Corporate culture & market

Is there a good or a bad culture? When people talk about the organisation culture of a particular company and mention that they have an excellent corporate culture they usually want to express, that this culture suits them. Most often they just concentrate of a few aspects of that culture only – their relationship to the superior and the colleagues.

Obviously this gut feeling definition is not very helpful in our context. For any organisation only a successful culture can be a ‘good culture’, a culture which drives success. Success itself depends on the interaction of the corporation with its context – market, first of all, but also society, political set-up and some more environmental factors.

Much dispute is recently going on about corporate agility or flexibility which is declared to be more important today than ever culminating in a – like the Gartner Group called it – real time enterprise (RTE). On the other hand lots of concerns have been raised on the ever growing complexity driven by governmental regulations and other compliance necessities, by some ill-designed legacy IT or simple driven by the forces of saturated markets towards specialisation. And third we share the perception that the more the complexity of an organisation grows the less flexible it can be and vice versa.

How efficient now, how flexible should a corporation be? Well, about 2 posts back I explained that the answer to this question is not so much about free choice but seems to be determined by market forces. What we perceive as our standard organisation for large corporations is based on the scientific management dating back to the early days of last century. Those people – among who was the famous Frederick Winslow Taylor – for the conditions they found themselves being in: unsaturated markets, unlimited supply by – yet unskilled – workers, and still no automation for white collar jobs defined the industrial standard organisation.

To understand that this has not been just done by accident but there were compelling reasons for that specific outcome lets try to imagine what kind of organisation responds best to four different required characteristics: low to high flexibility and low to high complexity like in the portfolio diagram “specialisation versus flexibility”.

Let’s examine the four quadrants:

1. Quadrant – Generalist in a static environment
   In an environment with low change rate (static environment) and easy conditions (e.g. unsaturated market, low competition …) actors at first don’t need to be very specialized. A relatively simple organisation (low complexity) may serve the needs. The companies may thrive and grow but need not change much beyond that.
   
   But the longer these good conditions last the more competitors are attracted. Competition increases. Finally, when there is high competition, only the strongest survives: it competes through size (economy of scale).
   
   Such universal success models are found in nature as well: sharks exist with few changes and low specialisation since 400 million years. Dinosaurs ‘ruled’ the world for more than 160 million years – until conditions changed radically.
   
   
2. Quadrant – Specialist in a static environment
   Those which were less successful in the static environment either left the game or specialized into smaller niches where the big players were not able or did not want to follow.
   
   For conquering ecological niches highly adapted efficiency specialists were required. In order to outperform the generalists they had to build a higher complexity. This excess complexity well paid off in terms of the survival of the fittest. For organisations this means, that the hierarchy needs to be overlaid by delivery relationships from special purpose groups / experts.
   
   Niches are defined by high market entry barriers. So – for a while – the new niche dwellers were equally sheltered by these barriers as they were confined to their niches.
   
   Wildlife offers many examples of such niche dwellers: the polar bear is perfectly adapted to the polar region - and highly endangered as this niche is threatened by global warming. The camel is another example of a highly specialized creature – in this case to deserts.
   
   

3. Quadrant – Generalist in a dynamic environment
   But what if environmental condition tend to change more rapidly not allowing for much specialisation and turning large and complex organisations more into a burden than into an advantage.
   
   In this cut-throat competition scenarios flexibility turns out to be of major advantage. Flexible process innovators outperform economy of scale; the fast beat the big. Often the first mover advantage counts more than the highest efficiency or the optimal product design.
   
   For corporations this means to leave well known and understood territory and to explore the unknown. As the right answer to new challenges is not always obvious parallel solution finding streams – aka redundancy – must be tolerated to gain at least one feasible solution within a given time frame. Also hierarchical communication turns out to be less effective. Increasing dynamics require a different organisation, hence a different culture.
   
   In nature the wolfe is a good example. The wolfe has proven to survive under changing conditions from the arctic to the Indian jungle (remember the ‘jungle book’), from deserts to high mountains. And another new feature helps him in this game: the social system as the wolf most often does not compete as a single individual but as a collectively organized group.
   
   
4. Quadrant – Specialist in a dynamic environment
   And what’s about the 4th quadrant? Can it be populated as well? Are there organisations possible which are at the same time specialized and agile? So can they take advantage of “windows of opportunity” which opens just for a short while?
   
