Study #1: Building a Grounded Theory
The first study begins by defining a set of five firms selected to facilitate theory building. Brief case descriptions of the firms are then presented followed by an analysis of the cultural dynamics that appear to be most closely related to effectiveness. The cases were selected based on a prior study by the first author showing a close relationship between the level of involvement and performance (Dension 1984). The focus on this single dimension of culture, however, raised a broader question: What other characteristics of organizational cultures may be related to effectiveness? What are the processes by which these traits are linked to effectiveness? What other aspects of effectiveness may be influenced by cultural traits?
To address these questions, the findings of this earlier study were used to select the set of firms shown in Figure 1 for case studies. Neither the survey instrument (Taylor and Bowers 1972) nor the traits operationalized were ideal for culture research. Nonetheless, this data source was attractive because it was one of few databases that offered any possibility of comparing culture and effectiveness. The survey data were collected from 34 organizations at one point in time between 1968 and 1980 and matched with performance data for the five years following the survey date. The index scores for each organization were derived by aggregating individual responses to the organizational level. The measure of performance shown in Figure 1 is return on assets, expressed as the percentile ranking of each firm within its respective industry. The overall correlation between involvement and industry-adjusted performance for the data reported in Figure 1 is 0.42.
This scatter plot of involvement and performance was used to define an "interesting" set of cases to study. Three of the cases, falling along the diagonal, appear to confirm the involvement-performance results, pointing to a high involvement-high performance organization (Medtronic), a moderate involvement-moderate performance organization (People Express), and a low involvement-low performance organization (Detroit Edison). The remaining two cases, in contrast, both seem to disconfirm the general finding: Procter & Gamble appears as a high involvement, medium performance firm; while Texas Commerce Bancshares appears as a high performance, low involvement firm.
As a set, these cases serve two purposes. First, they allow for a qualitative examination of the hypothesis that involvement is a cultural trait that has an impact on effectiveness. The diagonal cases support that notion and can be used to examine the underlying processes by which involvement is linked to performance. The off-diagonal cases appear to contradict the involvement hypothesis, and thus are particularly likely to reveal additional cultural traits that may be linked to effectiveness. Both diagonal and off-diagonal cases can be useful in developing a more general theory. Finally, these cases can be used to explore the multidimensional nature of effectiveness and to attempt to link specific cultural traits to specific dimensions of effectiveness. Thus, as Eisenhardt (1989) has advocated, our case studies began with a point of view and were selected in a specific manner designed to facilitate further theory building.
Case Study Methods
Each case study began with publicly available sources such as annual reports, lOKs, the popular press, and business histories written on three of the five firms. These preliminary sources of background data were analyzed before we began negotiating access. The second step was to interview knowledgeable outsiders, such as researchers, journalists, consultants, and past employees, who provided insights about the firm and suggestions for gaining access. When direct access was slow in coming, this stage continued for several months and may have involved interviews with 30 to 40 individuals. When direct access came more quickly, this stage overlapped with interviews of the current members of the organization.
Primary data for the case studies came from direct interviews, conducted by the first author, with a sample of organizational members. A minimum of 25 to 30 individuals were interviewed in each firm, and in some cases as many as 100. Direct on-site contact with the organizations varied from a minimum of one week to several months. Contact with three organizations continued over several years, and in two of these organizations the first author served as a consultant to sustain research access over this time period. Individuals inter- viewed in each firm represented a cross-section of the organization, including members from different hierarchical and functional groups. The CEO or President was interviewed in four of the five organizations, along with other top executives. Particular attention was given to interviewing both new and old members of each firm and to identifying "storytellers" or "historians" who had particular insights or perspectives.
Successive interviews developed and tested an emerging picture of the organization's culture. The questions were informal, but in all cases focused on the interviewee's identity and career history; the core values of the organization and its "uniqueness," the power and prestige of different subgroups; the impact of the organization's history on its culture, and the interviewee's perception of the linkage between the culture of the organization and its effectiveness over time.
