Cultural clashes arise when groups of people who interact hold different values and beliefs -without realising that these differences exist
Cultural differences only begin to matter when people from different organisational cultures must work in close collaboration
As a corporate strategy professor, I spend a lot of time telling the bright young bankers and equity analysts in my classes that organisation design is the essence of corporate strategy. The reasoning is straight forward: If you are a CEO running a multi-business company, then you are effectively competing against every other investor who can put together a portfolio of similar investments in different businesses. Assembling a diversified portfolio of investments in individually good businesses is something they can often do just as well as you can – so the only real advantage you have is in building organisational linkages that makes the portfolio worth more than the sum of the parts.That’s what organisation design is about and it in turn is all about “people” matters.
To make this link between corporate strategy and organisational issues concrete, let’s take the problem of cultural clashes in companies. It may sound like a rather narrow “touchy-feely” issue, but in fact it shows up in a number of corporate strategy problems like getting different divisions within a corporation to exploit synergies, or during post-merger integration, or managing strategic alliances and joint ventures, or while expanding internationally. So how can we think strategically about this inherently people-oriented issue?
First, it helps to be clear about what a culture clash is and what is not. Let’s say an IT services firm buys a management consultancy and the consultants no longer see their expense claims for fancy lunches being approved. This hardly qualifies as a cultural conflict, which arises from deeper issues than a disagreement about compensation policy (which is what the preceding example really is).
Culture refers to three things: Values – what people prefer; beliefs - what they hold to be true; and norms - what they believe to be acceptable and expected. These are often tacitly understood and may not be documented anywhere. These elements of an organisation’s culture develop over long periods of time and are reinforced by hiring people who fit the culture and not retaining those who don’t. Cultural clashes arise when groups of people who interact hold different values, beliefs and norms – often without realising that these differences exist. Unexpected outcomes ininteractions are attributed to some deficiency in that person rather than to the possibly different and unarticulated beliefs, values and norms they may hold.
Second, if the values, beliefs and norms that make up a culture take a long time to develop, then it is best to recognise that attempts to change them in the short term are futile. For this reason, I am deeply sceptical of “cultural integration” projects after mergers or re-organisations. At best, these efforts sensitise people about the existence of cultural differences, and academics have indeed constructed many reliable instruments for measuring differences in culture. But building a desired organisational culture is an uncertain, multi-generational, possibly decades-long project. My advice to acquirers, therefore, is to focus on picking targets with compatible cultures rather than hoping to merge cultures after the acquisition, because I don’t think it can be done reliably.
Third, let’s also recognise that differences in organisational cultures per se are not a problem. These differences exist in every large organisation – Scott Adams makes a (good) living by producing cartoons about the cultural differences between engineering and marketing departments and in part we find the Dilbert cartoons funny because we recognise elements of that culture clash even in our (hopefully) better-run organisations.
Cultural differences only begin to matter when people from different organisational cultures must work in close collaboration with each other. Given the enormous gains from the division of labour, many activities in the organisation require specialisation, not collaboration. It’s only when the synergies in an acquisition or an alliance or between divisions require close ongoing collaboration across organisational cultures that clashes arise; if the synergies can be handled in a fairly modular way, (and there are well established techniques for doing this) then pockets of different cultures can co-exist harmoniously in the organisation and even contribute variety that helps it to adapt to changes in its environment.
I am delighted to write a regular column on strategy & organisation for People Matters for a number of reasons. Perhaps the most important one is that I see it as a platform to engage with a large number of sophisticated practitioners on topics that I am currently researching- a cluster of ideas I call “Organization 3.0” – which recognises the deep links between strategy and organisation. I look forward to a stimulating conversation!