   This is the least traditional scenario and it is hence still not well understood in terms of corporation organized appropriately to thrive in this environment.
   
   To my understanding the swarm is the most appropriate organisational metaphor for these agile specialists: highly collectively organized nomads.
   
   In the wild again migrating animals like migrant birds could be the solution Mother Nature has found to this challenge – after millions of trials.

Each for the four prototypic optimal organisations result in a typical organisational culture. Considering the whole chain of influences we can conclude, that the environmental conditions (market) determine the culture in the organisation.

After laying out this big picture I like to receive some comments on it. And after we have found a widely agreed model it would be the next challenge to build a metric of the corporations’ complexity and its agility. Having these metrics at hand and performing measurements of existing corporations could allow us to position them in the survival portfolio. Perhaps this would give us a diagnosis instrument for the appropriateness of a corporations organisation.

Banking cultures – a case study

The situation

A small but well regarded German bank specialized on advisory in mergers and acquisitions situations had decided merge with a larger Italy based investment bank. As in these days the banking crisis was looming already it seemed to be a good idea to join forces with a stronger partner.

However during the merger process problems arose when the German IT had to be integrated into the central Italian IT. The overtaken company’s success unlike the advisory operations in Italy and a smaller outpost in France was deeply rooted in its vast and intensive use of information technology. The German advisory experts had reason to fear to become cut-off from the very roots of their success which gave them the competitive edge in the past. Communication about this issue by some unknown reason had come to a grinding halt. The situation looked troublesome.

We were asked to analyse the situation and come up a recommendation how to solve this uneasy situation which threatened to disturb that otherwise very smooth merger process.

Does Advisory need to run its own IT?

We quickly found out that advisory as an experts driven business has specific requirements to the IT-support. These requirements are different from those of the traditional operational banking business:

• The Advisory operational model is different; hence advisory is best organized as an expert network – not common for a bank.
• Consequently advisory has different requirements to the IT-support: the operational bank IT looks distinctly different from an advisory IT.
• German Advisory’s success was deeply rooted in its IT. The operations of the German advisory were characterized by some basic principles being source of their very specific success.
• Most of the communication flows were contained within Advisory only: by far the most information flows within the advisory group – few outside.

While digging through the IT issues and after visiting the different sites we secondly found out that there was much more about it than just simple IT questions. And indeed the IT people on both sides were brilliant enough to find appropriate answers to any technical questions. But they were inhibited by a kind of culture clash. And as we had found that the local German advisory IT was the straightforward implementation of their business needs, their specific corporate culture mirrored their operational model as well. So in a way IT and culture were siblings.

Find some details in the following table:

Bank IT Regulatory compliance 7 x 24 operation No “service is down” requirement Secure & reliable operation Service release after security audit & formal sign-off Standard processes to support a large corporation Mature IT-systems in place Standard decision cycles Secure & compliant communication Support of paper based processes Supply of secure but rigid standard processes Theory X Management style

Advisory IT Individual business support near-7 x 24 support High but not 100% service is up requirement Releasing new services on demand Due effort & diligence is sufficient. Deep knowledge of specific needs necessary to deliver tailored services. Leading edge IT-environment. Very short decision cycles Barrier free ubiquitous communication Paperless operation Supply of an expert’s tool set for free configurable use. Theory Y Management style

Before coming to any conclusion let’s first dig a bit deeper.

The Advisory operational model is different

To support our finding, that the advisory IT is ‘different’ let’s compare the two models:

Banks are typically organized in a pyramid structure:

• They follow an industrial model known as Taylorism.
• This model is best suited for the mass production of uniform products by unskilled workers for an unsaturated market.
• Value creating processes are split into the operational part and the managerial part creating room for a thick layer of ‘middle managers’.
• The major focus is on compliance and efficiency not on flexibility.
• This model is best adapted to a static environment where its organisational complexity does not come to its disadvantage.

Advisory on the other hand is a specialized financial service:

• It relies on few high volume projects.
• The tasks need highly professional experts.
• The very model requires continuous flexible adaptation to the customers’ specific needs.
• In this case effectiveness outweighs efficiency.
• Core processes are created, adapted & controlled by the experts themselves.
• Only few low level operational activities remain.
• The resulting post-tayloristic organisational structure resembles a diamond.
• It is best organized as an expert network – not very common for a bank.

