless organization—virtual because its members are operating geographically apart, connected by electronic means, and boundaryless because the members (whether coworkers or suppliers) come together in fluid, flexible ways on an as-needed basis. We describe these structures further in another few pages.
Are you comfortable enough to work in a virtual, boundaryless organization? Many people like the social interaction that comes with working in a physical office with other people. Others, however, are turned off by the office game playing and time-wasting activities that seem to be a necessary concomitant. They welcome the opportunity to do task-oriented work in a makeshift home office, occasionally having to cope with loneliness and restlessness. Which would you favor?
What Kind of Organizational Culture Will You Be Operating In?
MAJOR QUESTION How do I find out about an organization’s “social glue,” its normal way of doing business?
THE BIG PICTURE
Organizational culture appears as three layers: observable artifacts, espoused values, and basic assumptions. Cultures can be classified into four types: clan, adhocracy, market, and hierarchy. Culture is transmitted to employees through symbols, stories, heroes, rites and rituals, and organizational socialization.
Want to get ahead in the workplace but hate the idea of “office politics”?
Probably you can’t achieve the first without mastering the second. Although hard work and talent can take you a long way, “there is a point in everyone’s career where politics becomes more important,” says management professor Kathleen Kelley Reardon. You have to know the political climate of the company you work for, says Reardon, who is author of The Secret Handshake and It’s All Politics. 24 “Don’t be the last person to understand how people get promoted, how they get noticed, how certain projects come to attention. Don’t be quick to trust. If you don’t understand the political machinations, you’re going to fail much more often.” 25
A great part of learning to negotiate the politics—that is, the different behavioral and psychological characteristics—of a particular workplace means learning to understand the organization’s culture. The culture consists not only of the slightly quirky personalities you encounter but also all of an organization’s normal way of doing business, as we’ll explain.
The Three Levels of Organizational Culture
Organizational culture appears as three layers: (1) observable artifacts, (2) espoused values, and (3) basic assumptions. 26 Each level varies in terms of outward visibility and resistance to change, and each level influences another level.
Level 1: Observable Artifacts—Physical Manifestations of Culture
At the most visible level, organizational culture is expressed in observable artifacts—physical manifestations such as manner of dress, awards, myths and stories about the company, rituals and ceremonies, and decorations, as well as visible behavior exhibited by managers and employees.
Example: In a conference room reserved for sensitive discussions, online travel company Kayak has a 2-foot-high stuffed elephant named Annabelle—the “elephant in the room”—that is an artifact believed to bring forth more honest and constructive communications among employees. 27 (The expression “elephant in the room” is used in business and politics to mean an obvious truth that is either being ignored or going unaddressed.)
Level 2: Espoused Values—Explicitly Stated Values and Norms
Espoused values are the explicitly stated values and norms preferred by an organization, as may be put forth by the firm’s founder or top managers.
Example: The founders of technology company Hewlett-Packard stressed the “HP Way,” a collegial, egalitarian culture that gave as much authority and job security to employees as possible. Although managers may hope the values they espouse will directly influence employee behavior, employees don’t always “walk the talk,” frequently being more influenced by enacted values, which represent the values and norms actually exhibited in the organization. 28
Another example: Leaders at retailer and health care company CVS Health recognized the gap between espoused values (“We sell health products”) and enacted values (“We also sell tobacco products”) and made a key strategic change to create alignment. A transformative moment came in early 2014 when CEO Larry Merlo announced that CVS would cease selling tobacco products by October 1st of that year. “The decision meant sacrificing about $2 billion in sales,” says one report. “Led by Merlo, CVS’s executive team decided that continuing to sell cigarettes had become untenable for a company that was simultaneously trying to sell itself as a health care giant.” 29
Level 3: Basic Assumptions—Core Values of the Organization
Basic assumptions, which are not observable, represent the core values of an organization’s culture—those that are taken for granted and, as a result, are difficult to change.
Example: At insurance giant AIG, people worked so hard that the joke around the offices was “Thank heavens it’s Friday, because that means there are only two more working days until Monday.” 30
Another example: Many founders of start-ups hate rules and red tape. College Hunks Hauling Junk, for instance, was co-founded by Nick Friedman with no formal policies about dress code, vacation, sick days, and other things because he envisioned “a real-life Never Land where work is always fun, and the culture is always stress-free.” 31 However, when the enterprise grew from a single cargo van to over 50 franchises, the freewheeling spirit made employees lose focus, and client-service ratings, employee morale, and profitability all declined. The firm had to come up with rules and procedures while at the same time trying to “maintain a healthy balance of fun company culture with an accountable organization and team,” Friedman said.