A specific set of questions guided the interviews, but the interviewer resisted the approach of asking the same questions each time and summarizing the inter- views by counting and aggregating responses. Instead, each successive interview was used to expand under- standing of the organization. For example, after the first set of five to ten interviews, clear areas of overlap and redundancy (or sometimes conflict and inconsistency) began to emerge. At this point, the results were summarized and served as a basis for the development of a new set of questions intended to develop an understanding of the organization that was both broader and deeper. This process of summarization and refocus often happened four to five times during a case study. This approach also resulted in some "topic-specific snowball sampling." That is, one interviewee would recommend that another individual be interviewed, or that relevant organizational records, reports, or memoranda be reviewed in order to clarify the issues that we had raised. Whenever feasible, these recommendations were followed.
The first part of each interview was nondirective. After a brief introduction to the project, questions were asked to allow the interviewee to project their own experience and perceptions of the organizational culture. Later in the interview, the questions became somewhat more directive, to help clarify the emerging picture of the culture and integrate the interviewee's perceptions into that emerging picture. This usually took the form of asking the interviewee to comment on the observations and perceptions that other organizational members had expressed and on the interviewer's own observations. This approach was particularly useful in elaborating inconsistencies that arose or addressing specific issues of redundancy or agreement.
When possible, interviews were recorded, and later reviewed and reanalyzed. Extensive notes were taken during each interview, and again when the tapes were reviewed. Transcriptions were done to capture direct quotes and other specific data. The identification of integrative themes within each case and comparisons between cases often required further analysis of the tapes and transcriptions. Through this ongoing iterative process, the summary themes emerged. Draft re- ports of each of the cases also received extensive review and comment by members of each of the organizations.
More extensive discussions of each of these case studies have been presented by Denison (1990). The summaries presented below give a brief description of each organization's culture, with a primary focus on each firm's core values and their expression through structure and action. The case summaries describe each organization by presenting an historical back- ground, an overview of the business, and a description of critical events and quotes that provide insight into the organization's culture. Conclusions about the connection between culture and effectiveness at the end of each case reflect the perspective of organizational actors as well as the researcher's perspectives. The goal of these case studies was to identify a broad set of traits that can enable a fuller understanding of the impact that culture has on effectiveness.
The Case Studies
Medtronic. Since its founding in the early 1960s, Medtronic has been the premier firm in the cardiac pacemaker industry. The firm has grown steadily to a size of 5,000 employees and $650 million in annual sales in 1990. Building on their perennial dominance of the pacemaker industry, they now have a diversified line of products in the bioelectronic health care area.
Medtronic has been driven from the very beginning by an explicit humanistic vision that goes beyond a solely economic rationale for the existence of the organization. In the early days, the main structure was a value-based consensus about applying technical knowledge to the needs of patients, surgeons, and cardiologists. The Medtronic culture was described by several organizational members as a "scientific-technical club" which was dedicated to preserving human life. Others commented that in these early days, "Medtronic didn't have a mission, it was a mission." This informal structure was sustained by constant contact and risk sharing in the operating room, led by the inventor and CEO, Earl Bakken, who was also the company's most compelling salesman. Bakken also made a practice (which continued at least through the time of our study) of having lunch with each new employee to convey the corporate mission.
This value-based system worked very well for 10 to 15 years in an industry that had little competition and offered steady and predictable growth. By the mid 1970s, however, when the organization had grown to 2,000 employees and $150M in sales, the company had several serious product problems and became the focus of increasing regulatory attention on the pacemaker industry. At the same time, a new CEO succeeded the founder and began to create explicit bureaucratic control systems designed to regulate the organization. The culture, which had always been seen as an implicit humanistic consensus central to the organization's success, came to be seen as insular, overly concerned with its own internal processes, and (at times) in shock over the discovery of its own fallibility when product problems emerged.
These changes also coincided with the onset of new methods of payment in the health care industry, creating price-based competition for the first time. During this period, organizational members often contrasted the "old culture" characterized by a humanistic paternalism, a strong sense of entitlement and commitment, and a clear sense of purpose, with the "new culture" and its emphasis on cost control, bureaucracy and accountability. This period saw heightened conflict within the organization and coincided with several interruptions in their otherwise steady growth in sales and profits.
