Organisational Culture: The Reasons for Changes in Organisational Culture

We've summarised below some key points that students should consider when revising the reasons for changes in organisational culture:

Definitions

• Static culture: a culture that does not change (evolve or deliberate change) in response to the changing external environment. Maybe based on historical success (e.g. Sony)
• Dynamic culture: a culture that evolves in response to changes in the external environment and/or a different business strategy / model.

Key Theories / Concepts

• Bonus culture: a culture in which importance of financial rewards is emphasised and celebrated. Can be for key individuals (e.g. investment banking) or company-wide (e.g. John Lewis Partnership)
• Toxic culture: when a workplace culture evolves on its own with little attention given to relationships and employees aren't held accountable for rudeness or disrespect.

Reasons for Changing Culture

Improved business performance:

• Declining profits and sales
• Inadequate returns on investment
• Low quality or standards of customer service

To respond to significant change:

• Market changes (growth, competitors)
• Political & legal environment
• Change of ownership (e.g. takeover / merger)
• Change of leadership (e.g. new CEO)
• Economic conditions (e.g. downturn)

To address/correct illegal or unethical activity

Potential Signs / Evidence of Dysfunctional Culture

• Internal fighting; management criticism ("us & them mentality")
• High levels of voluntary staff turnover & hard to retain top talent
• Greater absenteeism
• Processes become more bureaucratic
• Innovation is no longer valued
• Evidence of declining customer service
• Leadership show double standards or decision-making becomes inconsistent
• Communication becomes more closed and restricted

Key Examples / Evidence

• Some firms whose culture may have contributed to a failure to change:
• Kodak: too late to embrace the rapid shift from film to digital photography; bankrupt in 2012
• Nokia: long-time dominant market leader in mobile phones failed to spot fast-moving challengers
• Sony: silo mentality arising from market leadership reduced the incentive & energy to innovate
• Toyota: culture of complacency (market leader) contributed to quality problems in 2011/12
• RIM( Blackberry): believed their market dominance of business mobile phones would last
• Businesses going through a painful process of organisational change:
• Royal Mail: regulatory change and potential privatisation force a substantial change programme
• NHS: political pressure for “modernisation" & high profile care scandals (e.g. Staffordshire)
• BBC: pressure from frozen licence-fee income, restricted commercial activities & fallout from Jimmy Saville scandal. A culture claimed to be driven by “silos" and “empires" & rigid hierarchy.
• RBS: significant retrenchment following nationalisation
• Santander UK: restructuring & rebranding to integrate three separate financial services takeovers

Depends on Factors

• Organisation culture evolves naturally, but the pace and nature of change will very much depend on the evolving circumstances of the organisation.
• Managing that cultural evolution is one of the primary tasks of an organisation's leadership. Do the leaders have the necessary expertise / experience?
• Is step-change (rather than incremental change) only necessary if a business is in “distress" – i.e. culture change is required for survival?

Further Evaluation Opportunities

• Organisational culture is not an entity or a “thing" that is independent from business strategy; it can't simply be changed by pulling different levers.
• The culture of society (and work in particular) is changing all the time – regardless of whether a firm wants to change its culture.
• A decision to make a planned change to organisational culture should derive from a clear shortfall in business performance or a decision to change business strategy.