Wharton@Work

September 2011 | Strategy

Culture as Culprit: Four Steps to Effective Change

Culture is under attack. It is currently being blamed for most implementation and execution problems. Culture "trumps everything," it is argued, usually without the empirical evidence to back up such a claim. This argument, says Wharton management professor Larry Hrebiniak, can create a "culture trap," a very narrow way of thinking about culture and its role in organizational problems, that can lead to poor decisions and frustrations as managers try to affect culture and culture change with the wrong methods.

Hrebiniak continues, "Culture is important; it definitely can affect behavior and performance outcomes. But it's also important to realize that behavior and performance affect culture; culture is not only a causal factor, it's also a dependent variable affected by other critical execution-related factors. Incentives, structures, decision processes, behaviors, people, and controls affect and shape culture. It's important to understand these dynamic interactions to fully comprehend culture, how to manage it, and how to avoid ineffective, knee-jerk reactions to change it."

The question then is: What's more important — culture or the factors and conditions that affect and shape it? Hrebiniak recently gave executives in Wharton's Strategic Thinking and Management for Competitive Advantage and Making Strategy Work: Leading Effective Execution programs a rule: To change culture, never focus solely or directly on culture.

"Appealing to managers to change behaviors, thinking, values, and beliefs rarely works. Culture-changing activities such as white-water rafting, rock climbing, paint-ball wars, sensitivity training, and other team-building exercises alone rarely have long-lasting effects. Spirits may be lifted or behavior changed for a while, but managers soon fall prey to the same old organizational structures, incentives, processes, and controls." But if direct appeals or focus on culture don't work, what will?

Hrebiniak, author of Making Strategy Work, stresses that to change culture, you should focus on four of the factors and conditions that affect it:

1. Structure and Process. Large retail stores like Wal-Mart or Sears, seeking to achieve decentralized operations and create a culture of decision-making autonomy so stores can get close to customers and local tastes, might ask corporate and regional managers to leave stores alone and allow store managers to do their own thing. Interference with the stores, it is hoped, will decrease if managers are asked to butt out and let local decisions and actions prevail. But what happens when the next major problem arises? Corporate or regional managers swoop down on the stores, bringing centralized solutions. As an alternative, they could change structure instead. Increasing the span of control for corporate or regional managers, for example, would militate against involvement in the stores. Large spans foster decentralization and autonomy at lower levels by making it more difficult to actively meddle in a larger number of stores' strategy and operations. Behavioral change of top managers can foster behavioral and culture change in the stores.
2. People. Bring in fresh blood and thinking. Rotate managers with different views of competitive conditions or operations. Supply different, needed skills or capabilities from the outside. New people, ideas, and strategies can lead to behavioral and performance changes that, in turn, can affect new ways of thinking and culture change.
3. Incentives. Randy Tobias once remarked that the culture of the old AT&T rewarded "getting older." The culture, over time, became stifling and bureaucratic. Appeals to managers to change and team-building exercises didn't work. But CEO Tobias and others after him changed incentives to reward performance, not getting older. New people were attracted by the new incentives and the opportunities presented (see previous point) and the culture began to change. The same emphasis on incentives can be seen over the years at J&J, GE, and other companies. Incentives affect behavior and performance and attract new resources and capabilities, which can lead to culture change.
4. Changing and Enforcing Controls. It's important for companies to increase feedback, evaluate performance, and take remedial action. Emphasis should be on tweaking strategy implementation activities to achieve desired results. It's vital to learn from performance, including mistakes, and use the lessons learned to change incentives, resources, people, methods and processes, and other factors to foster strategic and operating goals. It's also necessary to hold managers accountable for performance results, a formal mantra of Robert Wood Johnson, Jack Welch, and many others. These actions or emphases will help to shape new behaviors, task interactions, and ways of thinking that will create or define a culture of learning and achievement.