Another change of leadership in 1985 helped to reintegrate the business goals and the mission. Rather than being viewed as contradictory logics, the new CEO emphasized these as complementary values that served to integrate the organization. In fact, the new leadership of the organization appears to have used a heightened sense of the implications of the mission as a means to raise expectations and commitment among organizational members. This reconvergence of the business goals and mission has coincided with the introduction of a new and successful product, and with restored growth and profitability. In addition, these positive changes coincided with a fundamental change in the industry: all major competitors have now been acquired by major corporations, leaving Medtronic as the only independent firm.
The Medtronic case provides some support for the idea that involvement is a cultural trait that is related to effectiveness. The voluntarism, commitment, and identification with the humanistic mission were seen by the organization's members (and the researchers) as having a positive effect on the organization's functioning, particularly in the early stages. It is equally clear, however, that at several points during the organization's life cycle, involvement coupled with success has led to a sense of entitlement and a preoccupation with internal processes rather than external adaptation. As one employee put it, "we spent most of our time meeting and eating." Thus, the case illustrates that involvement can lapse into insularity and have a limited, or even negative impact on effectiveness
Another interesting element of the Medtronic culture is its fundamental humanistic mission. This trait of the culture sensitized us to what might be called the "teleological nature of cultures." Purpose and destiny were strongly prescribed in noneconomic terms that went far beyond Medtronic's goals as a business. Unity of purpose had a powerful positive effect by creating meaningful work for individuals and a mission and sense of direction for the organization as a whole.
Medtronic also provides an interesting example of the ebb and flow of cultural strength and its relation- ship to effectiveness. Out of the early stages of the company's history grew an agreed upon set of systems, behaviors, and meanings. Nonetheless, a primary task of the CEO who succeeded the founder in 1976 was to establish an organizational system that was capable of coordinating a larger firm and to counter the perception that the firm was "under-managed." In so doing, "bureaucracy" was placed at odds with "the mission," and, in the words of organizational members, a conflict between "old and new sub-cultures." This introduced conflict, inconsistency, and lack of integration. Interestingly enough, the most recent CEO, since 1985, has attempted to reintegrate the mission and the business and appears to have recreated a high level of consistency.
Finally, the Medtronic case provides a caveat regarding the attribution of an organization's effectiveness to its culture. Medtronic, after all, is a company that first created, and then dominated an industry through incremental technological innovation. While it is plausible that the culture influenced this success, it is also clear that the opposite is clear: the success has influenced the culture. One interpretation of the divergence and reconvergence that occurred between the business goals and the mission, for example, is that when the product technology was successful, the business goals and mission appeared consistent; when the technology was unsuccessful, however, the mission and business goals appeared to diverge.
People Express Airlines. This innovative, low-fare airline was formed in 1981, shortly after the deregulation of the industry, and grew to nearly $1 billion in sales in 1986 before its collapse and acquisition by Texas Air Corporation in 1987. Ironically, the airline had been created in 1980 by a group of executives and managers from Texas Air who left the airline led by Donald Burr, founder of People Express, and former Texas Air President.
The story of the People Express culture is quite well known. The plan was to create a highly egalitarian organizational culture and apply many innovative human resource practices. The new members of the organization were trained and socialized in teams, and work was designed to be done by teams. "Cross-utilization," or the rotation of teams and individuals through different jobs on a regular basis, created variety and challenge in an industry with many repetitive jobs. The system was also based on "self-management," or the responsible autonomy of each employee as a manager of the firm's resources. All employees held the title of manager, owned stock, and shared in profits. After 1985, when a formal hierarchy began to emerge from this essentially flat organization, employees even began to elect their own supervisors and team leaders.
