External Adaptation

When reduced to their essence, the problems of external adaptation are

• Mission: Obtaining a shared understanding of core mission, primary task, and manifest and latent functions
• Goals: Developing consensus on goals, as derived from the core mission
• Means: Developing consensus on the means to be used to attain the goals, such as the organizational structure, division of labor, reward systems, and authority system
• Measurement: Developing consensus on the criteria to be used in measuring how well the group is fulfilling its goals, such as the information and control system
• Correcting and repairing: Developing consensus on the appropriate remedial or repair strategies to be used if goals are not being met

Internal Integration

When reduced to their essence, the problems of internal integration are

• Language: Creating a common language and conceptual categories
• Identity and boundaries: Defining group boundaries and criteria for inclusion
• Authority: Reaching consensus on the distributing power, authority, and status
• Trust and openness: Developing norms of relating to each other
• Rewards and punishments: Defining and allocating rewards and punishments
• The unexplainable: Developing concepts to explain the unexplainable

To discuss these issues we have to analyze them one at a time, but in reality as a founder builds an organization, he or she is dealing with both sets of issues all the time because the resolution for each issue is strongly embedded or nested in the macro cultures surrounding the new organization. Because a common language and common categories of thought derive initially from the country in which the new organization forms, language and thought must be our starting point.

Language and Categories of Thought

To interact at all, humans need a common language and shared categories for how to perceive and think about themselves and their environment. I explored this at the macro-cultural level in Chapter 6 and only need to point out here that when a founder launches an organization it is not enough to have a common macro language; the meanings of the terms used in the founder’s vision also have to become shared. The young engineers hired by DEC had to learn what Ken Olsen meant by “do the right thing,” and one of his later quips was completely misunderstood because of lack of context. Olsen was quoted as saying, “Who would want a computer in their home,” which was taken to be a dismissal of the PC and other desktop computers. The context was that he made that comment when everyone was advocating extensive computer control of all the household appliances and, thereby, practically automating domestic life, something Olsen was indeed against. In fact, he had a personal computer at home that he used all the time.

Founders often develop special jargon and acronyms to distinguish their organization from others, all of which can be very confusing to newcomers, especially when the language of the organization’s mission is itself obscured by ambiguous language.

Mission and Reason to Be

Every new group or organization must develop a shared concept of its ultimate survival problem, from which its most basic sense of core mission, primary task, or “reason to be” is usually derived. In most business organizations, this shared definition focuses on the issue of economic survival and growth, which in turn involves the maintenance of good relationships with the major stakeholders of the organization, including

• The investors and stockholders
• The suppliers of the materials needed to produce
• The managers and employees
• The community and government
• The customers willing to pay for the product or service

Many studies of organizations have shown that the key to long-range growth and survival is to keep the needs of these constituencies in some kind of balance, and that the mission of the organization, as a set of beliefs about its core competencies and basic functions in society, is usually a reflection of this balance (Donaldson & Lorsch, 1983; Kotter & Heskett, 1992; Porras & Collins, 1994; Christensen, 1997; O’Reilly and Tushman, 2016). It has been a mistake to think in terms of a total focus on any one of these constituencies, because all of them together make up the environment in which the organization must succeed.

In religious, educational, social, and governmental organizations, the core mission or primary task is clearly different, but the proposition that the mission ultimately derives from a balancing of the needs of different stakeholders is the same. Thus, for example, the mission of a university must balance the learning needs of the students (which include housing, feeding, and often acting as in loco parentis), the needs of the faculty to teach and conduct research to further knowledge, the needs of the community to have a repository for knowledge and skill, the needs of the financial investors to have a viable institution, and, ultimately, even the needs of society to have an institution to facilitate the transition of late adolescents into the labor market and to sort them into skill groups.

Manifest and Latent Functions. Though core missions or primary tasks are usually stated in terms of a single constituency, such as customers, a more useful way to think about ultimate or core mission is to change the question to “What is our function in the larger scheme of things?” or “What justifies our continued existence?” Posing the question this way reveals that most organizations have multiple functions reflecting multiple stakeholders. Some of these functions are public justifications or espoused values—what have been called by sociologists “manifest functions,” while others are “latent functions” that are taken for granted but not publicly spoken of (Merton, 1957).

For example, the manifest function of a school system is to educate, but a close examination of what goes on in school systems suggests several latent functions as well: (1) to keep children (young adults) off the streets and out of the labor market until there is room for them and they have some relevant skills, (2) to sort and group the next generation into talent and skill categories according to the needs of the society, and (3) to enable the various occupations associated with the school system to survive and maintain their professional autonomy.

In examining the manifest and latent functions, it will be recognized by the organization’s leaders and members that to survive, the organization must to some degree fulfill all of these functions. We may then find in a cultural analysis of a given organization that some of the most important shared assumptions concern how to fulfill the latent functions without publicly admitting the existence of those functions. For example, Ken Olsen admitted that his strategy of dividing the units of DEC across the four New England states was motivated, in part, by his recognition that putting everything in one or two states would disadvantage the labor market in the other states, something he did not want to do but also could not publicly admit.

