Organisational theory models organizations as complex social groups that constantly interact with an external and hostile environment. Competition, natural disasters, and technological breakthroughs all present challenges to an organization’s survival.
Meeting those challenges, as we shall, requires that organizations transform without breaking, and the first item that is usually on the list of items to change is culture.
Cultures are powerful cognitive constructs that help groups (such as organizations) cope with internal and external challenges.
They are the ultimate tools for the survival of a fragile structure in a hostile environment.
Unfortunately, these tools come with an expiry date, and understanding when and why organisational cultures expire is vital for survival.
Equally important is our ability to deal with the cultural transformation on a psychological level, as transformation is usually a traumatic experience that people desperately try to avoid.
This article explores the circumstances leading to Cultural Transformations and their internal mechanics.
2. Table of Contents
- 1. Overview
- 2. Table of Contents
- 3. Cultural Transformations
- 4. Driving Cultural Change
- 5. Final Words
- 6. Further Reading
- 7. Featured Articles
3. Cultural Transformations
3.1 Why Bother?
Strong cultures are not very dynamic but they do, however, evolve slowly with time.
New members added to the group that owns that culture, existing members moving on, and new challenges that need to be addressed all leave some permanent impact on the existing culture.
In fact, all these small changes in the environment would usually cause the organisational culture to shift or adjust to cope with those changes.
As long those changes are not major, as long as they do NOT put into question the fundamental concepts on which that culture was built and that are, by now, taken-for-granted, the organisational culture can, with competent leadership and enough courage, choose to adapt and survive.
But it is in fact those major, existential threats that usually put an organization out of business.
This is especially true in the technology industry where major technological revolutions happen every 20 or so years.
To stay in the game, companies will need to reinvent their value proposition, long-term goals, and ultimate mission. This cannot happen without undergoing a cultural transformation.
3.2 The Rise and Fall of Kodak
Kodak is by and large the typical example of a company that utterly failed to respond to a new threat. This, however, was not always the case.
In 1935, George Eastman, Kodak’s founder, saw the potential of colour in films. He then decided to invest in colour photography despite knowing that the quality of black and white at that time was unequivocally superior.
The same response (transformation in face of change) could not be elicited from Kodak’s senior management in the early 80s and the following two decades.
Against all the signs, Kodak decided to continue investing in film and paper, a strategic decision that caused the company to file for bankruptcy in 2012.
Kodak was founded in 1888 by George Eastman as ‘The Eastman Kodak Company’.
George Eastman, Kodak’s founder, decides to move to colour film which was inferior to black and white which Kodak excelled at.
The First Digital Camera
Steve Sasson, a Kodak engineer invents the first digital camera.
First Signs of Danger
Vince Barabba, a Kodak executive conducts market research that shows that digital photography is likely to dominate in 10 years.
Kodak’s Mega-Pixel Camera
Kodak develops the first mega-pixel camera, considered the tipping point in terms of the viability of digital photography.
Ignoring the Signs
Kay R. Whitmore, Kodak’s CEO, said to the NY Times he would make sure Kodak stayed closer to its core businesses in film and photographic chemicals.
Decline and Fall
In 2004, Kodak announced the termination of sales of traditional film cameras.
In September 2011, the stock prices of Kodak hit an all-time low of $0.54 per share.
On the 19th of January in 2012, Kodak filed for bankruptcy.
3.3 Netflix: A Story of Two Transformations
The Netflix journey was quite different. The streaming service successfully managed to transform its business model twice during its lifetime.
The company was founded in 1997 and ran a rent-by-mail DVD business. That went very well and, by 2003, Netflix boasted a customer base of 1 million subscribers.
In 2007, Netflix accepted that DVD-renting was not profitable anymore and something else must replace it. That is a massive leap! It demonstrates how comfortable the company was vis-a-vis changing its value proposition.
Indeed, we have to admit that Netflix was:
- Very successfully at recognizing opportunities
- Ruthless in harnessing the power of new technologies (faster streaming, smart TVs, big-data, deep learning)
- And, bold enough to cannibalize their current offerings in favor of new ones
The story however does not end there.
In 2013, Netflix then started to produce its own shows. With the massive amounts of data at hand, they were able to predict which shows would become hits even before producing a pilot!
In 2017, Netflix has around 100 million+ customers around the world.
If cultural transformation is so crucial, how can it be ignored? To answer that question, we need to understand how organisational cultures form and why they are difficult to change.
3.2 How Organisational Cultures Form
Organisational culture is owned by a group and cannot exist outside of it. This group has originally been created to achieve a certain objective like running a business.
As the individuals in this group spend more time together, they face internal pressures from their peers and external pressures from the environment.
The shared knowledge that gets accumulated from those (perhaps traumatic) experiences, as the group struggles to resolve its problems, defines its culture.
These are concepts that have been tried and tested and appear to work. As time goes by, they get taken for granted and stop being questioned.
New people would be taught in those ways and expected to assimilate into that culture.
The strength of the culture is directly influenced by:
- The length of the shared history
- The amount of emotionally charged experiences that it has gone through
3.3 Why Is Cultural Change Difficult
Edgar Schein gives us a succinct explanation of why change is difficult.
[Concepts] are no longer questioned and they become less and less open to discussion. Such avoidance behaviour occurs particularly if the learning was based on traumatic experiences in the organization’s history, which leads to the group counterpart of what would be repression in the individual. If one understands culture in this way, it becomes obvious why it is so difficult to change culture.
Essential functions of human systems such as coping with pressure, growth, and survival require a certain degree of stability in the face of uncertainty.
That stability, or equilibrium vis-à-vis the environment, usually comes from inside.
It’s a set of cognitive constructs in the individual or collective consciousness that materializes as beliefs, assumptions, values, and attitudes.