Four Types of Organizational Culture: Clan, Adhocracy, Market, and Hierarchy
The competing values framework (CVF) provides a practical way for managers to understand, measure, and change organizational culture. The CVF, which has been validated by extensive research involving 1,100 companies, classifies organizational cultures into four types: (1) clan, (2) adhocracy, (3) market, and (4) hierarchy, as we’ll explain.32 (See Figure 8.2 .)
FIGURE 8.2 Competing values framework Adapted from K.S. Cameron, R.E. Quinn, J. Degraff, and A.V. Thakor, Competing Values Leadership (Northampton, MA: Edward Elgar, 2006), p. 32. Page 247
Research leading to the development of the CVF found that organizational effectiveness varied along two dimensions:
· The horizontal dimension—inward or outward focus? This dimension expresses the extent to which an organization focuses its attention and efforts inward on internal dynamics and employees (“internal focus and integration”) versus outward toward its external environment and its customers and shareholders (“external focus and differentiation”).
· The vertical dimension—flexibility or stability? This dimension expresses the extent to which an organization prefers flexibility and discretion versus stability and control. Combining these two dimensions creates the four types of organizational culture based on different core values—namely, clan, adhocracy, market, and hierarchy.
Each culture type has different characteristics, and while one type tends to dominate in any given organization, it is the mix of types that creates competitive advantage. We begin our discussion of culture types in the upper-left-hand quadrant of the CVF.
1. Clan Culture: An Employee-Focused Culture Valuing Flexibility, Not Stability
A clan culture has an internal focus and values flexibility rather than stability and control. Like a family-type organization, it encourages collaboration among employees, striving to encourage cohesion through consensus and job satisfaction and to increase commitment through employee involvement. Clan organizations devote considerable resources to hiring and developing their employees, and they view customers as partners.
Example: Property and casualty insurance company Acuity, Fortune’s No. 2 Best Company to Work For in 2016, strongly endorses a clan culture. CEO Ben Salzmann believes “that if employees are given a fun, rewarding place to work where they can express their creativity, in return the firm will get innovation, diehard loyalty, and world-class customer service.”33 Employees have generous perks and are empowered to participate in the way the company is run. The end results are profitability and an enviably low 2% turnover rate.
2. Adhocracy Culture: A Risk-Taking Culture Valuing Flexibility
An adhocracy culture has an external focus and values flexibility. Creation of new products and services is the strategic thrust of this culture, as we saw with EndoStim in the Example box, in previous section 8.1 . This type of culture attempts to create innovative products by being adaptable, creative, and quick to respond to changes in the marketplace. Employees are encouraged to take risks and experiment with new ways of getting things done. Adhocracy cultures are well suited for start-up companies, those in industries undergoing constant change, and those in mature industries that are in need of innovation to enhance growth.
Example: Google, now under parent company Alphabet, is an example of a company with an adhocracy culture. “Though well past its start-up days,” says one account, “Google is not afraid of massive, embarrassing failures. This is, after all, a company that [teamed up with another company] to invest $1 billion in commercial space startup SpaceX days after it crashed a rocket.”34 As one headline about the technology sector expresses it, “A Fearless Culture Fuels Tech.”35
3. Market Culture: A Competitive Culture Valuing Profits over Employee Satisfaction
A market culture has a strong external focus and values stability and control. Because market cultures are focused on the external environment and driven by competition and a strong desire to deliver results, customers, productivity, and profits take precedence over employee development and satisfaction. Employees are expected to work hard, react fast, and deliver quality work on time; those who deliver results are rewarded.
Chick-fil-A culture. Among the quick-service restaurant’s ways of engaging employees are hiring only nice people (harder than it sounds); hiring managers with people skills, not just functional skills; and closing stores on Sundays so employees can have family time. What kind of culture is that?© Zuma Press Inc/AlamyPage 248
Example: Uber, the ride-hailing company, is described by its CEO as having a “champions mind-set.” “It’s about putting everything you have on the field. … And if you get knocked down, overcoming adversity.” 36 The company uses an approach called “principled competition” to establish itself in new markets, developing a base of enthusiastic new riders and drivers and using that grass-roots support to fend off opposition. 37 “Uber doesn’t play nice,” says one writer. “It plays to win—and that strategy appears to be working.” 38
4. Hierarchy Culture: A Structured Culture Valuing Stability and Effectiveness
A hierarchy culture has an internal focus and values stability and control over flexibility. Compan
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