Identity and Latent Functions. Some culture researchers have advocated that it is useful to think in terms of the organization’s “identity,” and to propose that survival and growth hinge on being able to connect this identity, “who we are and what is our purpose,” with the market conditions, “what the customer needs, wants, and can afford” (Schultz, 1995; Hatch & Schultz, 2004, 2008). They propose that corporate survival depends very much on developing a “brand” that links the organization’s basic competencies with market needs and provides, at the same time, a sense of purpose and engagement to employees. Being “in” the organization then is not only an employment contract but some kind of commitment by the employee to further the organization’s sense of purpose.

The espoused values will, of course, emphasize the manifest functions, which leads to complexities of measurement as we will see subsequently. For example, universities are often criticized for not being cost-effective around their primary educational mission, but the critic is often not taking into account the cost of fulfilling various latent functions that are also part of the mission. Core mission and public identity thus become complex multifunctional issues because some of the functions must remain latent to protect the manifest identity of the organization. For a university to announce publicly its babysitting, sorting, and professional autonomy functions would be embarrassing, but these functions often play an important role in determining the activities of the organization and become part of the DNA of the culture that will resist change. Note that when we assess an organization’s culture, it is the taken-for-granted latent functions that will be the hardest to “measure.”

Overall corporate culture dimensions will evolve around these issues, and subculture dimensions will show up in the subunits whose interests are involved in the latent functions. The importance of these latent functions may not surface until an organization is forced to contemplate closing or moving. Then subculture conflicts may erupt if the interests of some of these groups become threatened. The most common example is, of course, how the subcultures of labor organizations surface when companies find a need to downsize or move. For example, one possible explanation of why General Motors abandoned its successful Saturn car program was the need to maintain relations with its unions. What often seems like an irrational or even stupid decision by an organization becomes understandable when we examine what latent functions are being served by the decision.

Strategy Is Part of Culture. Mission relates directly to what organizations call “strategy.” To fulfill its manifest and latent functions, the organization evolves shared assumptions about its “reason to be” and formulates long-range plans to fulfill those functions. That involves decisions about products and services and will reflect the “identity” of the organization. The shared assumptions about “who we are” become an important element of the organization’s culture and will limit the strategic options available to the organization. Strategy consultants are often frustrated when their recommendations are not acted on. They forget that unless those recommendations are consistent with the organization’s assumptions about itself, they will not make sense to the insiders and hence will not be implemented.

For example, at one stage in the evolution of Ciba-Geigy, I heard lengthy debates among top managers on the question of whether Ciba-Geigy should design and produce “any” product, provided it could be sold at a profit, or whether designs and products should be limited to what some senior executives believed to be “sound” or “valuable” products, based on their conception of what their company had originally been built on, and what their unique talents were. The debate focused on whether or not to keep Airwick, which made air fresheners to remove pet or other odors.

Airwick had been acquired in the firm’s U.S. subsidiary to help Ciba-Geigy become more competent in consumer-oriented marketing. At one of the annual meetings of top management, the president of the U.S. subsidiary was very proudly displaying some TV ads for their new product “Carpet Fresh.” I was sitting next to a senior member of the internal board, a Swiss researcher who had developed several of the company’s key chemical products. He was visibly agitated by the TV ads and finally leaned over to me and loudly whispered, “You know, Schein, those things are not even products.”

In subsequent debates about whether or not to sell Airwick (even though it was financially sound and profitable), I finally understood this comment when it was revealed that Ciba-Geigy could not stomach the image of being a company that produced something as seemingly trivial as an air freshener. Thus a major strategic decision to sell Airwick was made on the basis of the company’s culture, not on marketing or financial grounds. Ciba-Geigy sold Airwick and thereby affirmed the assumption that they should only be in businesses that had a clear scientific base and that dealt with major global problems such as disease and starvation. This was articulated as a strategic principle that should and did govern future acquisitions.

In summary, one of the most central elements of any culture is the assumptions the members of the organization share about their identity and ultimate mission or functions. These are not necessarily very conscious but can surface if one probes the strategic decisions that the organization makes. Organizational analyses that show separate boxes for “culture” and “strategy” are making a fundamental conceptual error. Strategy is an integral part of the culture.

Issues around Goals Derived from the Mission

Consensus on the core mission and identity does not automatically guarantee that the key members of the organization will have common goals or that the various subcultures will be appropriately aligned to fulfill the mission. The basic subcultures in any organization may, in fact, be unwittingly working at cross purposes to some elements of the mission. The mission is often understood but not well articulated. To achieve consensus on goals, the group needs a common language and shared assumptions about the basic logistical operations by which one moves from something as abstract or general as a sense of mission to the concrete goals of designing, manufacturing, and selling an actual product or service within specified and agreed-on cost and time constraints. Clearly articulated goals become one of the key elements of the espoused part of the culture.

For example, in DEC there was a clear consensus on the mission of bringing out a line of technically sophisticated innovative products that would “win in the marketplace,” but this consensus did not solve for senior management the problem of how to allocate resources among different product development groups, nor did it specify how best to market such products. Mission and strategy can be rather timeless, whereas goals have to be formulated for what to do next year, next month, and tomorrow. Goals concretize the mission and facilitate the decisions on means. In that process, goal formulation also often reveals unresolved issues or lack of subculture consensus around deeper issues.

In DEC, the debate around which products to support and how to support them revealed a deep lack of semantic agreement on how to think about “marketing.” For example, one group thought that marketing meant better image advertising in national magazines so that more people would recognize the name of the company. Another group was convinced that marketing meant better advertising in technical journals. One group thought it meant developing the next generation of products, while yet another group emphasized merchandizing and sales support as the key elements of marketing.

