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Organisational Culture: When the Culture Needs to Change

Jim Riley

27th February 2015

At what stage does organisational culture need to fundamentally change?

When Kazou Hirai took over as CEO of Sony he made it clear that cultural change was top of his strategic agenda.

“Sony must change. Sony will change" said Hirai speaking in Tokyo as he took over the CEO role.

Cultural change was just one part of Hirai's strategic agenda, alongside some tough decisions about the scope of Sony's broad business activities. But, at the heart of the challenge facing Hirai is a culture at Sony that has led to the business losing its market-leading reputation for innovation. Not for nothing is Sony often referred to as the “Apple of the 80's"!

Back in the City of London, Antony Jenkins began his tenure as CEO of Barclays in 2012 with a similar statement of intent in response to the scandals that has rocked the financial services industry in general and Barclays in particular.

“Clean-up or clear off" was the message as Jenkins launched Project Transform – a significant corporate change management strategy designed to restore Barclays' reputation which has been so badly damaged though unethical and plain illegal actions.

Like many CEOs before him, Jenkins has recognised that in order to achieve broader strategic change, the culture of the business needs to be addressed. In a clear statement to Barclays staff who might not support the five new core values, Jenkins said:

“My message to those people is simple: Barclays is not the place for you. The rules have changed. You won't feel comfortable at Barclays and, to be frank, we won't feel comfortable with you as colleagues".

Sony and Barclays are two excellent examples of where the introduction of new leadership has prompted a change in strategic direction in which organisational culture change is seen as a key part of the process.

The linking of new leadership with attempted cultural change is not surprising when you consider that leadership and culture are essentially two sides of the same coin. A new CEO (or an existing one) can delegate many tasks, but the task of setting the culture cannot be delegated. Why? Because there is compelling evidence that business performance and culture are closely linked. If the CEO wants the business to achieve its corporate objectives, then the culture has to be right. In a major research programme, Harvard professors John Kotter and James Heskett found consistent correlation between robust, engaged cultures and high-performance business results.

As Steve Ballmer, now former CEO of Microsoft, said:

“Everything I do is a reinforcement or not of what we want to have happen culturally."

However, new leadership isn't the only cause of attempted culture change. It can be a symptom of other strategic issues which an organisation is trying to address. These can be grouped into two broad categories:

Culture change to improve business performance:

· Declining profits & revenues

· Inadequate returns on investment

· Low quality or standards of customer service

Culture change in response to changes in the external environment:

· Market changes – e.g. new competitors, impact of new technology

· Political & legal environment

· Change of ownership (e.g. takeover or merger)

· Economic conditions

Let's look at a couple more examples:

Transformation at the Royal Mail

Why Moya Greene took over as the CEO of Royal Mail Group in July 201, she inherited the leadership of a troubled business. The Royal Mail faced a rapid decline in revenue from letters, a huge pension deficit; union opposition to government plans for privatisation; and an unworkable regulatory framework that discouraged the business from introducing new products and prevented it from setting its own prices. Royal Mail was also trying to compete in the faster-growing parcels business against global operators such as DHL and TNT which enjoyed greater efficiency due to their scale.

The previous leadership team of Allan Leighton, chairman, and Adam Crozier, chief executive, had made some progress in modernising Royal Mail but was dogged by difficult industrial relations, making fundamental culture change very difficult.

Looking at the list of causes of culture change above, you can see that Royal Mail featured several of them – suggesting that the case for corporate culture change was pretty compelling!

In less than three years, Greene appears to have succeeded in achieving much of the necessary change in Royal Mail as it tries to improve its financial performance ahead of privatisation. According to one industry analyst this is because Greene has “succeeded by focusing on improving industrial relations, ensuring political will for privatisation and improving profit margins".

There can be no doubt that Greene has led the Royal Mail through one of the most complex organisational change programmes in UK business history. Much of the change has been driven by a programme of modernisation which has clearly posed both technological and HRM issues.

Greene has attributed much of the success of the organisational change achieved so far to an emphasis on strong, constant communication within the business as it has undergone the change. In a recent interview, Moya Greene said:

“Make sure you are up for it. This is not a 50-hour-a-week job. Try to get your arms around the full parameters of what you have to deal with as quickly as possible. Talk to lots of people. Go up. Go down. Go out. Go see as many of your own people. Go talk to them in small groups, in big groups."

Kodak – A “Culture of Complacency"

In the case of Royal Mail, the need for cultural change alongside broader organisational change was well recognised.

Another business that (finally) recognised the need for organisational culture change was Kodak. But in Kodak's case, the change came too late!

Kodak is a great example of a business that was essentially destroyed by its culture, although it was the rapid advance of digital photo technology that is commonly blamed for Kodak's demise. But, was it the technological advances that were the cause, or Kodak's failure to respond to them?

Kodak actually built one of the first digital cameras in 1975. But, it was that technology, followed by the development of smartphones that double as cameras, that battered Kodak's old film- and camera-making business to death. Why didn't Kodak respond to the significant changes in its external environment? Was culture to blame?

What had gone wrong? By 1976 Kodak accounted for 90% of film and 85% of camera sales in America. Until the 1990s it was regularly rated one of the world's five most valuable brands. Kodak's revenues peaked at nearly $16 billion in 1996 and its profits at $2.5 billion in 1999, at which time it employed over 145,000 workers worldwide Kodak was known as the "Google" of its time with a strong reputation for product innovation.

The Economist laid much of the blame at Kodak's culture, linking it to the fact that it enjoyed a near monopoly position in the key US market:

"Its culture did not help. Despite its strengths—hefty investment in research, a rigorous approach to manufacturing and good relations with its local community—Kodak had become a complacent monopolist"

According to Ross Kanter of Harvard Business School, another reason why Kodak was slow to change was that its executives “suffered from a mentality of perfect products, rather than the high-tech mindset of make it, launch it, fix it,". That suggests a culture that was poorly suited to the rapid pace of change in Kodak's markets.

Strategy and culture expert John Kotter famously described the deep-rooted source of Kodak's problems as a "culture of complacency".

"The organisation overflowed with complacency. Kodak was failing to keep up even before the digital revolution when Fuji started doing a better job with the old technology, the roll-film business. With the complacency so rock-solid, no one at the top devoted their priorities toward turning that problem into a huge urgency around a huge opportunity. All the people buried in the hierarchy who saw the oncoming problems and had ideas for solutions made no progress. Their bosses and peers ignored them."

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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