Corporate Culture: more myth than reality? While business success and failure are often laid to "culture," the term is elusive and frequently misused. Experts in organization behavior say it's difficult to alter a company's culture, and when it does shift, it's often the result of successful business performance changes.

Culture seems harder to ignore than ever. When a company makes news because of high achievement or high crimes, "corporate culture" often receives the credit or the blame. Apparently, many CEOs and CFOs want a culture that gets results, because every major consulting firm seems to sell a recipe for the right corporate culture--the one that drives performance--and advice on how to change the wrong ones. In fact, a Google search for "corporate culture change" brings close to 50 million hits.

Yet, some of the most eminent researchers about organizations suggest that, like an inflated currency, the idea of corporate culture change is over-circulated and doesn't have solid backing. They point out that that attempts to change culture may be counterproductive, sometimes taking management attention away from key business issues, and, at worst, lead to disastrous missteps.

Costly mistakes happen repeatedly because executives don't understand how intractable culture is. Managers routinely make major business commitments--for example, mergers or outsourcing deals--implicitly assuming that they'll be able to change corporate culture if they have to.

The problem is, they usually can't, and it's often a mistake to try. Edgar Schein, a founder of the field of organizational psychology and author of the classic, Organizational Culture and Leadership, says flatly, "Culture is damn near impossible to change."

John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School, also suggests that much talk of culture change is nonsense. "People talk about how 'we changed our culture last year' and, no, you didn't. Culture doesn't change that fast," he says. "What they've done is use some mechanism like a boss to change the way people sometimes act on some dimension, but if the boss disappeared, boom! It would go, too." That kind of change is too shallow to be cultural.

In the hoary shorthand definition, culture is "the way we do things around here." Corporate culture describes the whole collection of assumptions, practices and norms that people in an organization adopt over time. That means that employees have to buy into them, eventually getting to the point where they take them for granted and pass them on to new hires.

So, culture takes time to develop. A tough or charismatic boss can get compliance--so can an incentive system--but compliance isn't culture. Culture is a matter of what people believe deep down, and no one can force or buy such belief.

Misunderstanding culture can be costly, however. Daimler Benz bought Chrysler for $36 billion in 1998, but talk of cultural conflict followed close on the deal's announcement. Shortly after this so-called "merger of equals," auto industry pros were joking that when Germans pronounced "Daimler-Chrysler," the "Chrysler" was silent.

By 2003, professors Roberto A. Weber of Carnegie Mellon and Colin F. Camerer of the California Institute of Technology had published an article in Management Science examining the role of cultural problems in the merger's failure. In 2007, after almost nine years of value destruction, Daimler unloaded Chrysler for less than a quarter of what it had paid for it.

Such failures in cross-border M & A are more the norm than the exception. Of course, most in-country M & A deals don't achieve the synergies mentioned in deal announcements, either. There's even less reason to expect success from deals that bring together national cultures as different as those of the U.S. and Germany.

For starters, Americans and Germans have contradictory ideas of what an organization is and how it's supposed to work. Geert van Hofstede, whose pioneering research at IBM Corp. defined the dimensions that distinguish national cultures, explains that when Americans think of an organization, they think of a market. In a market, things are negotiable; the only rule may be that there are no rules. For Americans, doing what gets results is often more important than going by the book.

But, says Hofstede, "When Germans think of an organization, they think of a machine, something that follows the process set out. If you have two partners and one has a machine in mind while the other has a market in mind, they don't always harmonize."

Even Common Language Isn't Enough

Outsourcing engagements have also foundered on cultural conflicts. Communications are hard even when the people doing the work all speak English, as is often the case in India. "If you have a problem where you can exactly outline what you want, and it's rather technical, then you have a good chance that you can do it on the other side," Hofstede says. "Unfortunately very few problems are that way; there are always unforeseen developments.

"People have to check back to find out what you mean, and one problem is that Indians don't easily ask you what you mean. They are more obedient, and will say 'yes, yes, I understood' when they don't understand."

Indian newspapers and journals have also noted this problem. But it's not uniquely Indian. Companies manufacturing in China may similarly find that the apparent cost savings are illusory because, as Hofstede notes, "the costs occur somewhere else, in not getting what you expect to get, in running into trouble, having to firefight, and so on."

There's more to corporate culture than national culture, but it's hard to separate them. Most people have absorbed the values of their national cultures by the time they're age 10. When entrepreneurs start businesses, they do what makes sense to them in the context of values and assumptions they may have had in mind since they were children. How they treat their people, and what their people expect, may depend on national cultural assumptions so deeply rooted that few ever question them--but they can stymie attempts to change corporate culture.

Recently, for example, the enterprise software firm SAP AG stumbled in an ill-fated attempt to globalize its German engineering culture by bringing in fresh people and ideas. SAP hired developers in India and Silicon Valley, put an entrepreneurial Israeli in charge of product development and made English the firm's quasi-official business language, even at its German headquarters.

Reportedly, German engineers objected to the company's "Americanization," and the brash new head of product development got frustrated and quit. Hofstede notes that managers often confuse national cultures with corporate cultures and try to change what is unchangeable. "You cannot turn around a national culture," he says flatly.