Because operational goals have to be more precise, organizations typically work out their issues of mission and identity in the context of deciding annual or longer-range goals. To really understand cultural assumptions, one must be careful not to confuse these short-run assumptions about goals with assumptions about mission. Ciba-Geigy’s concern with being only in businesses that make “science-based, useful products” did not become evident in its discussions about business goals until it hit a strategic issue such as whether or not to buy another company.

In fact, one way of looking at what we mean by “strategy” is to realize that strategy concerns the evolution of the basic mission, whereas operational goals reflect the short-run tactical survival issues that the organization identifies. Thus, when a company gets into basic strategy discussions, it is usually trying to assess in a more fundamental way the relationship between its sense of its mission and its operational goals. For example, Singapore’s long-range strategy to become economically successful was converted into a variety of short-run goals such as keeping the city clean, building housing for everyone, creating a scholarship program, and so on.

In summary, goals can be defined at several levels of abstraction and in different time horizons. Is our goal to be profitable at the end of next quarter, to make 10 sales next month, or to call 12 potential customers tomorrow? Only as consensus is reached on such matters, leading to solutions that work repeatedly, can we begin to think of the goals of an organization as potential cultural elements. Once such consensus is reached, however, the assumptions about goals become a very strong element of that group’s culture.

Issues around Measurement

All groups and organizations need to know how they are doing in attaining their goals and periodically need to check to determine whether they are performing in line with their mission. This process involves three areas in which the group needs to achieve consensus, leading to cultural dimensions that later drop out of awareness and become tacit assumptions. Consensus must be achieved on what to measure, how to measure it, and what to do when corrections are needed. The cultural elements that form around each of these issues often become the primary focus for what newcomers to the organization will be concerned about, because such measurements inevitably become linked to how each employee is doing his or her job. These issues become equally important to leaders because of the reality, as we will see in the following chapter, that what leaders pay attention to and measure becomes one of the primary mechanisms by which they embed cultural elements.

What and How to Measure. Once the group is performing, it must reach consensus on how to judge its own performance to know what kind of remedial action to take when things do not go as expected. Setting goals and agreeing on what kind of feedback is needed to check on goal progress becomes one of the most fundamental aspects of designing any task. Feedback is not any old comment or observation of “how things are going”; feedback is specific information on whether the results are on target or are deviating from the target. Measurement, therefore, has to be defined by the consensus on targets and goals. Such consensus need not be a formal quantitative measurement, however. For example, we have noted that early in DEC’s history the evaluation of engineering projects hinged on whether certain key engineers in the company “liked” the product. The company assumed that internal acceptance was an acceptable surrogate for external acceptance. At the same time, if several competing engineering groups each liked what they were designing, the criterion shifted to “letting the market decide.” These criteria could work in tandem as long as there were enough resources to support all the projects, because DEC was growing at a rapid rate.

At the Wellmade flute company, evaluation was done at each node in the production process, so that by the time an instrument reached the end of the line it was likely to pass inspection and to be acceptable to the artist. If a craftsman at a given position did not like what he felt or saw or heard, he simply passed the instrument back to the preceding craftsman; the norm was that it would be reworked without resentment. Each person trusted the person in the next position (Cook, personal communication, 1992).

Cook also found a similar process in a French brandy company. Not only was each step evaluated by an expert, but the ultimate role of “taster”—the person who makes the final determination of when a batch is ready—could be held only by a male son of the previous taster. In this company the last taster had no sons. Rather than pass the role on to the eldest daughter, it was passed on to a nephew, on the shared assumption that female taste preferences were in some fundamental way different from male taste preferences!

I was involved at one point in the 1980s with the exploration and production division management of the U.S. Shell Oil Company. My consulting assignment was to help them do a cultural analysis to develop better “measurements” of the division’s performance. As we collectively began to examine the artifacts and espoused beliefs and values of this group, it immediately became apparent that the exploration group and the production group had completely different basic assumptions about how they wanted to be measured.

The exploration group wanted to be measured on finding evidence of oil, which they felt should be determined on a statistical basis over a long period of time because most wells proved to be “dry.” In contrast, the production group, which was charged with safely removing oil from an active well, wanted to be measured on a short-term basis in terms of safe and efficient “production.” For the exploration group, the risk was in not finding anything over a long period of time; for the production group, the risk was of an accident or fire, which could occur at any moment. In the end, because both groups wanted to contribute to the financial performance of the company, both the cost of exploration and the cost of safe production had to be factored in, but neither group wanted to be measured by a general criterion that did not fit its work.

Complex measurement issues arise over how to balance performance on the manifest versus the latent functions, which is well illustrated by current issues in the health care industry. The manifest function of hospitals and clinics is patient health and safety, but an important latent function has been to organize health care systems to meet the needs of the doctors. As health care costs climbed and it was discovered that many preventable medical errors occurred throughout the system, new measures of safety and of patient satisfaction emerged. Correcting medical errors and rude behavior by doctors toward nurses or patients had been handled latently by assuming that the occupation would measure and monitor itself. What is now emerging as a whole new measurement system is patient surveys along with complaint systems that enable special hospital committees to identify doctors who have problems and to require such doctors to accept “coaching.”

