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Effective organizational culture is key to a company's long-term success.

Organizational culture is the shared values or common perceptions that are held by each member of an organization. This may be a small team, an operating department, plant site or a large multinational organization. A value system has evolved (or perhaps formally defined and implemented) within the organization or group. Through corporate history, in-house training, speeches, tradition and informal story telling, these values are passed from senior members of a firm to new employees.

But there is another way in which an organization's culture may be defined. For example, from personal knowledge and experience, compare the image or philosophy of two organizations: Federal Express and U.P.S.; or People's Express and U.S. Air; or the news departments of the major three television networks and CNN.

Other examples would include Microsoft, Apple Computer and IBM. Within the auto industry, the culture that exists within General Motors, Ford and Chrysler can be compared. Then perhaps for a more dramatic comparison, an individual firm or a composite image of these three firms can be compared to the Honda facility in Ohio, the new Toyota plant in Kentucky or perhaps GM's recently opened Saturn operations.

Support systems

The objective is to show that an individual's understanding of a particular company's culture is based on his/her ideas as to what these organizations are or what they represent. This image may or may not be a true reflection of what the actual organizational culture is within these firms. Impressions may be based on personal experience, the marketplace or impressions received from friends and acquaintances or the media. Even using a company's product may produce a favorable or unfavorable impression of that organization.

But it is this image of what the organization is, and stands for, that provides part of the information other companies evaluate in developing plans to either work with, or to compete against, a firm. Therefore, it is important that they understand the limitations of these images and the impressions.

Organizations must consciously decide what their culture will be. If it is allowed to develop or evolve over time without a direction or plan, the results may not be either appropriate or effective for the organization. Steven Kumble and Kevin Lahart in their book, Conduct Unbecoming, describe the startup of a new law firm: "The firm had been formed the week before. There was no tradition, no rules, no culture. We were scrambling to make a living. We had no far reaching strategy for the growth of the law firm."

In other words, they were starting at ground zero and had to develop an organizational culture, while at the same time attempting to interview, hire and train the firm's support staff, as well as interview and hire additional attorneys.

During this same period of time, they had to identify and sign new clients, who would -- in the short and long terms -- provide business and fees that would allow the new firm to survive.

In this example, survival can be defined as the generation and receipt of fees; which will allow the firm to pay startup and operating expenses, employee salaries and, hopefully, provide additional funds. These funds allow for more time for the firm's members to develop a strategic plan to market their services, provides these services and to recruit new clients or employees. This time would also allow the development of an effective organizational culture that is appropriate for the firm, its objectives and its employees.

Organizational culture may be a double-edged sword, which may be an advantage or a disadvantage for an organization or its competitors. Developed and utilized in an effective and long-term manner, an organization's culture may assist the employees within that organization in working together to accomplish their assigned tasks and objectives. However, some organizational cultures may place roadblocks in the actions or thought processes of the employees. As a result, strategic moves may be improperly made or lost, or a series of day-to-day decisions may be slowed or delayed. The short or the long term results or these actions may place the firm at an organizational and/or competitive disadvantage.

The Babcock & Wilcox Co.

In the early 1960's, the Babcock and Wilcox Co. (B&W) designed and built a plant on a site in Mount Vernon, Indiana, to build pressure vessels for the rapidly expanding nuclear power industry. At this time, the firm was one of five organizations in the country engaged in the construction of pressure vessels for nuclear power plants in the U.S. The movement of B&W into this area of specialty pressure vessel construction was an extension of their long and successful experience manufacturing steam pressure vessels. While there were numerous financial and operational risks that had to be identified and resolved, the firm was confident that they had many of these either identified or under control.

At the time the decision was made to build the Mount Vernon plant, the firm had been involved in nuclear work for 15 years. They had developed their own research facility in Lynchburg, Va., and gained experience in the field through a number of efforts, which included building the reactors for the Navy's nuclear ship Savannah and the Indian Point Plant for Consolidated Edison.

The selection of the site was a critical decision for the organization. Locating on the Ohio River would allow the firm to use the river for transporting both raw materials and the completed pressure vessels. The firm also owned the property, and there was the desire to build a new facility which would rely upon a combination of automation and an "unspoiled" labor force.

Despite having another facility nearby, B&W planned on obtaining their labor force from the farming communities surrounding the new facility. It was believed that the introduction of a new manufacturing operation in a predominantly agriculture area would allow the firm to select and subsequently train a new workforce that would be able to effectively utilize the new automatic manufacturing equipment and to build the high quality pressure vessels. However, in retrospect, this decision, coupled with a series of labor disagreements and construction delays proved to be a significant constrains in the plant's operations.

The 1960's were period in which the nuclear power industry was starting their initial growth surge. As a result, power companies were competing to place orders for early delivery of new plants and equipment in an effort to both maintain their competitive advantages and to reduce their costs. Adding to this competitive pressure was the limited number of organizations able to provide the high quality equipment necessary in the nuclear industry. As a result, B&W found themselves booking a number of orders for pressure vessels prior to the completion of their Mount Vernon facility.