People Express was also based on a mission extending far beyond the realm of economics. The organization was designed to "unleash the power of the individual" and create "flying that was cheaper than driving," bringing air travel to the masses as never before. The airline's "precepts" also included the idea that the organization should serve as a role model for industry and the world. By doing so they would demonstrate the compatibility of the growth and achievement of individuals with the creation of an effective organization.
Other aspects of the People Express culture are not as well known. Rather than being a homogeneous culture, for example, pilots and flight attendants formed subcultures that had very different reactions to the managerial ideology. Among the strongest examples of these differences was the pilots' tendency to refer to the organizational ideology as "Kool-Aid" (a sardonic reference to the mass suicide of the followers of Rev. Jim Jones in Guyana in 1978), and to contrast the People Express system with "a real airline." Pilots were generally older, with much more airline and military experience, and were more likely to reject the collective values of the organization in favor of their own individual interests, and more likely to rebel against the "cult of charisma" that formed around Don Burr. Flight attendants, in contrast, were both male and female and had little airline experience, and in most cases no military experience. As a group, they tended to support the organizational ideology more than the pilots. While significant socialization to the organizational ideology occurred, these were nonetheless strong occupational subcultures.
The People Express system worked very well for three to four years. By 1985, the airline had grown to a size of 2,500 employees and $500M in annual sales based on this ideology and culture. After 1985, how- ever, the system began to show signs of strain and increasing competition placed limits on the amount of time and organizational slack that the airline could devote to making its unique system work. For example, since all managers were promoted from within, the internal labor market could not produce experienced managers at the rate that they were needed. The final blow came when major airlines such as United and American introduced variable pricing reservations systems that allowed them to match People's low price on some seats (with restrictions), while maximizing revenues by selling other seats on the same flight at much higher prices.
In the beginning, People Express created a powerful cultural system based on shared values transmitted through extensive socialization. The PEX culture was strong and pervasive, and held a powerful vision for the future. Involvement and empowerment were critically important to the implicit coordination and fierce commitment that characterized the start-up. The expectations for involvement were extremely high, and this seems to be the best explanation of the fact that People Express appears in Figure 1 as a medium involvement firm. Even though "actual" involvement might seem very high, it did not always meet the expectations that the organization's members held.
Trying to explain the ineffectiveness of the People Express culture also provides several insights. One interpretation is that the leaders and members of the organization placed more emphasis on their social technology and internal integration than on external adaptation. Symptoms of their internal focus include the conflicts they experienced between their structural evolution and remaining true to the organizational ideology. The limits of implicit coordination had been reached, but the evolution of more complex coordinating structures seem to be impeded by the organizational ideology. Other examples of their relative neglect of external adaptation include the assumption that they would be able to absorb and integrate newly acquired Frontier Airlines, and their difficulty in responding to the development of variable pricing reservations systems by their major competitors. Their organizational innovations did not, in themselves, seem to fail, but they did direct the attention of leaders and members of the organization away from changes that were taking place in the business environment.
Detroit Edison. With its origins in the consolidation of the utility industry in the early decades of this century, Edison's history began with 50 years of steady growth; a predictable doubling in size every ten years. The company grew rapidly along with the region's economy and became one of the nation's leading utilities.
During this long growth period, the company was almost entirely controlled by engineers who saw the mission of a public utility as the continuous building of "bigger and better power plants." The organization was a "family" with a highly stable work force in which line workers often socialized with the Chairman and top executives. Although present-day workers still reflect some of the "rough and ready" posture of an era when they moved from town to town stringing up power lines in a rapid expansion of the system, today they are far more likely to hold their jobs because of the security they offer. Nonetheless, when the power goes out, a sense of those traditional values still emerges.
Edison is an organization with well-defined authority. As several members of the organization said, "in this organization, everyone knows who they report to and what their job is." The organization was often described as functioning "like a machine," and was staffed by a very stable population of employees, promoted from within the organization in almost all cases. Historically, the organization has also been very male, and until the early 1960s there was a rule that female employees who got married had to quit their jobs.