Must Measurement Be Quantitative? I have already given several examples of various qualitative ways that production groups measure the quality of what they are doing. However, the cultures of management and finance promulgate the necessity to measure things quantitatively because it is more precise and “manageable.” The occupational macro culture of management has always had a strong preference for quantitative measures, no doubt reflecting that it is always about finances and money, which can be quantitatively measured. As a consequence many organizations attempt to convert everything they measure into numbers, the best example being that individual career potential and performance is converted in many performance appraisal and career development systems into individual numbers.

For example, Exxon measured a manager’s “ultimate potential” by requiring every manager to rank-order his or her subordinates on this criterion. These rankings were combined in a sophisticated statistical system for all managers across the company worldwide, resulting in a set of numbers that allowed one to locate for each category of work the person with the highest ultimate potential. When jobs had to be filled, it was the highest-ranking candidate who had to be offered the job. The ranking numbers were compiled into a highly secret document that came to be called “the green dragon,” because everyone knew that it contained the most critical information for career advancement.

The cultural norm to use ultimate potential as the primary source of career advancement actually distorted the performance measurement system, as I found out in a project for Essochem Europe. An internal consultant and I were asked to find out why “performance dropped with age.” The statistics clearly showed that for any given job, the older employees showed lower performance ratings. After extensive interviewing we discovered that a supervisor who rated an older subordinate as “high performance” but “low ultimate potential” was told by his superiors that this was “not possible.” If one did not have “high ultimate potential” one could not have high performance. But, because ultimate potential was a sacred cow in the measurement system and had to be accurate, supervisors lowered the performance rating! The needs of the worldwide talent identification system actually overrode the needs for accurate performance management ratings. Of course, the actual performance of the older employees was not controlled by the ratings they eventually got, but it must certainly have affected their morale and their confidence in the credibility of management.

For our purposes the important message is to recognize that in a socio-technical system, the cultural norms that revolve around the social needs of the system are sometimes stronger than the norms of the technical system. However, the technical system can introduce norms of measurement that make no sense in the social system as in the use of the bell curve for performance measurement. Most managers will aim to bring the performance of all of their subordinates to some minimum standard, yet the appraisal system will “force” them into percentage categories of high, medium, and low performers, even requiring that a certain percentage had to be designated to be fired. This kind of system, or its equivalent of “rank-ordering” all the subordinates, encourages ignoring the reality that different subordinates contribute in different ways and that it is fundamentally dehumanizing for people to think of themselves as merely a number (Level 1 relationship) rather than as a person (Level 2 relationship).

As is shown in Chapter 14, the same desire for quantitative measurement has overtaken the culture field as well, given the growth of surveys that turn individual opinions into numerical measurements of different cultural elements. The pros and cons of this are discussed in that chapter. In the health care arena, a similar phenomenon occurs around the measurement of patient satisfaction, with a strong bias toward using numbers based on questionnaires rather than qualitative information based on interviews of patients.

In summary, the methods an organization decides to use to measure its own activities and accomplishments, the criteria it chooses, and the information system it develops to measure itself become central elements of its culture as consensus develops around these issues. If consensus fails to develop and strong subcultures form around different assumptions, the organization will find itself in conflicts that can potentially undermine its ability to cope with its external environment. Inasmuch as organizations are socio-technical systems, the subcultures dealing with work design and performance can potentially clash with the subcultures that deal with people management per se, which are now typically called “human resources,” were formerly called “personnel,” and at Google are now called “people management.”

Correction and Repair Strategies

The final area of consensus crucial for external adaptation concerns what to do if a change in course is required and how to make that change. If information surfaces indicating that the group is not on target—sales are off, market share is down, profits are down, product introductions are late, key customers complain about product quality, patient satisfaction scores decline, accident rates are up, and so on—by what process is the problem diagnosed and remedied?

Consensus is needed about how to gather external information, how to get that information to the right parts of the organization that can act on it, and how to alter the internal production processes to take the new information into account. Organizations can become ineffective if there is lack of consensus on any part of this information gathering and utilization cycle (Schein, 1980). For example, in General Foods the product managers used market research to determine whether or not the product they were managing was meeting sales and quality goals. At the same time, sales managers who were out in the supermarkets were getting information on how store managers were reacting to different products by giving them better or worse positions on the shelves. It was well established that shelf position was strongly correlated with sales.

Sales managers consistently attempted to get this information to the product managers, who consistently refused to consider it relative to their more “scientifically conducted” market research, thus unwittingly undermining their own performance. In the same vein, in the early days at DEC the person who knew the most about what competitors were doing was the purchasing manager, because he had to buy parts from competitor companies. Yet his knowledge was often ignored because engineers trusted their own judgment more than his information.

If information gets to the right place, where it is understood and acted on, there is still the matter of reaching consensus on what kind of action to take. For example, if a product fails in the marketplace, does the organization fire the product manager, reexamine the marketing strategy, reassess the quality of the research and development process, convene a diagnostic team from many functions to see what can be learned from the failure, or brush the failure under the rug and quietly move the good people into different jobs?

