Going far beyond previous empirical work, John Kotter and James Heskett provide the first comprehensive critical analysis of how the "culture" of a corporation powerfully influences its economic performance, for better or for worse. Through painstaking research at such firms as Hewlett-Packard, Xerox, ICI, Nissan, and First Chicago, as well as a quantitative study of the relationship between culture and performance in more than 200 companies, the authors describe how shared values and unwritten rules can profoundly enhance economic success or, conversely, lead to failure to adapt to changing markets and environments.
With penetrating insight, Kotter and Heskett trace the roots of both healthy and unhealthy cultures, demonstrating how easily the latter emerge, especially in firms which have experienced much past success. Challenging the widely held belief that "strong" corporate cultures create excellent business performance, Kotter and Heskett show that while many shared values and institutionalized practices can promote good performances in some instances, those cultures can also be characterized by arrogance, inward focus, and bureaucracy -- features that undermine an organization's ability to adapt to change. They also show that even "contextually or strategically appropriate" cultures -- ones that fit a firm's strategy and business context -- will not promote excellent performance over long periods of time unless they facilitate the adoption of strategies and practices that continuously respond to changing markets and new competitive environments.
Fundamental to the process of reversing unhealthy cultures and making them more adaptive, the authors assert, is effective leadership. At the heart of this groundbreaking book, Kotter and Heskett describe how executives in ten corporations established new visions, aligned and motivated their managers to provide leadership to serve their customers, employees, and stockholders, and thus created more externally focused and responsive cultures.
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April 05, 1992
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Excerpt from Corporate Culture and Performance by James L. Heskett
We encounter organizational cultures all the time. When they are not our own, their most visible and unusual qualities seem striking: the look of the traditionally dressed IBM salesman, the commitment to firm and product expressed by employees at Honda or Matsushita, the informality of Apple and many other high-tech companies. When the cultures are our own, they often go unnoticed -- until we try to implement a new strategy or program which is incompatible with their central norms and values. Then we observe, first hand, the power of culture.
The term "culture" originally comes from social anthropology. Late nineteenth- and early twentieth-century studies of "primitive" societies -- Eskimo, South Sea, African, Native American -- revealed ways of life that were not only different from the more technologically advanced parts of America and Europe but were often very different among themselves. The concept of culture was thus coined to represent, in a very broad and holistic sense, the qualities of any specific human group that are passed from one generation to the next. The American Heritage Dictionary defines "culture," more formally, as "the totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought characteristics of a community or population."
We have found it helpful to think of organizational culture as having two levels, which differ in terms of their visibility and their resistance to change. At the deeper and less visible level, culture refers to values that are shared by the people in a group and that tend to persist over time even when group membership changes. These notions about what is important in life can vary greatly in different companies; in some settings people care deeply about money, in others about technological innovation or employee well-being. At this level culture can be extremely difficult to change, in part because group members are often unaware of many of the values that bind them together.
At the more visible level, culture represents the behavior patterns or style of an organization that new employees are automatically encouraged to follow by their fellow employees. We say, for example, that people in one group have for years been "hard workers," those in another are "very friendly" to strangers, and those in a third always wear very conservative clothes. Culture, in this sense, is still tough to change, but not nearly as difficult as at the level of basic values.
Each level of culture has a natural tendency to influence the other. This is perhaps most obvious in terms of shared values influencing a group's behavior -- a commitment to customers, for example, influencing how quickly individuals tend to respond to customer complaints. But causality can flow in the other direction too -- behavior and practices can influence values. When employees who have never had any contact with the marketplace begin to interact with customers and their problems and needs, they often begin to value the interests of customers more highly.
Conceptualized in this way, culture in a business enterprise is not the same as a firm's "strategy" or "structure," although these terms (and others such as "vision" or "mission") are sometimes used almost interchangeably because they can all play an important part, along with the competitive and regulatory environment, in shaping people's behavior (see exhibit 1.2). Strategy is simply a logic for how to achieve movement in some direction. The beliefs and practices called for in a strategy may be compatible with a firm's culture or they may not. When they are not, a company usually finds it difficult to implement the strategy successfully. But even when successfully implemented, the behavior patterns that represent a given strategy are not cultural unless most group members tend actively to encourage new members to follow those practices.