Ground-breaking studies like Jim Collins’ books, Built to Last and Good to Great and John Kotter’s book, Corporate Culture and Performance have shown that while an organization’s culture powerfully molds its operating style and can positively (or negatively) affect the performance of work-groups and entire organizations culture has remained an overly-complex and somewhat mysterious topic for most organizations. This article identifies the constituents of organizational culture and formulates them into a Culture Equation(TM) that describes what organizational culture is in simple, concrete terms (see below).
POI ↔ COI ↔ ROI = Current Results(TM)
Managers can use this simple equation to improve performance at the organizational, work-group, and individual employee levels simultaneously. The terms of the Culture Equation(TM) are defined as follows:
- POI = Pattern of Interaction (Do, Informal Rules, Actions, Interactions, Group Learning)
- COI = Context of Interaction (Say, Formal Rules, Structures, Systems, Location)
- ROI = Repository of Interaction (Tacit Assumptions, Belief Structure, Meaning, History)
- Current Results: The Actual Results an Organization Gets, Not Its Goals
The key insight is that organizational culture is composed of all four terms in the equation, with each term being a distinct (but interdependent) category of business elements that interact with the others to produce an organization’s financial and non-financial results. It is the interaction of the four terms that creates organizational culture and many managers experience this interaction as the Invisible Bureaucracy(TM) of culture.
An organization’s culture is created, solidified, and reinforced by the powerful embedding mechanisms described below. The strength of these embedding mechanisms indicates: a) how strong the culture is, b) how explicit (or implicit) the teaching and/or message of the culture is, and c) how intentional (or unintentional) the actions and interactions of the culture are.
- Primary Embedding Mechanisms: Formal and informal rewards are the primary embedding mechanisms for reinforcing an organization’s culture because they define what actions and interactions actually get done, e.g. what people should focus their time, energy, and resources on. What an organization says it rewards is COI (formal), but what it actually rewards is POI (informal), and the informal rewards have the most powerful affect on creating, reinforcing, and maintaining organizational culture. In fact, the wider the gap between POI and COI, the more powerful the embedding effect will be.
- Secondary Embedding Mechanisms: These include organizational design (structures and systems), geographic location, physical space, décor, facilities, equipment, policies, procedures, formal statements about core ideology (purpose, core values) and philosophy. These are primarily COI, but what these elements “mean” (ROI) within a specific culture, and the actual day-to-day activities (POI) within this context reinforce, solidify, and embed the COI term in the above Culture Equation(TM).
- Tertiary Embedding Mechanisms: The purpose of culture is to “teach” people how to “see” the world, and the third embedding mechanism is how this is accomplished, e.g. through teaching, training, indoctrination, and interpretation about what POI, COI, and Current Results mean within the context of the organization’s culture (that’s not how we do it, or see it, around here). Organizational rituals, ceremonies, traditions, heroes, stories, and key historical events are also tertiary embedding mechanisms. These are primarily ROI, but can also apply to the other terms in the Culture Equation(TM). ROI is the most difficult mechanism to change directly through teaching, training, indoctrination, and interpretation of events in organizational life because the tacit beliefs and assumptions of which ROI is composed emerge naturally (unconsciously) as the consequence of observing the interaction of POI within the context of COI.
- Repetition: Over time, the day-to-day repetitive experience of POI, COI, ROI and the Current Results helps to migrate these cultural elements to autopilot operations and eventually they become the organization’s reality, e.g. how it is around here.
Most culture theorists focus on one or two of the terms in the Culture Equation(TM) as the key elements that define what organizational culture is, but few systematically consider all four terms and their interdependency on one another. For example, Edgar Schein focuses primarily on tacit beliefs and assumptions (ROI) and the context in which they happen (COI); David Hanna focuses primarily on observable work habits and practices to explain how the organization’s culture really works, e.g. the interaction between POI and COI as producing an organization’s Current Results; and John Kotter and James Heskett focus on linking Current Results to the level of flexibility in the POI as found in Theory I: Strong Cultures, Theory II: Strategically Appropriate Cultures, and Theory III: Adaptive Cultures.
The Culture Equation(TM) can be applied to all organizations, of any size, in any industry, in any country, regardless of their governance structure (for-profit, non-profit, government), the products and/or services produced, number locations, and corporate life-cycle phase. Organizational culture can be analyzed from two very different, but interdependent perspectives which are reflective of the Individual-Collective Paradox(TM), e.g. organizations are collective, cultural entities that are led, managed, and changed one person at a time:
- Bottoms-Up Analysis
- Tops-Down Analysis
A tops-down analysis looks at culture from the perspective of collective-shared patterns of POI, COI, and ROI that powerfully shape the actions and interactions of managers and staff. From this perspective, culture has emergent properties that take the form of patterns, structures, and processes that are not directly reducible to the actions, interactions, and personalities of individual managers and staff members, although managers and key personnel (culture carriers) have a more powerful effect on creating, reinforcing, and maintaining cultural norms.
A bottoms-up analysis looks at culture from the perspective of the building blocks of culture in groups of 2s, 3s, and 4s, with the primary issues being: a) the fact that over 85% of the sources of performance problems and conflict in work-groups come from outside the work-group in the organization’s structures, systems, and culture. From this perspective, the actions, interactions, and personalities of individual managers and staff members cannot be “added up” to equal collective-cultural norms, although managers and key personnel (culture carriers) have a more powerful effect on creating, reinforcing and maintaining the elements of culture.
If a work-group or organization is more or less successful at producing revenue and meeting the challenges of the business environment, the pattern represented by the terms in the Culture Equation(TM) goes on autopilot and becomes, the way it’s done around here. Over time, an organization’s specific configuration of the Culture Equation(TM) reaches a state of equilibrium and solidifies within the context of a business environment that exerts definable forces on the company. As David Hanna puts it, All organizations are perfectly designed to get the results they get! For better or worse, the system finds a way of balancing its operation to attain certain results. When new employees are hired they are forced to compare their own ways of seeing the world from former jobs with what goes on in this organization and try to make sense of these ways of working. Seasoned employees have internalized the organization’s ways of seeing and working long-ago, so they are on autopilot and powerfully shape the decisions they make. Employees that don’t (or can’t) internalize this organization’s way of seeing and ways of working as codified in the Culture Equation(TM) don’t normally stay in an organization.
Bottom Line: Whether a leader is the founder of a new company or a top line or middle manager in a well-established company, one of their most important tasks is to create, manage, and (if necessary) to destroy organizational culture in order to get the desired results for the organization or work-group. The precise definition of culture presented in the Culture Equation(TM) and the embedding mechanisms described above give leaders and managers a powerful set of tools for doing this.