Macro-cultural elements come into play here just as they did with measurement biases. In individualistic cultures such as the United States, I often encountered what was called a “blame culture.” When anything goes wrong, find out who is responsible and fire him or her. Even though the analysis of accidents has shown repeatedly that they are caused by multiple systemic events that may involve correct decisions by each party in the system, there is a strong desire to locate the one person who made the crucial mistake. For example, in the tragic shooting down of two helicopters in the Iraq “no fly zone” in 1994 that killed 26 diplomats, it was determined that the overall system of common radio frequencies covering both helicopters and the fighters monitoring the area had evolved into two systems, because the fighters needed different frequencies; that resulted on the fateful day of the inability to communicate with each other (Snook, 2000). The AWACS flying high above to monitor the area had both a new crew and a shared perception that helicopters are impossible to see on radar because they always dart into canyons, leading them to be less vigilant on that day and to say to the fighters that they did not see anything. The required visual identification of targets by the fighters failed because of the extra fuel tanks that had been attached to the helicopters to accommodate the larger number of people who would be on board, which, it turned out, made their silhouettes resemble the enemy ones. The pilots of the fighters had used all their checking routines and found ample cause to shoot them down! It was discovered to be a systemic failure even though initially the pilots were blamed for the immediate act of shooting down the helicopters.

Occupational macro cultures like medicine and architecture have been presumed to develop their own correction mechanisms when problems are found, but when the product of the occupation is a system, an operation, a building, or a bridge, society has chosen to add independent measurement and correction systems as well. At the societal level it comprises the entirety of policing, the courts, and the probation and prison systems. Government agencies and the military have their own inspector-general systems. However, cultural forces enter into how these systems function and the broader social values that influence them in the way in which policing, the courts, and the prison systems work in different societies.

This variation shows up at the organizational level. At DEC, both the diagnosis of the problem to be corrected and the proposed remedy were likely to result from widespread open discussion and debate among members at all levels of the organization, with more weight consistently being given to the technical people over the financial, marketing, or purchasing people. After discussion and debate, self-corrective action was often taken locally because people now recognized problems about which they could do something. Thus, by the time senior management ratified a course of action and announced it, most of the problem had already been dealt with. However, if the discussion led to proposals that violated some of Ken Olsen’s assumptions or intuitions, he would step into the debate and attempt to influence thinking. If that did not work, he sometimes empowered different groups to proceed along different paths to “play it safe,” to stimulate internal competition, and to “let the market decide.” Though this process was at times haphazard, it was well understood and consensually agreed to as the way to get things done in the kind of dynamic marketplace that DEC found itself in.

At Ciba-Geigy, remedial action was taken locally, if possible, to minimize the upward delegation of bad news. However, if problems surfaced that were company wide, senior management went through a formal period of diagnosis, often with the help of task forces and other specific processes. Once a diagnosis had been made and remedial action decided on, the decision was formally disseminated through systematic meetings, memoranda, phone calls, and other formal means.

In Singapore, the corrective action depended very much on the degree to which the problem was perceived to undermine the strategy and goals, especially around the cleaning up of the urban environment. Even minor transgressions led to severe punishment. However, failure by the EDB to bring in an investment was carefully analyzed to discover how things could be handled more effectively. For example, the discovery that the EDB had no mechanisms for stimulating internal entrepreneurship led immediately to various programs to correct this lack.

“Corrective” processes are not limited to problem areas. If a company is receiving signals of success, it may decide to grow faster, to develop a careful strategy of controlled growth, or to take a quick profit and risk remaining small. Consensus on these matters becomes crucial to effectiveness, and the kind of consensus achieved is one of the determinants of the “style” of the company. Organizations that have not had periodic survival problems may not have a “style” of responding to such problems. However, organizations that have had survival crises often discovered in their responses to such crises what some of their deeper assumptions really were. In this sense an important piece of an organization’s culture can be genuinely latent. No one really knows what response it will make to a severe crisis, yet the nature of that response will reveal deep elements of the culture. Crisis situations also reveal whether worker subcultures have developed around restriction of output and hiding ideas for improvement from management, or whether these subcultures support productivity goals.

Once remedial or corrective action has been taken, new information must be gathered to determine whether results have improved or not. Sensing changes in the environment, getting the information to the right place, digesting it, and developing appropriate responses is thus a perpetual learning cycle that will ultimately characterize how a given organization maintains its effectiveness.

Analytical Comment: Fixing versus Changing and Improving. Most of the examples have highlighted fixing something based on measurements indicating that something was not going right. With increasing complexity and with better models of how socio-technical systems work, it is often discovered that fixing has to be thought of more broadly as changing and improving. Information that something is not going right (what I call “disconfirmation”) will reveal problems but not necessarily solutions. Managing change processes and finding ways to improve how something is done requires models of “change management” around which there is surprisingly little consensus. Even the improvement models (e.g., lean management, six sigma, re-engineering, and so on) disagree on the mechanics of the change-management process itself. These disagreements surface especially in the current climate of “culture change” in that the desire to change things far outruns the ability of organizations to actually make the changes.

Issues in Defining Group Boundaries and Criteria for Inclusion

As the founder builds the organization the issue of who is in and who is out becomes very important for its new members. As people are hired they are often given badges with numbers, and those numbers become a status symbol later on. In the process of building identity the founder may decide on providing a distinctive uniform that immediately identifies members. There may be different criteria for hiring such as in universities where it is crucial whether you are hired as “adjunct,” “tenure track,” “regular faculty but limited contract,” or “part-time contract work.” One of the immediate consequences of defining the initial “contract” is that differential treatment rules begin to be applied. Insiders are awarded special benefits, are trusted more, receive higher basic rewards, and, most important, acquire a sense of identity from belonging to a defined organization. Outsiders such as contract workers not only receive fewer of the various benefits and rewards but, more important, lose specific identity. They become part of a mass, labeled “outsiders,” and they are more likely to be stereotyped and treated with indifference or hostility.