What Doesn't Work--And What Does

Not all cultural problems are cross-border, of course; some of the most challenging ones can occur within a single country or even a single organization. Paradoxically, though, the solution is often not to change the culture, but to change something else.

Schein recalls a consulting engagement with a New York utility. "Con Edison had to change its sense of responsibility about environmental affairs. They were under a court order, and the judge said, 'You have got to change the culture,'" he says. "That didn't mean anything."

The idea of changing culture in order to achieve some business objective, or even to comply with a court order, comes from a misunderstanding of what culture means, Schein says. Corporate culture often begins with the values of a founder or a small group of founders, who expect the people they hire to comply with their way of doing things. If the company survives, prospers and grows, those processes get the credit, and people continue to do them because that arrangement works.

With Schein's help, Con Edison managed to solve its environmental problems and comply with the court order, but the solution depended on not setting out to change its culture. "Con Edison is by history a paternalistic, training-oriented organization, so they were able to retrain employees in a short time to know what an environmental event is and how to diagnose and fix it. They used their culture to make the changes that needed to be made," Schein explains.

In other words, Con Edison set out not to change the culture, but to get people to do certain things and not others. Changing behavior depended on the company using its cultural strength.

John Kotter reached a similar conclusion. In his book, Leading Change (Free Press, 1996), Kotter analyzed 100 or so corporate change efforts, ranging from great successes to great disasters. "What's interesting is that anything cultural comes at the end of the process," he says. "You don't go in saying, 'I am changing culture,' but rather, 'I am trying a new strategy, trying to use acquisitions and integrate them to make the company grow.' The point is, you don't go out and try to change the culture. You do something to improve performance, and if you pull it off, it tends to stick--it seeps into the culture."

The End of Corporate Culture?

If culture takes time to develop, what happens in an unstable, shifting business environment where M & A activity breaks records year after year, the average tenure of a CEO is only about five years and employees may change jobs 10 or more times during their working lives?

"If you have higher and higher turnover rates, you would have a situation where culture would not form because values would constantly be changing. You see that in conglomerates built by acquisitions of various sorts," says Schein.

In these cases, the corporate culture is less important than the norms and values of the immediate work group. Consulting at Apple Inc., Schein found that while the corporate culture was not strong, the project culture was. People who got together for projects made the project, not the company, their focus.

As organizations and people's commitments to them become more short-term and transient, Schein suggests that people may get their workplace norms and values not from a corporate culture, but from their profession. He has been researching three professional "subcultures" that most organizations have: the financial culture of CEOs, CFOs and others who answer to the market; the engineering culture of designers and developers; and the operating culture of manufacturers and others who run business processes.

"Corporate culture may not exist, and may already be declining," he says, but these occupational groups define cultures that transcend organizations. And, the weakening or disappearance of corporate culture might not be bad news for organizations. Kotter's research found no correlation between the strength of an organization's culture and its performance. He did find that some cultural traits seemed to be associated with success, most importantly those that helped an organization adapt to change.

The fact that corporate culture may be weakening could merely be evidence that a changing environment demands a different, more ad hoc organizational model. Robert Jackall, a professor of sociology at Williams College, says "culture" is so vague "that you can read anything into it you want, and that's one reason why consultants use it. When you get down to brass tacks, people begin to get uneasy. I learned that I could find out everything I wanted to know about an organization by asking one question: 'Who gets ahead around here?'"

What practical value can organizations take away from the notion of corporate culture? First, culture matters immensely when crossing borders. Outsourcing, M & A and other deals may work on the numbers, but fail because of assumptions built into the numbers. The recent scandals over Chinese food and medicine show that even the most fundamental assumptions about another culture--such as that no one would deliberately sell poisonous industrial byproducts as food--can be naive.

Second, globalization may require a different kind of manager. "People who can make quick decisions are not what you need," says Hofstede. "In globalization, you need the opposite--people who make slow decisions, who think before they act, who don't immediately voice any opinions, who are prepared to go against established practice."

Third, attempts to address performance problems by "changing the culture" put the cart before the horse. Performance change has to happen first, and only when success rewards it does it have a chance of becoming culture. Finally, recognize that even a single company may have a number of subcultures, and the task of a contemporary manager may be less to establish a corporate culture than to help make sure that each subculture can contribute its own strengths to the overall organization.

GREGORY J. MILLMAN ([e-mail]) is a freelance writer based in New Jersey and a frequent contributor to Financial Executive.

RELATED ARTICLE: TAKEAWAYS

* Many CEOs and CFOs want a "culture" that gets results, and every major consulting firm seems to sell a recipe for the right corporate culture or a cure for one that's gone wrong.

* Experts argue that attempts to change culture may be counterproductive, sometimes taking management attention away from key business issues, and, at worst, lead to disastrous missteps.

* A tough or charismatic boss can get compliance, but compliance isn't culture. Culture is a matter of what people believe deep down, and understanding national cultures can be critical in terms of ensuring M & A success.