Tapping the best that is within: Why corporate culture matters.

What is this fuzzy thing called "corporate culture"? It is the stuff that breathes life into organizations. Tackling the psychological life of a company is often dismissed as "soft" or "touchy feely." While it may be dismissed as soft, it is actually the hardest part of managing any enterprise. And the evidence for devoting as much attention to the soft, human side of business as well as to the technical and financial challenges is just too compelling. What difference does it make? Companies that know how to develop their cultures effectively enjoy significant advantages in both the productivity of their organizations and the quality of work life for employees.

Anyone who has traveled to another country is aware that "culture" is real. All social organizations that have been around for any length of time develop cultures. Not only does this include the obvious groups, such as countries and tribes, but it also includes smaller social organizations, such as companies and cooperatives. Culture is important because it provides continuity, structure, common meaning, and order. Culture makes it possible for people to know just how to act to support the organization or group they are in. These social actions -- "the way we do things around here" -- develop into patterns that become stable. When dysfunctional, these patterns may seem like bad habits, which prove to be annoying, but somehow seem to flourish even though we do not like them. When positive and effective, these patterns make the organization function better.

Biology Replaces Mechanics

For over a century the machine has been used as the model for organizations. The best organization runs like a well-oiled machine. But organizations are biological in nature, not mechanical. The root for the word "organization" is "organism," not "machine." Organizations are comp1ex ecosystems that have life within them, not Erector Set constructions.

While machines are inanimate requiring external agents to turn them on, biological systems are alive and purposeful. Animals have drives primal biological forces from within that direct their behavior. Higher-order biological systems, like humans, not only have drives, they have motivations--psychological needs that define who we are. Likewise, organizations are driven by internal psychological forces that define their "character" and affect the way they relate to the world.

All companies have cultures. However, most end up with their culture by default, not by design. In over two decades of consulting to organizations, from small non-profit agencies to global information technology businesses, I have found that few organizations pay real attention to the very thing that makes them who they are: their culture. Culture is to organizations what personality is to individuals; it defines who we are. The hallmark of a person with a well-developed personality is maturity. To achieve maturity as individuals requires that we be willing to question, reflect on, and learn from the challenges in our lives. It is only through this personal, psychological, exploration that we come to fully realize our own values, beliefs, and motivations.

From this personal exploration, we are able to make conscious thoughtful choices about who we will be and bring Out the best in ourselves. Likewise, for organizations to develop maturity--that is, to be able to tap the best that is within --they must also pursue conscious self-exploration and chart a course based on values and core beliefs about who they are. The difference between organizations that understand and develop their cultures and those that do not--the difference between culture by design and culture by default--is staggering.

Extraordinary Companies

Stanford Professors Jim Collins and Jerry Porras set out to discover the secret of the world's most successful companies. In an exhaustive six-year study, they selected the Number One and Number Two dominant companies in each of 18 key industries and thoroughly analyzed the founding, growth, and development of these companies. Their basic question was, "How do these highly successful companies get to be so successful? What makes them different?"

From 1926 through 1990, the stocks of the companies that remained Number One in their industry outperformed the stock market by 15 times. As the companies all experienced the same business cycles, there clearly was something enduring about these companies that made them different. Collins and Porras' research exploded several myths and promoted further inquiry into the making of great companies. Contrary to their expectations, they found that it neither took a great product or invention to differentiate these extraordinary companies, nor did it take a charismatic captain of industry to start them. These companies did not achieve greatness by taking the conservative approaches that we often associate with the phrase "blue chip company." And while bold in the marketplace and much more successful than other companies, they did not dwell on beating the competition.

What distinguished these extraordinary companies, the Number Ones, from everyone else, even the Number Twos, were their cultures--their core ideology and sense of purpose for existing. To be an employee of one of these great companies means shared vision and values within the company. In fact, common and defined vision and values is every bit as important as technical performance.

This clarity and power of culture drives success in several ways. First, people in these companies have an exceptionally strong common focus on the mission of the company and how it is to be run. Working here is not just a job, it's a mission. Second, there is almost a religious quality to these cultures. Their cultural strength attracts people who fit in and repels those who do not match. Misfits leave quickly because they know they do not belong. The people who stay are there because they share the vision. Third, the emphasis on purpose and vision--the heart of the culture--clearly elevates the importance of people. It is the people who are the company, not products or capital assets. And through this genuine valuation of people as the real assets of the company, leadership emerges from all ranks throughout these companies. Leadership is not a position on an organizational chart, but the way people committed to purpose and values assume responsibility for all aspects of making the company work.

One might think that being Number Two in a major industry, such as pharmaceuticals or airlines, is not a bad achievement. And we might expect that the Number Ones and Number Twos would be fairly similar with the Number Ones being just a little bit better. But that is not what Collins and Porras found. The exceptional companies are extraordinary because their achievements were extraordinary, even compared with the second-best in the industry. Over the 65-year period of 1926-1990, the extraordinary companies not only beat the market as a whole, but they created almost seven times as much wealth as the Number Twos! If one had invested one dollar in each of the Number Twos in 1926-the first year that all of these companies were publicly traded--the investment would have grown, on average, to $955 by 1990. That increase represents a compounded annual growth rate of just over 12%. Not bad. But if you had invested one dollar in each of the extraordinary companies over the same period, your investment would have mush roomed to $6356, an annual growth rate of 15.7%!

Well-Defined Cultures vs. Fuzzy Cultures

Dissatisfied with the vague and slippery use of the concept of culture, organizational psychologist Bill Schneider set Out to develop a theory of organizational culture that would clearly distinguish among types of culture and that could predict the types of organizational actions that would either support the culture or conflict with it. Through the use of survey research techniques he was able to identify four types of core company cultures. All business organizations can be described by these four cultures. His work also identifies the leadership style that best supports each culture, enabling companies to develop leadership practices that align with, and support their specific culture. The four cultures are described below.

In subsequent research with over 70 companies, Dr. Schneider has identified a phenomenon that is consistent with Collins and Porras' findings. Companies that have a core culture that is distinctly one of the four (Control, Collaboration, Competence, or Cultivation) are more successful than companies that have "fuzzy" core cultures. By fuzzy, I mean that they have a blend of traits from two are more of the four basic cultures rather than having a core culture that is distinctly one of the four. By mixing traits of different cultures, these fuzzy companies can have great difficulty deciding what they want to be.

Schneider found that companies with clear, focused cultures-- companies that were distinctly either a Control, a Collaboration, a Competence, or a Cultivation culture--were much more successful that those companies that had traits of two or more of the cultures. The focused cultures produced better financial returns, including higher return on assets higher return on equity and higher return on invested capital