Who is in and who is out applies not only to the initial hiring decision but continues to have important symbolic meaning as an individual progresses in his or her career. Organizations have three dimensions of career movement: (1) lateral movement from one task or function to another, (2) vertical movement from one rank to another, and (3) inclusionary movement from outsider to insider (Schein, 1978; Schein & VanMaanen, 2013). Consensus forms around criteria both for promotion and for inclusionary movement. As people move farther “in,” they become privy to some of the more secret assumptions of the organization. They learn the special meanings attached to certain words and the special rituals that define membership—such as the secret fraternity handshake—and they discover that one of the most important bases for status in the group is to be entrusted with group secrets. Such secrets involve historical accounts of how and why some of the things in the past really happened, who is really part of the dominant coalition or insider group, and what some of the latent functions of the organization are.

As organizations age and become more complex, the problem of defining clear external and inclusionary internal boundaries becomes more complex. More people—such as salespeople, purchasing agents, distributors, franchisees, board members, and consultants—come to occupy boundary-spanning roles. In some industries, economic circumstances have made it necessary for companies to reduce the size of their “permanent” workforce, causing an increase in the hiring of temporaries or contract workers, who can be laid off more easily if necessary. Macro cultures and organizations differ in their basic assumptions of what organizations and employees “owe each other.”

We see in the United States as of 2016 both a macro-cultural change toward a sense of career freedom and a new kind of “paternalism” in organizations like Google that make work so attractive that employees will want to stay. Cultural assumptions then also come into bold relief when certain questions are raised from a policy perspective: What is a “temporary”? For how long can we keep people in that status? To what benefits if any are they entitled? How does an organization train them quickly in the essentials of the culture? How does the organization deal with the threat that temporaries pose to more permanent members of the organization (Kunda, 1992; Barley & Kunda, 2001).

In summary, defining the criteria for deciding who is in and who is out of an organization or any of its subunits is one of the best ways to begin to analyze a culture. Moreover, the very process by which a group makes those judgments and acts on them is a process of culture formation and maintenance that forces some integration of the external survival issues and the internal integration issues.

Issues in Distributing Power, Authority, and Status

In creating the structures and processes of the organization, it becomes obvious who and what are more important to achieving the goals. The founder has the biggest impact in how he or she distributes the key resources of money, time, space, and materials to different subordinates, thereby creating the basic power structure. By creating a division of labor, the essence of organization, the founder also creates the need for coordination, which eventually turns into some form of hierarchy that, in turn, creates an authority structure. The underlying technology (electrical engineering in DEC and chemistry in Ciba-Geigy) also plays a huge role in that certain kinds of knowledge become the basis of individual power. In knowledge-based organizations, that becomes the basis for the status structure, although, as in Ciba-Geigy, status can also come from family connections or other macro-cultural criteria. It is important to recognize that inside the organization there may be clear consensus on who has power, who has authority, and who has status, but this may be by far the most difficult element to decipher for someone who is not an insider.

A correlated issue in any new group is how influence, power, and authority will be treated and what the rules will be for “deference and demeanor” (Goffman, 1967). The process of stratification in human systems is typically not as blatant as the dominance-establishing rituals of animal societies, but it is functionally equivalent in that it concerns the evolution of workable rules for managing aggression and mastery needs. Human societies develop pecking orders just as chickens do, but both the process and the outcome are, of course, far more complex and varied. In a new group the process of sorting out who will dominate or influence whom and in what way can be messy and unpredictable. But most organizations start with founders and leaders who have preconceptions about how things should be run and, therefore, impose rules that initially determine how authority is to be obtained and how aggressive behavior is to be managed.

Sociologists have shown very convincingly how manners and morals, politeness, and tact are not mere “niceties” of social life but essential rules for how to keep us from destroying each other socially (Goffman, 1959, 1967). Our functioning as human beings requires us to develop a self-image of who we are along with a degree of self-esteem—a sense that we have enough value to continue to function. The word “face” captures this publicly claimed value, and the rules of the social order are that we should protect each other’s faces. If we offend or insult someone by not upholding their claims—laughing at something serious, humiliating or embarrassing the other—it is a loss of face for both parties. Not only has one party failed to uphold his or her claims, but the other party has behaved rudely, destructively, and irresponsibly.

Thus the most fundamental rule in all societies is that we must uphold each other’s claims because our self-esteem is based on it. When we tell a joke, others laugh no matter how unfunny the joke; when someone breaks wind in public, we pretend not to have noticed no matter how loud the sound or bad the smell. Human society of any sort hinges on the cultural agreements to try to uphold each other’s identities and illusions, even if that means lying. We compliment people to make them feel good even if we don’t believe it; we teach little children not to say “Look at that fat lady over there,” even though an obese person is clearly visible.

One reason why performance appraisal in organizations is emotionally resisted so strongly is that managers know full well they are violating the larger cultural rules and norms when they sit a subordinate down to give him or her “feedback.” To put it bluntly, when we tell people what we “really think of them” in an aggressive way, this can be functionally equivalent to social murder. Someone who goes around doing this is viewed as unsafe to have around, and if the behavior persists, we often declare such a person mentally ill and lock him or her up. In his analysis of mental hospitals, Goffman showed brilliantly how “therapy” was in many cases teaching the patients the rules of polite society so that they could be let free to function in that society without making others too anxious (Goffman, 1961). In more traditional societies, the jester or the fool played the role of telling the truth about what was going on, and this worked only because the role could be publicly discounted and ignored.