However, through a series of critical equipment installation delays personnel training and retention problems, quality control problems and managerial and supplier errors and mishaps, B&W was only able to construct three pressure vessels during their first three years of plant operations. In May of 1968 the firm announced that 28 pressure vessels that had been either ordered or were under construction in the Mount Vernon facility were behind schedule, in some cases by as much as seventeen months.

As a result of this delay, the owners of 14 of the vessels removed them from the facility and transferred them to B&W's competitors for completion. It has been estimated that the removal of these vessels cost B&W as much as $40 million (in 1968 dollars) in lost revenues. Additionally, this action may have also indirectly contributed to the growth and expansion of some of the firm's competitors.

Nucor: another example

In september, 1987, ground was broken at an operation in Crawfordsville, Indiana, for a new continuous casting steel mill being built by Nucor Corp. Like the plant started with as much hope by B&W, Nucor planned on installing a new steel making process and hiring and training local agricultural based employees to manufacture high quality steel. Three years later, the facility was making steel. During this period of time, the plant was designed, new technology was reviewed, selected and put into place with a minimum level of pilot plant testing and operating, and a predominantly local workforce was hired and training in the art of making steel. According to a recent Business Week article, the plant is currently producing at 90 percent capacity with an estimated breakeven point of 60 percent of capacity.

These are two completely different firms, operating in different product and regulatory markets and at significantly different periods of economic and manufacturing processing knowledge and times. Yet, is there something to be learned from these two situations?

Two different organizational cultures

In the 1960's, B&W could be considered as a conservative manufacturer of pressure vessels and pipes. Through their long history, the firm had established a centralized management control and decision system, and a tradition of building and delivering high quality products and materials. The movement of the organization into the new and highly regulated nuclear environment (a continuously shifting regulatory environment) created organizational and operational problems from a technological and an organizational culture perspective.

They had been successful in their early efforts in this new environment and the management team expressed intitial confidence in their ability to build a new facility to capitalize on this knowledge and experience. Yet, the pressures of building the new facility, a number of delays in receiving and installing critical manufacturing components, the decision to hire a large number of employees without a manufacturing background and train them to both manufacture and weld high pressure vessels in compliance with ever increasing (and ever changing) quality and safety regulations, created a number of problems for the firm. Adding to this complexity was the extraordinary high turnover rate of the personnel who had completed the organization's training program. However, for some reason, these issues were either not fully recognized, nor effectively addressed in the highly centralized managerial environment that existed within B&W at that time.

On the other hand it would be easy, and perhaps a bit simplistic, to classify Nucor in the 1980's as the complete opposite of B&W in the 1960's. Nucor is a highly decentralized organization which, following the operating philosophy of their president, pushes everything down to the local plant manager for action and accountability. The company attempts to select and hire qualified personnel (although a long term industry experience element may or may not be a factor in the hiring decision), gives them a challenge and an appropriate amount of resources and lets them accomplish their assigned objective.

There is a risk in this approach in that errors and mistakes will be made. The key is to both minimize and control these errors and not to penalize the individual for either making mistakes or for pushing out into new territory as they are attempting to complete their assignments.

What we hav is a different organizational philosophy and culture that challenges the employees to make their decisions and to accept the organizational responsibility for them. This culture within Nucor has evolved over a period of time and within the firm has been proven effective in a number of different facilities and operations. There are several issues that must be mentioned with the construction and start up of the Crawfordsville facility. The firm encountered a series of false starts with the new technology, several accidents occurred during the construction phase and a serious accident occurred during the initial start up process within the plant.

These two firms were specifically chosen to illustrates the impact an organization's culture can have. Each case, represents a successful and proud organization -- one, a highly centralized organization that was unsuccessful in one ventrue, and the second, a highly decentralized firm that was successful in one venture 25 later. Yet, the issue of centralization nor decentralization may not be the reason for the differing results. What may be more significant are the prevailing cultures, customs and traditions that existed in these two firms during these two periods of time.

Organizational challenges

The challenge for an organization is to identify the specific culture that exists (not what management, employees, customers or the stockholders think exists) within the firm. Once that is accomplihsed, then a slow process can be started to define the specific traditions, programs or common values the organization would like to exist within its organization.

Within many organizations, the identification of these issues may range from easy to complex. In either case, the development of an appropriate solution is difficult and the implementation and maintenance on a long term basis is complex, time-consuming and expensive. However, an effective organizational culture is one of the key components influencing an organization's ability to compete and to succeed in the long term.

Unfortunately, in many firms, the development of an organizational culture has been left to chance and not included as part of management's responsibilities or accountabilities.

Richard M. Morris III is president of R.M. Morris & Associates, a management consulting firm in Dayton, Ohio. Morris received his MBA from Portland State University, and is involved in research and management control system, planning and organizational analysis. He is a senior member of IIE and past director of District 6.
COPYRIGHT 1992 Institute of Industrial Engineers, Inc. (IIE)
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Morris, Richard M., III
Publication:Industrial Management
Date:Mar 1, 1992
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