The changes of the 1970s created turbulence within the organization. The energy crisis created a decline in sales and a decline in the growth of the region they served. Nuclear power brought a new regulatory presence and an increasing dependence on the expertise of outside contractors. A court ruling on affirmative action required that Edison adopt a strict quota system of hiring and promoting minorities until the proportion of minority employees in the company more closely matched the proportion of minorities in the population that the company served. This forced integration of Edison's work force was regarded by management as something that was "done to" the organization, rather than a positive, proactive step on their part. The lack of ownership of this issue and the advent of integration itself unfortunately undermined the sense of "family" that had been a part of the Edison culture for decades.
Edison was hit by all of these changes at once, with several results: First the mission of the company gradually changed from "building bigger and better power plants'' to "creating safe and efficient options for consumers." Second, adaptation to these changes required that the organization be led by a combination of engineers and politicians (who held radically different definitions of "reality") and that the debate between these two subcultures be carried out within the organization. Third, many employees within the organization resisted the changes, preferring instead to go back to a simpler era.
This set of circumstances makes Edison an interesting study of what happens when an organization's mission and identity are altered by changes in their environment. Traditionally, the Edison culture has valued authority, predictability, technical skill, and the management of stable expansion. Involvement, to the degree that it exists, is of secondary importance to stability and consistency. Redirecting the organization to respond to politically defined stakeholders has been traumatic, because it has meant a fundamental reexamination of the basic mission, and a shift from an internal to an external locus of control.
Procter & Gamble. This 150 year-old consumer products giant is well-known as an innovator in such areas as brand management, profit sharing, advertising and promotion, and innovative work design. Concentrating first on soap and then for decades on a range of "high quality consumer products found within every home," the corporation is now a $20 billion company with 73,000 employees worldwide. The strong, methodical culture is seen by many current and past employees as a key factor in their steady doubling in size every decade. While P&G has been quite profitable, performance is remarkable not so much for its level, but for its predictability.
At the core of the P& G culture is a highly rational, objective view of the world. Research, on both markets and products, is central to all decisions. When making or discussing a proposal, one must always "know the numbers." A central goal has always been to develop a technically superior product that will win in a blind taste test. A classic example of this logic is Olestra, a new synthetic cooking oil and food ingredient free of fats, calories, and cholesterol. It grew out of years of basic research, and the product will not only be sold directly to consumers, but also will serve as a technically superior base for other P&G food products.
Heavy attention is paid to socialization by P&G. New employees in the brand management organization, for example, are socialized as a cohort, and many see this peer competition and cooperation as the real source of learning and motivation for new members. New assignments, which usually included a period of structured training, are alternated on a regular basis in short cycles of 6 to 24 months. P&G careers, in general, are like a tournament in which the members continually move up or out. Requirements for performance and conformity to the P&G way lead many new recruits to leave the organization after a few years. Ironically, P&G often trains the key employees of many of their competitors, although some in the organization will claim that they "never lost an employee that they wanted to keep."
Strong emphasis is also placed on written communication. Lessons on writing a memo in the proper P&G form are of central importance in a new recruit's socialization. This system results in efficient communication in a common "language," and the creation of a written corporate record of all significant events. The system is intended to be independent of any one person, and everything important can always be quickly reconstructed from the records. This is one of many systems used to reinforce the idea that work at P&G is the product of the organization, and not of any one individual.
In manufacturing plants P&G is highly innovative, if largely secretive, in their design of organizations. Principles of sociotechnical design are used to build progressive, high commitment systems that place a high level of autonomy and responsibility on workers. They were among the first American corporations to see these innovations as a source of competitive advantage, and to see them as an outgrowth of their organization's traditional assumption that the interests of the individual and the organization overlap. This assumption led to the use of innovative practices such as profit sharing as early as 1887
A qualitative examination of P&G's culture supports the idea that it is a high-involvement organization, but the context in which involvement occurs is far more structured than in the Medtronic and People Express examples. Involvement seems to reflect the high over- lap of interest between the individual and the organization more than voluntarism and autonomy. Further- more, this involvement takes place within a structured competition created by the organization, in a context with a high degree of normative integration, commitment, and a common language and symbolic system.