Psychological Safety. In any hierarchy the subordinate is, by definition, more vulnerable than the superior. Authority systems differ most in how large the psychological distance is between higher and lower echelons, the dimension that Hofstede identified as “power distance.” The manner in which founders create their organization and their personal behavior will have the biggest impact on how this dimension plays out and eventually becomes labeled in the culture. The more complex the task is, the greater the interdependency across hierarchical levels will be, and the greater the need will be to make the subordinate feel psychologically safe in speaking up and telling the truth upward (Edmondson, 2012; Schein, 2009a, 2013, 2016). Macro cultures differ enormously in the degree to which they encourage telling the boss what is wrong or when he or she is about to make a mistake. “Whistle blowing” in high-hazard industries is encouraged to identify unsafe practices, but the career of the whistle-blower is often destroyed. The burden ultimately falls on the higher level person to create an environment in which subordinates will feel encouraged to speak up and will be rewarded for doing so, but the manner in which this may work still depends on the prevailing norms in the macro culture.

To conclude, every group, organization, occupation, and macro culture develops norms around the distribution of influence, authority, and power. If those norms “work” in the sense of providing a system that gets external tasks done and leaves members in the group reasonably free of anxiety, these norms gradually become shared tacit assumptions and critical elements in the cultural DNA. As the world becomes more culturally interdependent, more organizations, projects, task forces, and joint ventures of various sorts will involve members from different nations, ethnicities, and occupations. In the efforts of those groups to develop a working consensus, it will be differences in the deep assumptions about authority that will be the most problematic. A special role for leaders will be to create cultural islands such as were described in Chapter 7, in which it will be possible for members to explore these differences to reach both mutual understanding and new rules for how to manage their own authority relationships.

Issues in Developing Norms of How to Relate to Each Other around Trust and Openness

Every new group must decide simultaneously how to deal with authority problems and how to establish workable peer relationships. Whereas authority issues derive ultimately from the necessity to deal with feelings of aggression, peer relationship and intimacy problems derive ultimately from the necessity to deal with feelings of affection, love, and sexuality. Thus, all societies develop clear sex roles, kinship systems, and rules for friendship and sexual conduct that serve to stabilize current relationships while ensuring procreation mechanisms and thereby the survival of the society. In most organizations, the rules around intimacy will be linked to the rules around authority in that newcomers learn quickly with whom they can joke and with whom they must be serious, whom they can trust with intimate personal details, and how appropriate it is to develop personal relationships with other employees, especially across status or rank lines.

In work organizations, the rules governing “intimacy” cover a broad range of issues—what to call each other, how much personal life to share, how much emotion to display, whom to ask for help and around what issues, how open to be in communicating, and whether or not sexual relationships with colleagues are condoned. I have put quotes around the word intimacy because in most macro cultures there are clear distinctions between the levels of social relationships that I described in Chapter 6. What I have called Level 1 transactional relationships, Level 2 personal relationships such as friendships, and Level 3 intimate relationships between lovers and close friends will be present but the boundaries may vary.

To recap, in Level 1 relationships we treat each other as “strangers” or in specific roles such as customer vis-à-vis salesperson or patient vis-à-vis doctor, and we learn the rules that govern those relationships. They are not emotionally intimate, but the doctor can ask very personal questions pertaining to the health issue under discussion. In Level 2 relationships we treat each other as full human beings and can then be more personal and intimate with each other as in friendships, but we would still not necessarily involve the deep emotional exchange of lovers and spouses that may involve sexual relations.

If we take these levels into work relationships, the question arises of whether or not they should remain at Level 1, in which case we maintain appropriate “professional distance” from superiors, subordinates, and team members, or whether complex work relationships should be at Level 2 to foster the right level of trust and openness (Schein, 2013, 2016). The greater the task interdependency, the more important it is to develop the trust and openness that Level 2 personal relationships imply. All the informal activities that have come to characterize “team building” are efforts to personalize relationships in the interest of trust and openness.

Rules regarding relationships interact powerfully with rules regarding task performance in new organizations, especially multicultural ones where the macro cultures may vary. The specific issue is whether the members of the culture believe that they must establish some Level 2 intimacy with colleagues before they can tackle the task effectively or whether they believe that tasks can be done immediately with Level 1 transactions. Stories abound of meetings where the members of one culture (usually the U.S. culture) wanted to get right to work while members of the other culture first wanted to “get to know each other through various informal activities” (often Asian or Latin cultures). Here again, the leadership role is to become aware of these differences and to create meetings and events where the issue can be confronted and accepted.

In summary, developing rules for how to get along with each other is critical to the functioning of any group and organization. Within a given culture such as the United States, there will be variations among organizations as to the degree of intimacy that is considered appropriate on and off the job. Still, as in the case of rules about authority relations, if future organizations will be more multicultural in terms of nations, ethnicities, and occupations, the potential for misunderstanding and offending each other will increase dramatically. Exploring these rules in a safe “cultural island” will become an essential component of developing organizations.

