Steer clear of culture shock

Steer clear of culture shock

Culture moves in mysterious ways. It works below the surface, in a subliminal sort of way but has a huge impact nevertheless. Companies, however, don't take culture seriously, and that often proves to be their undoing. And that's what happened to Digital Equipment Corporation (DEC), a technology powerhouse of the 1960s-70s.
A pioneer in the minicomputer industry, DEC had extremely strong innovation capabilities. Fast forward to 1991, and DEC was hurtling downhill at an alarming speed. In a final bid to save the company, CEO Ken Olsen quit, several products were abandoned and workers were laid off. Desperate measures —but way too late. DEC was finally bought over by Compaq.
DEC’s observers said that this happened because the company acted slow and missed the personal computing revolution. But according to MIT Sloan School of Management professor Edgar Schein, the problem was much deeper. “DEC failed because of its own internal culture,” he says.
What he means is simple. DEC had a very entrepreneurial environment. It hired very bright engineers and gave them maximum freedom. “It worked very well for the first 10-15 years because these engineers produced brilliant products,” says Schein, who watched the company from close quarters for nearly three decades. But as DEC grew and the e nv i ro n m e n t changed, technology became more of a commodity—something DEC was just not used to.
But DEC refused to change. Says Schein, “They were still giving engineers complete freedom. They had too many free spirits and barons running their own departments.” Clearly, DEC didn’t believe in central authority and control. “The culture of freedom prevented them from becoming efficient as a business.
That is why they eventually died as a company,” he says.
Schein should know. In more ways than one, he laid the foundation for the study of organisational culture in the 1950s with his work on brainwashing of American prisoners of war in Chinese and Korean camps. Schein believes that culture is a much misunderstood term. So what is the right way of viewing it? “Culture is a set of skills and values which the organisation learns because it is successful. It is not something that is imposed—it is learnt,” he says. Take Ciba Geigy, a chemicals company with skills in R&D and sophisticated technology. But it had a very low opinion of consumer marketing. They bought Air Wick, a company with products like sprays and air-freshners, to “code learn” how to be a better marketer. “But they were so uncomfortable with what they considered to be unsophisticated things that Air Wick gave them ‘cultural indigestion’. Even though they had a successful company economically, they sold it to Reckitt and Coleman because it didn’t fit their culture,” Schein says.
Many cultures mingle to make one
We tend to make sweeping statements about, say, the “GE culture” or the “Toyota way”. That strengthens the long-held view that organisational culture is one uniform whole. Schein disagrees, “Organisational culture is a mix of several sub-cultures.” He looked at nuclear energy labs. “In the labs, there was a perpetual conflict between the control room people and the engineers who design the plant. And the bosses were worrying about the financial health,” says Schein. “I realised that every organisation has internal conflicts built into it.”
In this case, the operators can be thought of as the sales force, who need to factor in the changes every customer needs. This conflicts with the designers who say that this jacks up the costs. “You got the general managers sitting on top of both of them, with the stock holders, analysts and the financial markets asking them, ‘What’s your return?’” says Schein.
So these three people — divided by functions — become the operational, engineering and executive sub-cultures. There can be other sub-cultures too. These sub-culture often pull in different directions.
This is where DEC stumbled. They gave the engineering culture prime importance, whereas in the new world they needed a different set of competencies as well.
“Companies need to admit is that there are cultures and they aren’t just individuals with different points of view. For instance, the executive culture, which lives in the financial world, should recognise that it needs both the operator culture and the engineering culture and help them understand each other,” says Schein.
As firms grow, culture becomes complex. New sub-cultures form around different units. “In a small firm, finance, production executives etc, can operate as individuals working together. But with growth, there is the tendency to create little empires: the marketing, sales empire, etc.,” says Schein.
The heads of those units don’t operate anymore as individual decision makers – they operate as representatives of groups and their view is biased.
Coming to grips with challenge
So how should companies deal with this? “With growth you need stronger top executives who can mediate sub-empires,” says Schein.
For this, he offers a simple, though paradoxical, prescription. “The bigger and more differentiated an organisation, the more it needs strong centralisation as well as decentralisation. Decentralisation operationally, but let the individual units be efficient,” says Schein.
Edgar Schein
Edgar H Schein is the Sloan Fellows Professor of Management Emeritus and Senior Lecturer at MIT Sloan School of Management. He is the author of books like Career Dynamics, The Corporate Culture Survival Guide and DEC is Dead; Long Live DEC.