In my previous post I had already pointed out, that different ways to do business require different organisational structures – which in turn result in different cultures by the time.

German advisory’s success was deeply rooted in IT

The operations of German advisory were characterized by some basic principles:

• Confidentiality
• Dealing with confidential customer information is a key requirement of the advisory business
• Information leaks may cause the loss of a customer and additionally to compensation claims.
• Open information policy
• Internally the working style is characterized by a free flow of information.
• Transparency has only a few limitations.
• Massive use of information technology
• Very specific and possibly critical to the success in the past is the massive use of modern information technology.
• Major focus is on communication support and knowledge management.
• Sophisticated controlling
• IT-based Controlling functions allow for a detailed time tracking and reporting by person and project.
• Project risks can be controlled this way.
• Knowledge management
• The primary work on customer projects relies on IT-functions.
• Hence all information is originally created electronically already.
• To maintain this knowledge for later use the storage of huge amounts of data is taken in to account.
• Paperless office
• Paperless operation is a remarkable speciality of the German advisory.
• To enable this procedure incoming paper mail is scanned immediately and forwarded electronically.
• Even legacy documents have been treated this way after introduction of scanning.
• As a major (even competitive) advantage all documents are accessible electronically for remote users too.

At first glance it becomes obvious, that of the key success factors like ‘Massive use of information technology’ and ‘Paperless office’ are true IT positions. Others like ‘Confidentiality’ and ‘Open information policy’ refer to the special way to cooperate and perform their tasks – hence culture. And in a third group (‘Sophisticated controlling’ and ‘Knowledge management’) finally both factors contributed to the corporation’s success: a special corporate culture and an aggressive yet adequate IT deployment.

Our findings gave some food for thought already to the Italian headquarters. But the question arose how synergies could be gained in this special situation and what would be the optimal degree of integration of the newly acquired German subsidiary into the whole group.

Most of the communication flows within Advisory only

When looking at the internal communication we found out, that by far the most information flows within the advisory group – few outside. From our observations we concluded, that inside the merged Bank …

• communication flows will be strongest within a location,
• less bold lines can be drawn between the locations within the Advisory group, and
• comparatively tiny flows are expected from the advisory group to other areas of the merged bank.

So, there was a strong indication, that communication structure of the advisory group is merely independent within a merged bank’s structure too.

Conclusion

Our final advice finally boiled down to: stay independent but carefully look for synergies! The Advisory group should therefore maintain an independent European IT. But while staying independent both IT groups were encouraged carefully look for synergies. Those were expected most easily to be found in the lower level s of the infrastructure and less probably in the higher application specific levels:

• The Advisory group, especially in Germany, must not cut off its roots of success – where IT plays its part.
• The overall strategic interest is best served by balancing the individual business needs vs. the common group interests.
  
• It seems to be wise to keep the flexible advisory IT apart from the highly regulated traditional bank IT.
• From the position of independence both parties should be encouraged to carefully look for synergies.
• As business models differ, so does the IT support - but there is common ground too: chances for synergies exist in the lower IT levels.

But the most stunning findings for all participants were, that on one hand the way we work (processes) is firmly rooted in the way those processes are technically supported (IT). But on the other hand this way of working is the result of our values, beliefs and behaviour – in short, our culture:

IT follows processes follows culture.

In order to lead to an exceptional success these three components need to be carefully fine tuned to mutually strengthen each others. But this balance can easily be destroyed by taking the wrong decisions – perhaps haven the best intenstions.

Structure follows market – and so does culture

Some of you might remember the American historian, Alfred Chandler’s wise words: “structure follows strategy” which Richard P. Rumelt cynically turned into “structure follows fashion” … well different story.

But I recently came to know, that “culture follows market”. How this? Isn’t this a bit far-fetched? Well, let me explain.

When Henry Ford I had the idea to provide the American people with personal cars he approached an empty market, an unsaturated marked with a huge sales potential. This would have stayed just a potential if not a group of economists at the same time had defined the theory of “scientific management”. The probably most well-know member of this movement, Frederick Winslow Taylor, lent his name to this movement Taylorism. It was about high scale mass production according to pre-defined and pre-optimized efficient processes.

