Stretching and flexing business culture

Is it imperative for all businesses to move towards a more innovative culture in today’s fast-paced market environment? Dr Jaco Lok, Associate Head of the School of Management at UNSW Business School and AGSM Fellow, believes that organisational cultures can be stretched to become more innovative and agile. Radical change is often unnecessary and can even lead to a failure of business strategy.

It is important to understand that different business strategies require different cultures to support them; a highly innovative culture is only one of them.

Quinn and Cameron’s 1999 research showed we can break organisational culture down into four basic types. Each has its own set of pros and cons, and may be appropriate depending on the business strategy and operating environment.

“A ‘clan culture’ is like a typical small family firm, where work relationships are based on loyalty and tradition, and commitment is high. It’s very human-oriented, and based around a sense of “we-ness”. The diagonal opposite of this is a ‘market culture’, where aggressive competition and metrics are seen as more important,” says Jaco.

The more innovative and creative companies tend to have an ‘adhocracy culture’ (think Google), and the diagonal opposite of that is a ‘hierarchy culture’, where it’s all about rules, control and stable processes. “A hierarchy culture is often quite appropriate for certain business strategies — in utilities, insurance and law for example, where consistency of predictable output is most important.”

Is the grass always greener?

However, through the lens of a particular culture type, the grass may seem greener on the other side. “You often hear people in hierarchy cultures saying ‘we wish we could be more innovative,’ while those in adhocracy cultures may say ‘I wish we had more control and a greater sense of direction amidst all this chaos,” Jaco explains.

Similarly, clan cultures may seek to be more responsive to customers and competitors, while market cultures wish they had more internal cohesion and commitment.

“Believing the grass is greener, businesses sometimes engage in radical culture change even though it may not be necessary, and knowing such radical change can be difficult and painful,” Jaco comments.

In the US, Home Depot learned this lesson when it tried to move from an ‘independent branch’ mentality that was based on a clan culture towards centralised procurement and HR based on a market culture. “It made strategic sense on paper, but it really went against the grain of the very culture that had made the business so successful in the first place,” observes Jaco. “This top-down change got a lot of push back, which meant changes were slow, and staff engagement and commitment were compromised.“

The ‘cult’ within culture

Cultures tend to be quite resistant to change – even if there is a strategic imperative to do so.

As the famous management guru Peter Drucker once observed, ‘culture eats strategy for breakfast’ – and Jaco believes that is still the case. “You have to take the existing culture into consideration when you’re formulating and executing a strategy. You cannot simply impose a new strategy that requires wholesale culture change and expect to succeed.”

Strong cultures can be almost ‘cult-like’ – and this can be both good and bad for business outcomes.

“Strong cultures are highly resilient – they’re self-preserving. If you experience an external shock, a strong culture can actually bind the company together and allow it to respond, no matter what type of culture it has,” Jaco comments.

However, a resilient culture may also refuse to change (or even recognise that change is required) in the face of external challenges. “A really strong or extreme culture tends to be more inward looking – people in them may be very good at what they do, and singularly focused in their mindset. But when the external environment says ‘that’s no longer acceptable or needed’ they may struggle.”

A balance between agility and control

“The real challenge for business leaders today is reaching that holy grail where agility and control combine,” Jaco explains. “Larger businesses often struggle to be agile – recognising the need to change is one thing, responding to it quickly is much harder. Small businesses on the other hand, especially start-ups, tend to be much better at this, but often struggle with a lack of control and strategic discipline.”

One way to try to achieve greater agility and control at the same time is to apply a ‘loose-tight’ approach to your existing culture, where some key values are fixed and untouchable, but within this framework people can be entrepreneurial and creative. Jaco points to Macquarie Bank’s culture as an example of finding that balance.

“They have a number of systems they control tightly (such as compliance and brand messaging) but within those boundaries they encourage flexibility and entrepreneurship.”

Many larger organisations are also experimenting with internal incubators, or sideline start-ups in a separate cocooned environment, which allow more responsive units to innovate at some distance from the main business.

However, when these entrepreneurial initiatives succeed, you then need to integrate them back into the larger whole, and cross-pollinate some of that innovative culture back into the larger unit. This can be just as challenging because the dominant culture of the larger business can easily swallow up the smaller and more agile one, stifling it with bureaucracy and rules.

Start with your strengths

Regardless of the culture change a business chooses – whether it seeks to become more innovative, more responsive to competitors or customers, more family-like, or more stable and consistent, Jaco recommends working with existing cultural strengths rather than against them.

He is currently working with a well-known retail brand that wants to move towards a ‘market’ culture in order to become more responsive to competitive pressures. “We’re thinking about how we can use the existing clan-based culture to be more competitive in the market without losing the strengths of the clan culture, such as collegiality, commitment and loyalty.”

Instead of enforcing radical cultural change to answer the threat of external disruption, Jaco urges business leaders to look at stretching their existing cultural strengths.

“You need to understand how you can use what is good about your existing culture to support a new strategy, and then try to stretch the culture without throwing out the baby with the bathwater.”

For example, just because you have a hierarchy culture, it doesn’t necessarily mean you will always struggle to innovate. People just need to a better understanding of which values, rules, and processes need to be kept stable (and why), and where they can be free to experiment and create.

“Handling the need for change and risk control at the same time is difficult,” Jaco concludes. “It is a universal challenge for all business cultures, and it really requires a combination of agility and control.”

JACO LOK IS AN AGSM FELLOW AND BRINGS HIS RESEARCH INTERESTS INTO HIS TEACHING ENGAGEMENTS FOR THE MBA (EXECUTIVE) AND MBA (FULL-TIME).