Leadership Challenges - Managing Change in Organizations

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Chris Argyris, John P. Kotter, market share, ROE, Coalition, Vision, Strategy for Change, communication

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Changing Organizational Culture

According Edgar H. Schein (MIT), organizational culture is the pattern of basic assumptions that a given group has invented, discovered or developed, in learning to cope with its problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and, therefore, to be taught to new members as the correct way to perceive, think, and feel, in relation to these problems¹.

The example² of Digital Equipment Corporation (DEC) shows what happens when a company's culture gets outdated as the times change. Ken Oslen founded DEC as a hardcore engineering company in 1957. The engineers prided themselves on their ability to create innovative products. The values upheld at DEC were freedom and creativity. Driven by such a culture, which upheld these values, the company became the second largest computer manufacturer in the world. The company was successful for nearly three decades. But the same culture turned out to be its undoing. The company failed to evolve when computers became a commoditized product. DEC was not founded and run for making profit. It was founded for giving life to innovation and creativity.

But the commoditized computer market wanted a product that was economical. The innovativeness of the product was not that important. Under the innovation-based culture, products were required to compete with each other internally. The culture of an organization has to evolve with the changing marketplace. This can be a matter of survival. Based on this culture, DEC funded every good idea that ever occurred to its engineers. When computers became a commodity, nobody in the company was sure which model to back (three groups were working on three different PC models). The lack of focus on a single product delayed the arrival of the final product in the market, and the company was also less competitive in the marketplace.

The major problem was the lack of adequate resources for competing models within the firm. One group was working on a large water-cooled computer that needed expensive technology and a lot of funding. Another group was working on the ‘Alpha' chip that needed the same level of funding.

DEC could not fund both adequately at the same time. It could have chosen one of the two. But neither the founder nor the board was sure which would be the best bet. Neither of the groups was willing to allow higher priority to the other. Each was sure about the potential of their product and wanted the founder and the board to focus on it. Innovation demands a culture which encourages debates and arguments. For over three decades this style characterized decision-making at DEC. But this model of decision-making degenerated into indecision, with each group manoeuvring for resources for its pet project. The new market conditions demanded a culture that emphasized cost-cutting. A culture that abhorred inefficiency was the need of the hour. But the top management at DEC was not willing to sacrifice its legacy. It believed that the company's new products would generate enough growth to make up for its inefficiencies.

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1] Schein, Edgar H, Coming to a new awareness of organizational culture, Sloan Management Review, Winter 84, Vol 25, Issue 2.
2] Are innovative firms bound to die? An Interview of Edgar Schein by M. Rajshekhar, BusinessWorld, September 15, 2003.