CHAPTER 7 - CREATING AND MANAGING ORGANIZATIONAL CULTURE

1. What Is Organizatina! C"!t"r#$

People are a companys most valuable resource. A company can control and motivate its people through organizational culture.

Q. What is organizational culture?
A. Organizational culture is the set of shared values that control interactions among company members and with eternal sta!eholders. An organization
usually has two types of values" terminal and instrumental.
Q. What is the difference between a terminal and an instrumental value?
A. A terminal value is a desired outcome or end state# whereas an instrumental value is a desired behavior$ instrumental values accomplish terminal values.
%mployee ris!&ta!ing 'an instrumental value( helps achieve innovation 'a terminal value(.
)erminal values are written in the mission statement and official goals# but instrumental values are conveyed through rules# norms# and standard operating
procedures '*OPs(. )he most influential values are unwritten and reflected in shared beliefs and norms# acceptable standards of behavior. Over time# rules #
*OPs# and norms are internalized.
Organizational +nsight ,.-" .ow /lobal 0ulture Affects Organizational 0ulture
)his insight discusses how a 1.*. organization and a 2eican organization formed a 3oint venture that failed due to cultural differences.
Q. .ow can a countrys culture influence the culture of the organization?
A. )he two are very much intertwined. 4oo! at how the 2eican cultures wor! schedule differs from the 1.*. cultures. )his would very much affect the
success of the 3oint venture# as this case shows. )he terminal and instrumental values of each culture was very different# causing problems that were not able
to be solved.
Organizational +nsight ,.5" 2ergers and 0ulture
After 6an!America and *ecurity Pacific merged# they discovered dramatic differences in the way that each organization conducted business. 6an!America
was much more conservative in its decision& ma!ing style# and believed that its culture was the one that the organization should adopt.
Q. .ow did 6an!America go about changing the culture of the new organization?
A. 6ecause it was the dominant organization# it stripped authority from *ecurity Pacifics managers and too! control of the new organization# all within a
couple of wee!s after the merger.
%. H& Is an Organizatin's C"!t"r# Trans(itt#) t Its M#(*#rs$
)he method of conveying values influences the culture to motivate employees and increase organizational effectiveness.
Q. .ow can culture can be communicated to new organizational members?
A. 7ewcomers learn values from formal socialization and informal stories# ceremonies# and language.
-+,ia!izatin an) +,ia!izatin Ta,ti,s
7ewcomers become insiders when they internalize organizational values.
Q. .ow does a newcomer learn values?
A. Watching eisting members and determining appropriate behavior lets newcomers learn indirectly# but they also learn unacceptable practices.
*ocialization# the process of learning and internalizing norms# assures that members learn appropriate values.
A socialization model by 8an 2annen and *chein# suggests that structuring socialization teaches newcomers !ey values. R!# ri#ntatin is the
characteristic way newcomers respond to a situation. ')able ,.-(
Q. 7ame two types of role orientations.
A. Instit"tina!iz#) r!# ri#ntatin. 7ewcomers respond the same way as eisting members do.
-In)i-i)"a!iz#) r!# ri#ntatin. 7ewcomers respond creatively and eperiment with changing norms and values.
9ifferences between the two include"
&C!!#,ti-# -s. In)i-i)"a!. 0ollective tactics consist of common eperiences to generate standard responses. +ndividual tactics allow newcomers to learn
new responses.
&.r(a! -s. In/r(a!. :ormal tactics separate newcomers during learning$ informal tactics encourage learning on the 3ob.
&+#0"#ntia! -s. Ran)(. *e;uential tactics establish a se;uence for activities$ random tactics are based on newcomer interests and needs.
&.i1#) -s. 2aria*!#. :ied tactics provide a specific timetable for each stage$ variable tactics set no timetable.
&+#ria! -s. Dis3"n,ti-#. *erial tactics use eisting members as role models and mentors$ dis3unctive processes develop individual behavior.
&Di-#stit"r# -s. In-#stit"r#. 9ivestiture gives members negative social support 'neglect( until they conform to norms. +nvestiture gives positive support
immediately.
)hese tactics influence role orientation$ military&style socialization leads to an institutional orientation.
Q. What are the dangers of institutionalized socialization?
A. +t produces sameness among members# ma!ing it hard to adapt to changes.
An organization chooses institutionalized or individualized tactics based on goals. :or predictability and standardization# institutionalized tactics fit$ for
innovation# individualized tactics fit.
-+tri#s4 C#r#(ni#s4 an) Organizatina! Lang"ag#
*tories# ceremonies# and organizational language convey cultural values. ')able ,.5(
)here are four organizational rites"
-. Rit#s / 5assag# signify entry to# promotion in# and departure from the organization.