Influenced by these people consequently Henry the Ford T Model cars which left Fords assembly lines were sold in every colour as long as it was black (because black at that time was the colour which dried most quickly).

The model worked fine and Ford thrived. America got motorized. A new age was born. And the “scientific management” model became synonymous with management anyway – and it still is today, more than 100 years later.

These early unsaturated markets demanded high numbers of uniform yet affordable products. Unskilled worked had to be hired from the streets to become productive workers overnight. This a whole organisational layer of middle managers had to define and tailor (no, not taylor) their processes, tasks, assign time-slots, the work place and so on and they had to supervise them and manage them to get the best out of them. In short, they invested high efforts to refine and optimize the business.

And the big bosses at the top were thinking about new market, new technologies, new product lines, in short strategies. The classical three-story pyramidal hierarchy was born. Its organisation is highly adapted to efficient mass production with the tendency to become more and more optimized to be come fit for this special purpose. With optimisation came complexity – but it was worth it because it paid off on the long run. Flexibility, change robustness, adaptability or – to use a word which is en-vogue nowadays – agility were non-issues.

But once the markets were saturated the picture turned completely. Now a standard model no longer was sufficient, having a car per se was not the big achievement like before, for the 2nd one the experienced customer turned out to be more demanding: other colours, different from black, open-tops, pick-ups, sports cars, family cars, station wagons, Pullman limousines, and on top model changes every two to three years.

The environment became much more dynamic. And in a dynamic environment multiple complex decisions have to be made. In the Taylor pyramid with its potential information flow bottlenecks at top level this situation easily leads an information overflow. The demand for increased corporate agility put the whole structure under heavy stress. The increased organisation complexity which delivered so excellent result throughout all the years turned into a heavy burden by the time.The natural organisational response to these new challenges is a less hierarchic, more networked organisation – the expert diamond. It offers higher agility at the cost of lower efficiency.

In the experts diamond peers communicate directly. Management functions merge with operational functions to independent self optimising processes. Experts led by principles follow their own autonomous decisions. They make autonomous but visible decisions.
For leadership the consequences were: the „boss“ becomes a coach rather than the „1st clerk“. Mutual respect of personality and competency replace daily order and detailed rules. The culture has to adapt from “feudal” to “team oriented”.
Lets compare how this organisation changes necessarily influences the corresponding best adapted organisational culture: Taylor Pyramid vs. Experts Diamond.

Pyramid culture Lead by orders and rule Tightly managed departments Remuneration on hours works Penalties on failures Secret knowledge Safe jobs through rigid structures Working for money Vertical communication only External control of work Predefined jobs Operation & control are split Distrust

Diamond culture Lead through principles and values Autonomously acting teams. Remuneration based on success Rewarding success Shared knowledge Confidence through cultural integration Self-confidence through visible contribution to success Direct peer-to-peer communication Self controlled work Evolving (self organising) jobs Self optimizing processes Trust

In large organisations however it can be found that areas of different requirements with respect to the efficiency to agility ratios may well coexist. We found such examples in European banks with a retail-LoB which had to be highly optimised towards efficiency, reliability and compliance with regulatory regulations. Additionally there was a corporate advisory LoB where highly skilled experts had to flexibly solve ever new and differently demanding tasks: two organisations, two cultures, two “hearts” within one large corporation.

This means that whereas in a static environment the best adapted specialist wins. In a dynamic market the adaptable generalist is the winner. Only a few corporations are equally well positioned in both environments.

But in fact successful corporations need the power of the two distinct cultures. Highly efficient processes need an industrial organisation. Market driven substructures need an expert’s network organisation.

For those organisations taking advantage of “the power of the two hearts” obviously is key to success.

Lets remember that market forces determined the organisational structure and the structure in turn led to a specific ‚best suited’ corporate culture. Hence Structure follows market – and so does culture.

The flow-channel

The balance of challenge and capability ...

Collectively organized groups in modern working environments have to respond to more or less the same type of challenges like the archaic wolfs pack in the free wild nature.
Within western style economies and even more in the emerging Asia a fierce competition among corporations forces them to put the best of the grip on the top position and every one else to the position where he / she fits best in terms of the overall sustaining group success.

But there is more to it. While the single wolf needs not to be motivated to contribute to the packs overall success it is different when it comes to people in a typical working environment.

