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The culture of an organization acts as a uniting force among members of an organization and provides them with a sense of identity. Culture can be among the greatest assets that an organization possesses and if clearly defined, can give an organization a competitive advantage over their competition.
Under certain circumstances, however, the culture of an organization can become its greatest liability. Dysfunction in organizational culture occurs when the existing culture of an organization no longer advances the organization's effectiveness in the marketplace. Before we learn how this can happen to an organization, let's define organizational culture.
Organizational culture is a system of shared assumptions, values, and beliefs, which governs how people behave in organizations. Institutionalization occurs when the culture of an organization becomes so well established that it is understood by people inside and outside of the organization. Companies that become institutions take on a life of their own apart from the members of the organization.
Gray Electric is an American telephone manufacturer that has been making landline phones since the early 1900s. Gray Electric did not become well-known to the American consumer until the early 1950s, when they introduced their 500 series phone. This product became well-known among consumers for its innovative features and durability and was referred to as 'The Black Brick' because it was thought to be nearly indestructible.
Because of their long history of making a quality product that was found in almost every American home and business, Gray Electric became an American institution known by people inside and outside the organization for making durable and well-designed phones.
Culture can become a liability for a company when the rules and boundaries established by the culture do not advance the effectiveness of the organization. In these instances, culture becomes a barrier to change. This usually happens to established companies with strong cultures that are suddenly forced to operate in an unfamiliar and rapidly changing environment.
Gray Electric is a company with a long tradition of innovation. In 1973, they invented the world's first cellular phone and spent many years trying to understand how this new technology would impact their existing business.
Gray Electric was in a position to become the first company in the world to develop and market a cell phone, but the upper management of Gray Electric had become complacent with making corded phones and could not imagine a world without landline phones. Because they had been the industry leader for decades and had faced very little competition along the way, the culture of Gray Electric had become rule-oriented and placed a high value on stability. Upper management decided that producing cell phones would only hurt their landline phone sales and quickly abandoned their cell phone endeavor.
In 1987, they realized what a bad mistake they had made. Sales of their landline phones were decreasing drastically every year, and Gray Electric was losing money and cutting jobs in all departments. They began to frantically attempt to produce a marketable cell phone.
In 1989, Gray Electric introduced their first cell phone, but their rule-oriented culture did not fit this rapidly changing industry, and their product development process took much longer than the other cell phone manufacturers. By the time their first cell phone was introduced, it was two or three generations behind the competition.
The culture of an organization becomes a barrier to diversity when it restricts the range of people considered during the selection process of new applicants to those with similar backgrounds, experiences, and values.
In order for a company to survive in a fast-paced and rapidly changing business environment, it must recruit and retain a diverse workforce that mirrors the customer base they are trying to serve. A diverse group of people come from different places, have unique experiences, bring fresh ideas to the group, and are collectively much more forward-thinking than a group of people from similar backgrounds.
In 1975, Gray Electric owned 90% of the landline telephone business and consistently reported over a billion dollars in sales per year. At that time, every member of upper management was white, male, and over 50 years of age.
In 1986, they promoted their first female vice president, but every other member of upper management was still white, male, and over 50 years of age. Their culture had become steeped in nostalgia, and walking into their boardroom was like walking into a museum.
Because the complacent culture at Gray Electric had limited the hiring and advancement of people from different backgrounds and experiences, they were completely blindsided by the rapid advancement of the cell phone and the negative impact it would soon have on their core business. A diverse upper management would have been much more likely to be focused on current trends in the industry and would have known that their customer base was soon to be abandoning landline phones for cell phones.
When two companies attempt to combine forces, it is possible that the culture of one or both organizations can act as a barrier to the merger or acquisition. The success of this union depends largely on whether or not the cultures of the two companies are compatible. Companies typically experience cultural alignment if they have similar core values. Two companies attempting to merge may encounter a cultural gap if they have contradictory core values. This can cause a great deal of friction between members of the two organizations and can sometimes cause one company to terminate the union of the two companies before it is finalized.
When Gray Electric realized they needed to quickly get into the cell phone business, they attempted a merger with a small upstart cell phone manufacturer, Cardinal Cell Phones. The aggressive culture of Cardinal Cell Phones was very different from the rule-oriented culture of Gray Electric and became a barrier to the communication between the two companies. Before the merger was completed, the president of Cardinal Cell Phones decided the cultural gap was too great and canceled the proposed union of the two companies.
Let's review.
The culture of an organization provides boundaries and guidelines for the behavior of the organizational members. Institutionalization occurs when the culture of an organization becomes so well established that it is understood by people inside and outside of the organization.
Culture is usually an asset to an organization, but can become a liability when it acts as a barrier to change and prevents the company from adapting to an unfamiliar environment. This typically happens to well-established companies with strong cultures that face sudden changes in their industry.
The culture of an organization can become a barrier to diversity when it restricts the range of people considered during the selection process of new applicants. Having a diverse workforce is advantageous to a company that operates in a fast-changing environment because diverse organizational members are able to use their unique experiences to bring fresh ideas to the group.
The culture of an organization can act as a barrier to a merger or acquisition when two companies attempt to combine forces. Cultural alignment typically occurs when the two joining forces have cultures with similar core values. Two organizations attempting to merge may encounter a cultural gap if they have contradictory core values. This can cause a great deal of friction between members of the two organizations and can sometimes cause one company to terminate the union of the two companies before it is finalized.
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Business 107: Organizational Behavior22 chapters | 142 lessons | 13 flashcard sets
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