5. Rit#s / int#gratin build bonds between members 'an office party or coo!out(.
<. Rit#s / #nhan,#(#nt are public recognition of employees 'news releases and awards dinners(.
=. Rit#s / )#gra)atin denote involuntary departure# allowing a change or reaffirmation of values.
Organizational +nsight ,.<" )riad *ystems 6uilds a 0ulture 6ased on *uccess
)riad *ystems# a computer company# uses rites to enhance its culture. )riad has won a national ;uality award# and its sales have eceeded forecasts every
;uarter.
Q. What does )riad do to enhance culture?
A. )riad uses rites of integration and rites of enhancement. At its annual trade show# the company rewards almost half of its -#>?? employees for focus#
innovation# and teamwor!. )he show serves as a rite of integration because the employees shared eperiences encourage teamwor!. )hese rites foster a
cooperative and innovative culture.
*tories# ceremonies# and organizational language communicate cultural values. *tories and language reveal the type of behaviors the company values and
those that are frowned upon. 4anguage includes not only speech# but also what people wear# their offices# their company cars# and a formal manner of
addressing each other. )echnical language facilitates mutual ad3ustment 'sports team(.
Q. What company evo!es conservative values# and how are those values conveyed?
A. )he military# Arthur Andersen# and %9* have strict dress codes# nice offices# and nice company cars and spea! formally.
Q. What company evo!es innovation# and how are those values conveyed?
A. 2icrosoft and <2 are more informal# have a casual dress code# and use technical language.
Organizational +nsight ,.=" site@O0As 2ilitary 2anagement 0ulture
A high&tech# dot&com organization goes against the norm and implements a culture similar to that of a military organization. )his has resulted in an
organization that provides high levels of customer service.
Q. .ow did site@O0A develop an institutionalized role orientation?
A. All processes and procedures are in writing. )hey also implemented Btwo&manC norms that allowed co&wor!ers to wor! with a partner in solving
problems.
*ymbols also reveal an organizations values$ office size# location# and luury communicate images about an organizations values. +solating the corporate
office conveys the image of a hierarchical and status&conscious organization. A building design can be a symbol$ )eam 9isney 6uilding has offices# a
restaurant# and a patio connected to a garden to show the value 9isney places on imagination and creativity.
2anagerial +mplications" Analyzing Organizational 0ulture
2anagers need to study the culture to identify terminal and instrumental values. Are goals# norms# and rules effectively transmitted? 2anagers should
eamine socialization methods and loo! for ways to improve the process. 2anagers should develop ceremonies to teach values and enhance commitment.
6. Wh#r# D#s Organizatina! C"!t"r# C(# .r($
Organizations have different cultures due to the interaction of four factors" people# ethics# property rights given to employees# and structure. ':ig. ,.5(
-Chara,t#risti,s / P#5!# &ithin th# Organizatin
0ompanies attract# hire# and retain people with different values# personalities# and ethics. People are drawn to companies with values similar to their own. As
people and values become more similar# organizational culture becomes more uni;ue. )he founder impacts the culture by setting the initial values and hiring
the first employees.
Organizational +nsight ,.>" Proctor D /ambles 0ulture is .ard to 0hange
Proctor D /amble 'PD/(# the well&!nown soap and detergent company# has a distinct and insular culture with a strong and homogeneous set of values.
Q. What were the problems with PD/s culture?
A. )he values and norms of consensus and obedience to the hierarchy and respect for authority made employees sound ali!e# thin! ali!e# and loo! ali!e.
PD/ had become a bureaucratic nightmareE
Q. .ow did the new 0%O change the culture?
A. )o instill a new entrepreneurial spirit with ris!&ta!ing# the 0%O fired ->#??? employees and made Bstretch# innovation# and speedC the new terminal and
instrumental values. @ewards are now based on the ability to increase PD/s value.
-Organizatina! Ethi,s
)he cultural values of the founder and the top managers are beyond an organizations control. Fet an organization can cultivate ethical values to control
employees through guidelines for appropriate behavior. %thical values are an inseparable part of organizational culture.
Organizational +nsight ,.G" Apple Huice or *ugar Water?
+n the -IJ?s# 6eech&7ut# a ma!er of baby foods# selected a low&cost supplier to save K5>?#??? a year. An @D9 specialist revealed that the concentrate
contained corn syrup# sugar# and malic acid# but managers sold it as pure apple 3uice. )he :ood and 9rug Administration ':9A( investigated and fined the
company over K5 million.
Q. What ethical values were violated?
A. 6eech&7ut violated societal ethics codified in law. )o reduce costs# 6eech&7ut bro!e the law and threatened consumer health. )op management failed to
instill ethical values.

