Friday, March 23, 2012

Dynamics of Change & Cultural Inertia

There is an interesting relationship between organisational culture and management of change. Organisations which were able to gear up cultural changes within, to changes in the environment benefited while those which could not overcome cultural inertia suffered. This article examines the relationship between cultural inertia and the dynamics of change in organisations.   

The rapid economic, political and technological changes at the global level affect the business environment by increasing competition manifold, reducing lead times, customer demand for high quality and low prices. It is therefore imperative for organisations to develop an appropriate customer focused culture in order to achieve sustainable competitive edge

John Frain defines culture as a “set of key values, beliefs, understandings and norms of behaviour, which prevails within the organisation.” (Introduction to Marketing, Fourth Edition. International Thomson Business Press. London. 1999. p. 93) Organisations have to cope with culture in three different contexts. The first of these relates to the buying behaviour of consumers whether individual or the decision-making units (DMU) in case of business-to-business operations. The second is when they transact business with or operate in different countries/geographical locations. The third and - perhaps most important - cultural context organisations have to cope with is, within the organisation itself. Culture influences organisational structure, strategies, control systems and operations.

In his book, Frain quotes the researches of two teams, Dale and Kennedy in 1982 and Baker and Hart in 1996, which proved that culture has a major effect on the success of a business. The Baker and Hart team analysed a sample of successful and less successful firms in a cross section of growing and declining industries. They found that some of the critical attributes of successful organisations (e.g. entrepreneurship, ‘lean and mean’ structures etc.) were found in less successful organisations also. This led them to conclude that what makes some organisations more successful is not what they do, but how well they do it - culture and commitment are the key determinants for the success of an organisation. Organisations will have to audit their culture as the first step to manage it. The questions to be asked are: is it functional? or is it dysfunctional? And if it is functional, will it support the organisation’s projected goals?

To illustrate his point, Frain cites the example of the acquisition of Goetze the well-known German manufacturer of piston rings by T&N the British components and specialist-engineering group. Goetze had severe financial losses for three years when T&N took over the company with the objective of acquiring a significant share of the German market for piston rings. When T&N analysed the German company, it found the company was steeped in the culture of the rich in its arrogant behaviour towards customers. It had a bloated management structure, with ten layers of management and seven tiers of secretaries. The company was not able adopt new technologies because of a deeply entrenched cultural inertia. T&N decided that it needed to change Goetze’s culture of hierarchy. The result of restructuring, rationalisation of work force and pruning inefficient production lines resulted in a sharp lowering of costs and the company returned to profits in 1994.

The Goetze case is not an example of the imposition of an alien culture but a release from inertia triggered from outside. What happens when there is no external trigger? How does an organisation bring about changes that are necessary for fostering long-term customer relationships? It is not easy to bring about cultural changes because of an innate human resistance to change. There is always a conflict between the driving forces that seek to bring about change and resisting forces that seek to preserve the status quo. Managers refuse to see that ‘change’ is real and continue to work as before. If they find that they are not able to function as before because of their denial to see changes within the organisation and the environment, their denial gives way to fear and energies are diverted to politicking.

Organisational Impediments to Change

Nigel F. Piercy (Market-Led Strategic Change. Third Edition. Butterworth Heinmann. Oxford. 2002.) identified four kinds of managers who can block change. The dangerous enthusiasts go about trying to change everything without understanding the goals of change. The “Yes…But”s understand the need for change but are not inclined to change. In fact their “Yes…But” is a polite way of saying “No”. If pushed to implement change they turn to malicious obedience only to wait for things to go wrong when they can point out: “Look I have done what you asked me to do, but see what happened!” The Dinosaurs simply do not want and won’t change.

Piercy gives some amusing examples form Royal Dutch/Shell the world’s second largest oil company to illustrate his point - of resistance to cultural change.

Executives of Shell were encouraged to suggest three alternative courses of action for the implementation of strategies with the result that they always chose the middle path, as they felt, it was the safest.

Shell executives have buried expensive exploration equipment in Gabon, as they did not want to face the bureaucratic hurdles in relocating it to another country.

An MD noted that the company believed that fourteen signatures on an official note made it look better!

The company driver who picked up an executive from a delayed African flight was driving him for a meeting at a sedate thirty mph speed as the car had a speed governor on it and could not be driven faster. When questioned by the exasperated executive as to what he would do in an emergency, the driver replied that he would take a taxi!

Piercy noted that a conscious effort to bring about a culture change helped IBM to turn back on the endemic losses of the late 1980s and return profits beginning1993. Lou Gerstner who came in as CEO, created the ambience for a “strong customer-needs focus, leading to the development of integrated technology solutions drawing on all of IBM’s R&D, product, service and software skills.” Executives who tried to resist were weeded out.

Philip Kotler describes a study by the Stanford researchers Collins and Porras, which they published under the title Built to Last. The researchers identified two companies each in eighteen industries and designated one as a ‘visionary company’ and the other as a ‘comparison company’Visionary companies (e.g. General Electric, Hewlett-Packard and Boeing) were the recognised industry leaders: they set ambitious goals, communicated the goals clearly to their employees and most important they had a higher purpose other than making money. They outperformed the comparison companies (e.g. Westinghouse, Texas Instruments and McDonnell Douglas) by a wide margin. 

The visionary companies had three common features. First, they held a distinctive set of values from which they did not deviate.  IBM’s values included respect for the individual, customer satisfaction and continuous quality improvement. Johnson & Johnson’s believes that its first responsibility is to its customersits second to its employees, its third to its community and its fourth to its stockholders.
The second common feature these companies had was they expressed their purpose in enlightened terms. Thus Xerox wants to improve office productivity, Monsanto wants to end hunger in the world. According to the researchers the core purpose of a company should not be confused with its business objectives or product list.

The third common feature of the industry leaders is that they have developed a vision for the future and worked to implement it. Thus IBM is now working to establish leadership as a network-centric company and not simply as a leading software manufacturer.

The first step to induce change is to allay any unfounded fears that the change is likely to cause in the minds of its employees, rather than pressuring for change. The issue that organisations face in the specific context of developing a customer-led culture is that customer interests are regarded as concerning only the marketing function. In many organisations, the other departments see marketing as alien to the larger organisational interest of making profits. Therefore there is always a conflict between marketing and other departments. 

No comments:

Post a Comment