Much has been written about how to motivate employees, about Douglas McGregors X-, and Y-type employees or William Ouchis Z-type variant. But it was evolutionary biology again which told us, that there is an archaic underlying force on instinct level which highly influenced motivation at work: curiosity.

• Curiosity is a general human trait.
• It can be found with animals as well.
• Evolutionary biology tells us that curiosity is driven by safety needs.
• This means curiosity explores the unknown and hereby generates the necessary safety.
• Successes achieved along this way result in a deep satisfaction, called flow.
• Flow generating works is perceived as being satisfactory.
• Work organized according to the principles of Frederick Winslow Taylor which is reduced to purely operational tasks and stripped off any self controlling elements become routine - or even boring.
• A too demanding (unknown) task however generates uncertainty, uneasy feelings or even fear.
• And there in-between the optimal path is located the flow-channel, where the challenge meets the workers capabilities - and stretched them a little bit; where work is fun.
• Self-determined work in a dynamically changing environment needs to be positioned within the flow-channel.

Working in the flow-state means work is fun. And when challenging and interesting work which drives the workers capabilities to a higher level is experienced as satisfying we finally get the long awaited motivation.
But it is a very intrinsic motivation. You cannot clumsily motivate a person by offering him money or privileges. It will at least not sustain and will not raise his self esteem. Rather it has the smell of being bribable.

Accepting the wide spread insight that motivated workers - flow workers - deliver better results, and contribute more to the collectives common success, we need to tailor the work place and the tasks assigned in a way, that they may enable flow.

Achieving optimal performance in the growing knowledge worker model seems to be highly dependent on reaching the flow state. Traditional leadership styles will probably not be the optimal response to this development. A different way of working will need a different leadership style resulting in a changed corporate culture. The good news is that this culture could well be in line with our basic instincts.

naviMap

Leadership in collectives

There is an ancient heritage that is common to all of us - and even not only to human beings. It is much more archaic more systemic than the obvious commonalities of all humans. It's about the common characteristics of species living in collectively organized groups which gave them an evolutionary advantage.

These systemic roots of collective behaviour have been uncovered by evolutionary biology just a few years ago.
The rules of successful group behaviour
So what are the key success factors of successful leadership in any collectively organized groups - let's simply call them collectives?
Let's first state some guiding principles …

• Good leadership means successful leadership.
• Successful leadership in turn is a leadership which leads to sustaining collective success.
• Successful leadership goes alongside the human instincts - not against them,
• The ranking within a successful group must be determined by the contribution of the individual to the collective's success.
• The chance to reach a higher rank will stimulate the individual's performance.
• Contributions to the collective's success must be rewarded adequately.

These are the roots of collective success (and failure) which have been deeply engraved into the mental firmware of all of us by evolutionary biology.
These are the rules of successful group behaviour in the struggle of live of all collectively organized groups - for a wolfs pack as well.

The Balance of 2 forces determines the group's success

In successful collectives two fundamental forces are carefully balanced: aggression and commitment.

• In successful groups these forces are allowed to unfold unrestrictedly.
• The common principle of leadership through the best permanently questions the established leadership structures.
• Change is driven by aggression of those who see their chance. This is our heritage form evolutionary biology.
• The winner is rewarded by promotion, privileges and / or appreciation,
• The looser is threatened to move in the opposite direction: getting downgraded, stripped off privileges and being less well regarded.
• But the group will only be successful if the looser accepts the winner's victory - because he /she obviously is the better one.
• To make this possible, adequate rituals for self subordination and conciliation need to be in place in order to effectively terminate the rivalry for both parties.
• As a result of this re-ranking from the group perspective the better one has the higher rank enabling him to contribute even more to the collective success.
• On the other hand the downgraded member has accepted the re-ordering. His contribution is not lost. He is still committed to do his best for the collective.
• The recipe for sustaining group success is the careful balance of aggression and commitment.

In a rapidly changing world where the dynamic is high and re-ranking occurs more often, the binding forces based on self subordination and conciliation must be equally strong. A winning individual is not enough; in the end a winning team is required.

cultural layers

Corporate cultures don’t exist in isolation. They are usually embedded into a national culture. Even multinational companies’ cultures in most cases are dominated by the original founding environment.

But is that all already? If we take a closer look we can detect a fine structure consisting of several layers; each representing some local entity.