P#rsna! #thi,s influence organizational ethics. Personal ethics stem from societal ethics and an individuals upbringing.
-Pr5#rt7 Rights
0ultural values arise from property rights# the rights given to sta!eholders to receive and use organizational resources. *hareholders have the greatest
property rights# because they own the resources and share in profits. ')able ,.<(
Q. 7ame the property rights given to managers and employees.
A. 2anagers receive golden parachutes# stoc! options# large salaries# control over resources# and decision&ma!ing authority. %mployees receive notification
of layoffs# severance payments# lifetime or long&term employment# pension and benefits# stoc! ownership plans# and decision&ma!ing opportunities.
%mployees rights may be limited to wages# health insurance# and pensions. Property rights shape employee behavior and determine organizational
effectiveness. *trong property rights at *outhwest Airlines result in employee loyalty.
Organizational +nsight ,.," A 0lash of )wo 0ultures
/eneral 2otors '/2( bought %lectronic 9ata *ystems '%9*( in -IJ,# and a clash emerged over property rights.

Q. Why did /2s divisional managers refuse to sign contracts with %9* to benefit /2 as a whole?
A. /2s managers had different behavioral epectations. )hey received straight salaries without performance based rewards# whereas %9*s employees
received stoc! options based on contract profits. /2s managers refused to have %9*s managers# also /2 employees# benefit from mar!ups on contracts
with them.
T5 Manag#(#nt an) Pr5#rt7 Rights
)op managers determine their own property rights" terms of their employment# salaries# benefits# pension# and termination agreements. 6ecause top
managers decide how property rights are distributed to others# they influence culture.
Organizatina! Insight 7.89 :i(*a Chang#s Its Pr5#rt7 Rights +7st#(
)he property rights system changes an organizations culture. 6imba 2anufacturing 0ompany# a producer of aluminum cylinders# had a rigid culture in
which employees followed orders. 0ultural changes in -IJ, increased sales by ,? percent and the wor!force by ,I percent.
Q. What did 6imba do to change its culture?
A. 6imba changed its property rights system. )he owner created an employee stoc! ownership '%*OP( plan in -IJ,# sold I? percent of the company to
employees# and instituted a more cooperative culture. %mployees tried to increase ;uality to meet customer needs. 0ross&functional teams including
managers shared concerns and met with customers. 2anagers functioned as advisors not bosses. )eams hired and socialized their own members.
Can Pr5#rt7 Rights :# T +trng$
Property rights affect performance positively but can also be too strong. +62 had a conservative culture because employees had the rights of lifetime
employment. %mployees feel ownership for their position# resulting in conflict and power struggles.
Organizations must assign property rights based on performance and continually evaluate the property rights system.
-Organizatina! +tr",t"r#
Organizational structure# the formal system of rules and tas! and authority relationships# is a source of culture. 9ifferent structures lead to different cultures.
Q. What terminal values will a mechanistic structure achieve?
A. A mechanistic structure results in predictability and stability.
Q. What terminal values will an organic structure achieve?
A. An organic structure leads to innovation and fleibility.
*tructure can promote cooperative norms and values that improve integration and coordination. )eams in a product team or matri structure have shared
cultural values# thus product development time is short.
)he choice between centralization and decentralization promotes different cultural values.
Q. What values does decentralization promote? What values does centralization promote?
A. 9ecentralization promotes creativity and innovation$ centralization promote obedience# stability# and accountability.
;. Can Organizatina! C"!t"r# :# Manag#)$
2anagers must eamine the interaction of the sources of culture" the characteristics of organizational members# organizational ethics# and the property rights
system# and organizational structure. )hese factors interact# and only ma3or modifications change values# ma!ing cultural change difficult. An organization
might need to change its structure# its people# or its property rights system. A larger and more comple organization with a successful culture can decrease
effectiveness. )o avoid negative cultural change# managers must design a structure to handle control problems.
<. Cr5rat# +,ia! R#s5nsi*i!it7
An organization can ta!e several approaches to social responsibility. )he following approaches are on a continuum from low to high.
Th# O*str",tinist A55ra,h
2anagers choose to behave unethically and illegally# and do all they can to prevent !nowledge of their behavior from reaching sta!eholders.
Th# D#/#nsi-# A55ra,h
9efensive managers stay within the law# but ma!e no attempt beyond this to behave socially responsibly.
Th# A,,(()ati-# A55ra,h
Accommodative managers recognize the need to behave responsibly# and focus on balancing the interests of the many different sta!eholders.
Th# Pra,ti-# A55ra,h
Proactive managers go out of their way to learn about the needs of the different sta!eholder groups# and are willing to utilize organizational resources to
benefit all sta!eholder groups# not 3ust shareholders.
Organizational +nsight ,.J" 6en D Herrys %thical 0ulture
6en D Herrys .omemade +nc.# a producer of super premium ice cream# has a culture instilled by founders 6en and Herry that adopts a broad stance on social
responsibility.