• “Culture” refers to norms of behavior and shared values among a group of people.
  • “Norms of behavior” are ways of acting that persist because they are rewarded and the group teaches these behaviors to new people, sanctioning those who do not conform.
  • “Shared values” are important concerns and goals held by most people in the group: they shape group behavior.

Corporate Culture and Performance by John P. Kotter & James L. Heskett


Corporate Culture and Performance is a well-researched book that includes four related studies, examining over 200 cultures and their relationship to performance.

The authors think of culture at two levels.

At the deeper, less visible level, culture refers to values that tend to persist over time even when group membership changes. This level of culture is extremely hard to change.

The second level of culture refers to behaviors, style, and the way “things get done around here.” This level is more visible and nearly as difficult to change.

 

How do cultures emerge?

One common pattern in the emergence of cultures according to the authors is the following:

  • Top managers in a new company develop and attempt to implement a vision/philosophy and/or business strategy. The implementation works, and people behave in ways that are guided by the philosophy and strategy that have lead to success.
  • The firm achieves results and succeeds by most measures, and that success continues over a period of years.
  • A culture emerges that reflects the vision, strategy and the experiences people had in implementing them, and is reinforced by the success of the organization.

The cultures that emerge can be either adaptive or unadaptive.

Adaptive Cultures


Unadaptive Cultures


 

Core Values

  • Managers care about customers, stockholders & employees
  • Value people and processes that create meaningful change
Core Values

  • Managers focus on themselves, their work group or their products Value orderly, risk reducing management processes
Common Behaviors

  • Managers pay close attention to constituents especially customers & will take risk to meet their legitimate needs
Common Behaviors

  • Managers behave insularly, politically, & bureaucratically
  • They do not change strategies quickly to take advantage of changes in business environment

 


Kotter and Heskett in Corporate Culture and Performance

  1. Kotter and Heskett studied 10 cases of major culture change that seemed to be successful. The companies were Bankers Trust, British Airways, ConAgra, First Chicago, General Electric, ICI, Nissan, SAS, American Express TRS, and Xerox. They found:
    1. “The single most important factor that distinguishes major culture changes that succeed from those that fail is competent leadership at the top.”
      1. All ten cases of major change occurred after an individual with a track record for leadership was appointed head of the organization. Each had a track record of producing change.
      2. In their new jobs they created change on a grander scale.
      3. These leaders demonstrated the close interrelationship of competition, leadership, change, strategy and culture.
      4. All of these leaders either:
        1. Came from the outside.
        2. Came to their firms after an early career somewhere else.
        3. “Grew up” outside the core of the company.
      5. While a limited sample, one can theorize that an outsider’s perspective is important to change.
        1. In all four very large companies in our study, the change leader had spent considerable time in the company before taking over, thereby developing a good sense of the resources in the company.
        2. Complete outsiders tended to be successful at smaller companies.
    2. Why you can’t change culture from the bottom up.
      1. The sheer resistance to change in an organization requires great power to overcome, and that power resides at the top.
      2. Interdependence in organizations makes it very difficult to change anything important, without changing everything. Only people at the top can do that.

 

key findings 

First, “firms with cultures that emphasized all the key managerial constituencies (customers, stockholders, and employees) and leadership from managers at all levels outperformed firms that did not have those cultural traits by a huge margin.” ‘Huge’ is captured in the table below.

THE ECONOMIC AND SOCIAL COSTS OF LOW PERFORMANCE CULTURES

Average for Twelve Firms with Performance Enhancing Cultures (%)
Average for Twenty Firms without Performance Enhancing Cultures (%)
Revenue Growth
682
166
Employment Growth
282
36
Stock Price Growth
901
74
Tax Base (Net Income) Growth
756
1

 

Second, an adaptive culture, one that responds well to changes in the business environment, is the key to performance enhancement, not the strength of the culture. A value system that is lived, and competent leadership at multiple levels of the organization are key ingredients in adaptive cultures. The authors feel that unadaptive cultures will have an even more negative impact in the decade ahead, because they inhibit firms from adopting needed strategic and tactical changes.

Third, corporate cultures that inhibit strong financial performance are not rare; they develop easily.

Fourth, holding on to a performance enhancing culture requires being inflexible about core adaptive values and flexible regarding most other practices and values. Executives must be intolerant of arrogance in themselves and others in the organization.


 

Leading Change: Establish a Sense of Urgency

 

Culture Change – John Kotter’s perspective

 

In Kotter’s model, changing the culture is a step-by-step procedure.

  1. “Even when there is no personality incompatibility with a new vision, if shared values are the product of many years of experience in a firm, years of a different kind of experience are often needed to create any change. That is why culture change comes at the end of a transformation, not the beginning.”
  2. Culture is not something you can directly manipulate, as if by decree. Culture change occurs after you have successfully altered people’s actions and their new behavior has produced success, which can be traced back to the new actions and behaviors.
  3. An adaptive culture, is one that benefits the four main constituents: shareholders, employees, customers and management, while minimizing layers of management and bureaucracy, as well as counterproductive silos.

 


  1. In Kotter’s model, changing the culture is the last step, not the first. 
    1. “Even when there is no personality incompatibility with a new vision, if shared values are the product of many years of experience in a firm, years of a different kind of experience are often needed to create any change. That is why culture change comes at the end of a transformation, not the beginning.”
    2. Culture is not something you can directly manipulate, as if by decree. Culture change occurs after you have successfully altered people’s actions and their new behavior has produced success, which can be traced back to the new actions and behaviors.
    3. An adaptive culture, one that benefits the four main constituents: shareholders, employees, customers and management, while minimizing layers of management and bureaucracy, as well as counterproductive silos.
  2. Anchoring change in a culture.
    1. Culture change comes last, not first.
    2. Lasting change depends on results. You must show new approaches work and that it’s worthwhile to change.
    3. Requires a lot of dialog.
    4. May involve turnover of key people who block change.
    5. Promotion practices need to be changed to be compatible with the new practices. New leaders should be compatible with the new culture and champions of it.
  3. Shallow roots require constant watering.
    1. Kotter uses an example of a technology-oriented company to illustrate the point. As long as the new general manager was around to focus the organization constantly on speed to market and the customer, progress was made substantial progress. When the GM retired, because the underlying cultural belief that “good technology will solve all our problems” had not changed, the company quickly regressed over two years.
  4. In an organization, the less visible shared values and group norms are, the harder they are to change.
  5. Culture is powerful for three reasons.
    1. Individuals are selected and indoctrinated to support the existing culture.
    2. Culture propagation occurs through the actions of hundreds or thousands of people in the organization.
    3. This reinforcement happens without much conscious intent and is therefore difficult to challenge or even discuss.
  6. There are different culture-change scenarios, some much harder to accomplish. For example:
    1. The core of the old culture is not incompatible with the new vision. The challenge is to graft new practices onto old roots, while eliminating inconsistent practices. This is least difficult to do.
    2. The core of the old culture is incompatible with the new vision. This is a much more difficult situation to cope with.

 

A Model Framework of the Change Process

The Richard M. DiGeorgio and Associates model below is drawing on many of the best thinkers in the field of change management: William Bridges, John Kotter, Kurt Lewin, Tom Peters, and Douglas Smith, among others.

  
Click here to download Change Management Bibliography.