Humans use these constructs to try and make sense of the world around them but more importantly, they are useful tools that help predict the future and reduce its uncertainty.
In fact, the strength of a culture is a direct measure of its anxiety-reducing capabilities. The role of leadership in times of change is to absorb the anxiety produced by that change and provide reassurance to the group.
An effective way of dealing with this anxiety-producing exercise is for senior management to bring in outsiders (or turnaround managers) who have the right concepts and who have not got any sentimental attachment to the old ways.
3.4 Individual’s Resistance to Change
We usually think people resist change because they are lazy or not very ambitious.
Although this can be partly true as sometimes people’s passions lie outside their jobs, it does not however explain the majority of cases. And that raises two questions.
First, how do we explain resistance to change especially against the overwhelming evidence of the necessity to change?
Second, how do we explain the phenomenal success that some companies like Toyota have achieved in continually changing and improving?
Toyota’s relentless drive for quality and improvement happens with the help of Kaizen workshops among other things. These activities are embedded in a system that was designed to support them, physically and emotionally.
Toyota is rather the exception than the rule. Not many organizations successfully managed to engrain quality and continuous improvement in their DNA.
Now, let’s circle back to the first question.
A change of any sort in the status-quo usually involves:
Schein states that major cultural transformations cannot occur without a powerful existential threat to the group’s survival.
3.5 Mechanics of Cultural Transformation
Small incremental changes are a daily routine in the life of the organisational culture.
Triggering a cultural transformation requires a bit more than that. Schein lists the following three ingredients as necessary and sufficient for that change to take off:
- Appearance of discomforting data:
- Which can cause serious disequilibrium
- Cause individuals to invalidate or question the soundness of their cultural assumptions
- Connecting the disconfirming data to strategic goals and ideals
- This causes anxiety as the future is no longer safe
- Can also trigger a feeling of guilt such as when employees are being reprimanded by a charismatic manager
- Enough psychological safety
- This is essential as it gives the feeling of being able to solve the problem and learning something new
- It also reassures the group that the transformation can occur without giving up on identity or integrity
It is important to note that the first two conditions on their own are not sufficient. In fact, most of the time the data is there, and the link to the current misfortunes can be easily traced.
But what happens is that, rather than admitting that a change needs to take place, people often resort to denying the evidence in favour of keeping the status quo as a means of avoiding the anxiety-ridden transformation process.
If these three criteria are in place, a process of unlearning begins to occur.
The key to understanding resistance to change is to recognize that some behaviour that has become dysfunctional for us may nevertheless be difficult to give up because this might make us lose group membership or may violate some aspect of our identity.
Unlearning is a synonym for letting go of some part of your identity as a group or individual, which is why it is a difficult process to see through.
A visionary leader painting a positive and convincing image of the future can provide the psychological safety required for that transformation to actually move forward.
4. Driving Cultural Change
4.1 Emotional Strength
Schein places great importance on the emotional strength of the leadership to overcome any obstacles in the transformation process.
Firstly, the leader might need to make unpopular decisions which will probably anger the group and force them to direct hate and criticism towards him.
Secondly, he or she will challenge the prevailing assumptions that have been cherished for a very long time but have become a hurdle in the current scheme of things.
Finally, leaders will need to absorb the toxins produced by the anxiety-ridden transformation process and be ready to support the team regardless.
All that requires a magnificent amount of emotional strength and dedication to overcome the challenges.
Leaders must have the ability to induce “cognitive redefinition” by articulating and selling new visions and concepts or creating the conditions for others to find these new concepts.
Schein uses the phrase “induce cognitive redefinition” to describe the task that leaders need to perform when helping team members unlearn and relearn new concepts.
4.2 Successful Cultural Transformations
Edgar Schein lists the following items as requirements for successful cultural transformations.
Humans need to have a sense of the world they live in, otherwise, they cannot commit to any plans in the future.
Cognitive structures (such as organisational cultures and their accompanying assumptions) provide exactly that; a defence mechanism against uncertainty.
Asking people to change (which involves unlearning existing assumptions and learning of new ones) is similar to asking them to throw away their defences. It’s just not easy.
Unlearning will produce anxiety and that needs to be managed for the group to remain cohesive and productive. That’s the first requirement.
Now for the second requirement:
We can also think of culture at this level as the group’s DNA, so if new learning or growth is required, the genes have to be there to make such growth possible and the autoimmune system has to be neutralized to sustain new growth.
Schein uses the analogy of cellular DNA to model an organization’s culture, where each of the underlying assumptions is analogous to a certain gene. Some “genes” are more important than others while different “genes” produce different behaviour.
Some “genes”, i.e. assumptions, produce growth and induce certain responses while others inhibit change, acting as the organicism’s autoimmune system.
The process of unlearning old assumptions requires the “autoimmune” system to be temporarily neutralized until the new learnings have been acquired.
5. Final Words
Complacency in the face of imminent danger has always amazed me. Frequently, my views were centred on simple explanations such as laziness or lack of ambition; it did not turn out well as more complex forces were at play.
In effect, resistance to change is a defence mechanism that individuals and groups deploy to avoid anxiety, risk, losing control, and changing the status quo when the latter is not in their favour.
The invisible hand of the prevailing culture can either fuel or repress this resistance.
Understanding how that hand works can be vital for survival, and we hope the information shared in this article (as well as others under the business management theme) proves beneficial to dealing with transformations in the reader’s organization or group.
6. Further Reading
- The Toyota Way by Jeffrey K. Liker
- Organisational Culture and Leadership by Edgar Schein
- Six Frames for Thinking About Information by Eduard de Bono
- Thinking Fast and Slow by Daniel Kahneman