Wednesday, February 15, 2012

The Genius and Madness of Culture

The failures of large, previously successful companies offer endless opportunities for outsiders to feel superior. Geez, any moron could have seen their business model was broken a decade ago! How could they think anyone was going to buy that clearly inferior [insert hyped product that no one ended up wanting here]? It's easy, fun, and I've done it way too often to offer any criticism of the impulse.

But once we get past the schadenfreude of criticizing these seemingly obvious business blunders, we may be left with an uneasy feeling: If that company, which everyone once thought was God's gift to business, could screw up that badly, is my company doing the same thing? The good news is that, if you allow yourself to be honest and objective about it, you can probably figure out if your company is circling the drain. The bad news is that it will be incredibly hard, perhaps even impossible, to do anything about it.

At least, that's the conclusion I drew after reading Megan McArdle's piece in the Atlantic about the role of culture in business failure, and the human tendencies that keep us from turning away from the precipice. I was particularly struck by the notion of the 'founder effect': 
Even a dysfunctional culture, once well established, is astonishingly efficient at reproducing itself. The UCLA sociologist Gabriel Rossman told me, “If new entrants assimilate to whatever is the majority at the time they enter, and if new entrants trickle in slowly, then the founding culture can persist over time, even if over the long run they make up a tiny minority.” This is why Americans speak English even though more of us are ethnically German or Yoruba. In linguistics and sociology, it’s known as the “founder effect.” In corporations, it’s known as “how we’ve always done things.”
That gave me pause because I have often been in an environment where, everyone will tell you, what's needed is 'new blood' or 'fresh thinking'. Business people will readily acknowledge that what they're doing isn't working, and bring in an outside perspective (as I discussed in my last post) only to either disregard that new perspective as foreign or, perhaps more commonly, absorb that person into the collective so they end up parroting back the same old company line. The implication here is that, to truly get away from old, bad habits, it is best to bring in a lot of new people and allow them to work, at least for a while, apart from the existing structure and the accompanying pressures for conformity.

Another way of addressing this problem, at least partially, would be to select a devil's advocate in meetings, and especially when there are big decisions about products or corporate direction to be made. Instead of hoping someone will have the courage to challenge the group consensus (not a position most people want to be in), there would be a person assigned to make the opposing case in the most compelling terms possible. If that case seems persuasive, then maybe the group's direction is unsound.

At any rate, it seems clear that businesses need to vigilantly guard against their culture ossifying in a way that pushes people to conform. And yet, a strong corporate culture is a good thing, right? So far I've essentially made an anti-culture case, but culture, and even a conservative culture, is often a major part of a company's success. McArdle again:

One possibility is that firms don’t change because inertia is in their DNA—indeed, it’s a gene that once made many of them successful. In their 1989 book, Organizational Ecology, Michael Hannan and John Freeman argue that organizations are actually selected for inertia by their environment, and “rarely change their fundamental structural features.” Change is risky, after all, since it definitionally involves doing something that isn’t already working—and even product lines that have grown lackluster still have somecustomers. Firms that are prone to frequent large changes will probably have more opportunities to kill themselves off with bad choices than firms that resist big changes. 
Moreover, the need for accountability and reliability in the modern economy selects against constant radical experimentation—people like knowing that their bank has cumbersome and invariable procedures for keeping track of deposits, for instance. Think of McDonald’s, where a core premise is that no matter where you go, the food and decor will be reliably, exactly the same. Or consider what happened to Coke after it tried to change the recipe of its iconic product, even though taste tests showed that most people actually liked the new version better. The larger and older the firm is, the heavier the selection for stability.
The need for stability is fundamental, both for employees who want to believe that their jobs are secure and their companies won't lurch dangerously from one position to the next (think of how disconcerting 2011 must have been at Netflix). Customers want to know they can rely on companies to provide consistent goods and experiences. A strong culture helps meet these needs. 

So culture is good until it is bad. Consistency is critical but leads to stubborn repetition of behaviors that have stopped working. Perhaps the (frightening) truth is that companies have a natural life cycle, and it is smarter to take the resources of an old, faltering firm to start dynamic new ventures. Don't attempt to reform culture, but allow new ones to blossom. (I think, in some ways, this is similar to Clayton Christensen's advice on how to deal with disruptive innovation.) Culture, like the human mind itself, seems remarkably resistant to quick fixes.

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