P&G is a classic example of a "strong culture" system. As many past and current members of the organization have noted, this characteristic of the culture has both positive and negative impacts on effectiveness; P&G is an organization that seldom makes big mistakes, but is often beaten to the punch by smaller, faster companies. Their historical limitation has been a difficulty in moving quickly primarily be- cause of their commitment to research, objectivity, and methodical review. Their key capabilities are often described, as "science, not art." The P&G system is also generally seen as being very well suited to the consumer goods mass market where objectivity and a methodical approach pay off, but slow and ponderous in fast moving markets that are driven primarily by taste and fashion. Recent acquisitions and expansions into food, health, and beauty products may test the adaptability of P&G culture. As one past employee put it, "the question is, does the 'corporate gene pool' have the variety necessary for future adaptation?"
Texas Commerce Bancshares. With its origins in the financing of the Houston cotton trade in early 20th century, Texas Commerce Bancshares was formed by the merger of two historic Houston banking institutions that led the Houston region through the Great Depression. The bank was transformed in the 1960s by a new emphasis on marketing and managing by the numbers, and has become an elite, aggressive, and conservative middle market regional bank. It has been one of the premier Texas banks through both boom and bust, often outperforming the larger money-center banks. More recently, in 1986, TCB was one of the first Texas banks to take advantage of the change in U.S. inter- state banking laws and merge with Chemical Bank of New York.
The bank has been led for the past 25 years by Ben Love, a charismatic and demanding CEO who was equally skilled at devising internal controls, motivating managers and executives, and selling and marketing. Love placed ultimate priority on "the numbers" (shared ORGANIZATION SCIENCE / Vol. 6, No. 2, March-April 1995
throughout the organization in a monthly "blue book"), and has stated that "organizing human resources in pursuit of statistical objectives is uppermost in my philosophy of management." Love's smooth but forceful style was also a primary source of motivation and often was exhibited in public settings such as loan committee meetings and officers' meetings. Numerous stories describe his unrelenting style, formidable wit and memory, and the dire consequences of presenting a proposal without knowing it inside out.
The culture of the bank reflects an interesting paradox: Leadership comes from the top down and respect for that authority is high. It is virtually impossible to talk about the culture of the bank without the discussion focusing on Ben Love. Yet at the same time, the structure of the bank is relatively flat (Love once had 70 direct reports) and much of the work is done in large committees. Loan committees, for example, often had 5 to 10 regular members, 5 to 10 who might be presenting loans, and perhaps 10 to 15 observers in an outer ring around the conference table. Until recently, approval of any loan over $50,000 required unanimous approval of the loan committee-a single dissenting vote could veto the proposal. These large committees provided a broad forum which served as a way to socialize new members, communicate the organization's culture, and disseminate best practices.
The Texas Commerce culture is also influenced by the strong regional culture of Texas. Rugged individualism, patriotism, and respect for authority run deep and tend to be projected onto Love as the symbolic leader. A 6'6" patrician figure, Love is an authentic "Texan hero" to which many of the organization's strengths are attributed. Perhaps the best statement of Love's influence on the organization and the reaction of organizational members to that influence came from one newly appointed loan officer who said, "I'm proud to walk in Ben Love's shadow."
TCB's top down style, uniformity of practices, and strict financial controls and objectives are all examples of a high level of normative integration and consistency. The culture is pervasive and ensures that all members of the organization learn the "TCB way" and conform to it. At the same time, the system is also oriented toward individual achievement and the accomplishment of objective goals. The strength of this culture and the ability of the holding company to transmit it to newly acquired member banks appears to have been instrumental in the organization's success.
The more difficult question to answer about Texas Commerce is how adaptable the system can be. Their recent merger with Chemical Bank of New York implies that TCB must quickly reach beyond the middle market into consumer and investment banking by ex- tending an organizational system and underlying set of assumptions that have been highly adapted to that one market. The strong culture of the bank seems to com- plicate that problem by instilling a belief in the existing system that may limit its future ability to adapt.