Issues in Allocating Rewards and Punishment

In a sense this is the human side of the technical problem of measurement and correction. Every group develops a system of sanctions for obeying or disobeying its norms and rules, most of which have to do with task performance but which also includes the important rules for how to get along with each other. It is violations of the rules for getting along with each other that often become the most critical elements of the culture. Those rules are also often the most difficult to learn because they are often implicit until violated. A new employee may be told by a friend, “You must never talk to the boss the way you just did. That was very disrespectful.”

The subtlety of these rules derives from the fact that the founder may not be aware of the signals he or she is sending on what it is okay or not okay to do, and what is the right level of “respect.” Older employees socialize younger ones and, thereby, embed the rules, thereby also making them harder to change if a new change leader wants to change the social environment. Deliberate changes in the reward and punishment system are the most difficult to bring about; they are also one of the quickest and easiest ways to begin to change overt behavior and thereby to begin to change some elements of the culture. Whether beliefs and values change as well depends on how well the new behavior works out in terms of adapting to the new external tasks.

Punishments, like rewards, have local meanings in different organizations. In several high-tech companies that have clear espoused values about not laying people off, people can lose the particular task they are working on and become “boat people” or “wander the halls” while looking for another job within the organization. They will be carried on the payroll indefinitely, but it is clear that they have been punished. Often the signals are subtle, but colleagues know when someone is in the “doghouse” or in the “penalty box.” Actual loss of bonuses or the failure to get a raise may follow, but the initial punishment is clear enough already.

Some organizations develop a “blame culture,” which implies that whenever something goes wrong, someone to blame is found and that person’s career is damaged. One dramatic example was revealed in a cultural analysis of Amoco some years before it was acquired by British Petroleum. Amoco’s managers and engineers explicitly called it a “blaming culture” in which the norm was that if something went wrong on a project, they had to identify who was responsible as quickly as possible. Who was more important than why. The person who was “blamed” was not necessarily punished in any overt way, and often was not even told that others considered him or her responsible. Instead, it was noted in the memory of senior managers as a reason to be less trustful of this person, leading to career limitation. People who were not given good assignments or promotions might never find out why. Consequently, employees viewed it as essential to distance themselves as quickly as possible from any project that might fail, lest they be “blamed” for the failure. This belief prevented Amoco from engaging in a joint venture with another company because if a project failed, any Amoco employees on the project felt vulnerable, even if it was clear that the failure was due to people in the other company.

Deciphering when a person has been rewarded and when a person has been punished is one of the most difficult tasks for newcomers in organizations because the signals are so often ambiguous from an outsider’s point of view. Being yelled at by the boss may be a reward, while being ignored may be a punishment, and only someone farther along in the understanding of the culture can reassure the yelled-at newcomer that she or he was, in fact, doing well. As noted before, teamwork is usually touted as an important characteristic for promotion, but the definition of teamwork can vary all over the map.

What is rewarding or punishing varies with level in the organization. For junior employees, a raise or better assignment is a key reward, while for very senior managers, only a large promotion to a more responsible assignment or progress along the inclusionary dimension counts. Being told company secrets is a major reward, while being frozen out by not being told can be a major punishment that signals ultimate excommunication. Being no longer “in the loop” is a clear signal that the individual has done something wrong.

In summary, the reward and punishment system of an organization along with its assumptions about authority and intimacy forms the critical mass of the culture that determines how people will relate to each other, manage their anxieties, and derive meaning from their daily interactions. How you treat the boss, how you treat each other, and how you know whether you are doing things right or not all make up a kind of rock bottom of the cultural DNA. So here again, as organizations become more multicultural, we will see different systems clashing with each other leading to hurt feelings, offense, impatience, anxiety, and other dysfunctional behaviors until mutual explorations in a cultural-island setting produce understanding and new consensus.

Issues in Managing the Unmanageable and Explaining the Unexplainable

Every group inevitably faces some issues not under its control—events that are intrinsically mysterious and unpredictable and hence frightening. At the physical level, events such as natural disasters and threatening weather require explanation. At the biological and social level, events such as birth, growth, puberty, illness, and death require a theory of what is happening and why to avoid anxiety and a sense of meaninglessness.

In a macro culture heavily committed to reason and science, there is a tendency to treat everything as explainable; the mysterious is just not yet explained. But until science has demystified an event that we cannot control or understand, we need an alternative basis for putting what has happened into a meaningful context. Religious beliefs can provide such a context and can also offer justification for events that might otherwise seem unfair and meaningless. Superstitions explain the unexplainable and provide guidelines for what to do in ambiguous, uncertain, and threatening situations.

For example, in a study of the introduction of computerized tomography into hospital radiology departments, Barley (1984) observed that if the computer went down at an awkward time, such as when a patient was in the middle of a scan, the technicians tried all kinds of remedial measures, including the proverbial kicking of the machine. If the computer resumed operating, as it did occasionally, the technician carefully documented what he or she had just done. When engineering arrived on the scene, it was made very clear to the technicians that what they had done had “no conceivable connection” to the computer coming back up, yet this “knowledge” was carefully written down in a little notebook and passed on to new colleagues as part of their training. In a real sense, this was superstitious behavior, even in a realm in which logical explanation was possible.

Stories and myths are useful not only to explain the unexplainable but also to affirm the organization’s picture of itself, its own theory of how to get things done, and how to handle internal relationships (Hatch & Schultz, 2004; Pettigrew, 1979; Wilkins, 1983). Many of the things we “know” are, ultimately, based on what I have called social consensus, which often makes them just as firm as superstitions.