Let’s take an example: I once was asked by a company located in the German city of Neuss if their corporate culture should be considered as an enabler or rather as an inhibitor for the implementation of some strategic changes.

So the 1^st step was to assess their corporate culture. I found, that there were indeed several layers:

1. The 1^st cultural layer below the corporate culture that influenced it was some typical Neuss contribution. Neuss, located at the left banks of the river Rhine is one of Germanys oldest settlements and dates back to roman times. But what is even more important is that in the late middle ages Neuss was a rich merchant’s metropolis and clearly outperformed its rivalling neighbour Düsseldorf those times – very much unlike today.  And not surprisingly the citizens of Neuss never miss an opportunity to demonstrate that they are different from Düsseldorf. They are more sober than those silly people from opposite the Rhine, they work harder and value the celebration of their local town guards shooting competition much higher than the carnival … and so on. Yes, there was some kind of attitude among the corporations employees: “We need to be better because we have to outperform those bloody Düsseldorfians!”.
   
2. The 2^nd layer could be called the Rhineland contribution. Indeed there is something in common among all inhabitants of the so called Rhineland. There is the legendary cheerful Rhinish nature, the enduring influence of French occupation by Napoleon Bonaparte. You can feel some form of hidden resistance still when you see them dancing in ancient French army uniforms at carnival. Later when the French troops withdrew their resistance was directed towards their new rulers, the Prussians because in the wake of the French revolution Napoleon also had brought them a modern political system as opposed to the traditional Prussian corporate state. So there is still some resistance against / making fun of authorities to be felt in their local culture.
   
3. The national influence could only be found in the 3^rd layer in this case. Certainly there is something like a typical German cultural element. Although in general the variance within a country is usually higher than the difference between two countries’ averaged cultures some typical German cultural elements can be factored out. The ‘German culture’ first of all is determined by the common language which has been synthesized from the central European local dialects – a (typical German?) attempt to achieve some unification and order. Then there is the common history – but to a much lesser extend, as it was not so common for all of the Germans for many years and rather than unifying the people left deep rifts between the catholic south and the protestant north, the ex-GDR east and the lucky rest. And finally we have our constitution, our ‘Grundgesetz’ which is incomplete in a sense and hence typical German as well.
   
4. There are several ingredients of what Germans consider as part of their very culture which are in fact common to a European layer, the 4^th layer. First the Christian background in common to most Europeans may come into our minds. To my opinion the influence is definitely there but it should not be taken too literally. Christianity over the centuries of is existence has suffered too much from continuous fragmentation followed by fierce rivalry and bloody religious wars then to serve as a firm common ground. But besides all scars from ancient and recent fights a fuzzy common understanding still has survived. Possibly it boils down just to the bible, the Ten Commandments and the common feeling, that they all together differ from other religions. More important for the typical European flavour and more distinguishing from the rest of the world seem to be the Enlightenment, the French Revolution, the labour movement, in general the (to a certain degree successful) fight for  freedom of thought, civil rights and a civil secular constitutions. This is what our forefathers spilled their blood for during the last few centuries. This is what Europe distinguishes most from any other cultural region. The allegory ‘enlightened liberal Europe versus despotic east’ might be a bromidic inequation but it nevertheless still fuels many cross-cultural conflicts.
   
5. And finally there is a 5^th layer which is common to the whole family of mankind. It is taken as given because it cannot be used for differentiation purposes – at least as long as we don’t have to conduct disputes about culture with aliens. All human beings tend to conduct wars and to make peace, to trade and do business – even with enemies, to believe in religions regardless whether strictly or more relaxed. We all – at whatever level – established some kind of civilisation we live in and we regard as indispensable. This layer comes into sight in cases only when values and behaviours are requested from us which are clearly beyond any human common ground.

May be there are more – intermediate – layers which I did not consider to worth an extra category. Race for example is not among them as to my perception race – apart from being poorly defined – doesn’t contribute to our cultures. It is only used as an instrument to distinguish from ‘the others’.

But there is surely an ancient heritage that is common to all of us – and even not only to human beings. It is much more archaic more systemic. It’s about the common characteristics of species living in collectively organized groups which gave them an evolutionary advantage.

These systemic roots of collective behaviour have been uncovered by evolutionary biology just recently and will be laid out in a bit more detail in my next contribution.