The Culture in Practice research
In 2013, we undertook a detailed review of issues in organisational culture. The objective was to produce informed and meaningful guidance on what firms can do, practically, about their cultures.
The 2013 research, funded by ESRC, was conducted by a predecessor firm in collaboration with an international professional body. Presented with the reality of the breadth of issues involved in understanding properly organisational culture, the other party withdrew and, ultimately, produced far more limited and less penetrative research. But the issue of organisational culture will not go away.
In 2014, the FRC updated the requirements of the UK Corporate Governance Code and produced Guidance on risk that required firms to pay greater attention to culture. In late 2015, the FRC has announced a review of organisational culture to provide firms with fuller guidance on fulfilling the obligations they stipulated in their 2014 review.
If the FRC is to do the 'culture job' properly in 2016, they will need to address many of the issues – answer many of the questions – that came out of our Culture in Practice review in 2013.
The intermediate outputs – the issues statements below – can now form the basis of further research to assist FRC to meet its goals in a meaningful and workable way.
Set of culture topics & issues
Culture in practice issues statements
1. Defining organisational culture
What is organisational culture? What does ‘organisational culture’ mean? What does that tell us we can ‘do’ or ‘not do’ with organisational culture? Definitions of organisational culture are legion but few are especially useful; few discuss what firms and directors can do – and not do – about culture. Most are rooted in thinking about culture socially or anthropologically. While these disciplines can inform our understanding of what organisational culture IS, what is far more important is what organisational culture DOES – how it operates sub-consciously or pre-consciously on people’s assumptions, beliefs and attitudes and how they, in turn, influence behaviour.
2. Language and meaning
Organisational culture fundamentally concerns how people in an organisation create meaning through symbols and artefacts (things we create such as policies, etc) and actions. By far the most important system is language which is highly charged with symbolic meaning. Influence over language, the use of language and the meaning of language, of works, phrases, acronyms and prohibitions on language are a source of considerable social and cultural influence in the firm. Control of language is the province of specialist groups (e.g. corporate finance) and of senior executives and, especially, of the firm’s leaders. Leaders control the metaphors that are used within firms which impart and define meaning. But culture, itself, is a metaphor loaded with technical or symbolic meaning from the disciplines from which it is drawn. Our metaphors may control us as much as we control them.
Organisations, and groups within them, have identities that are socially created by just as real as personal identities; they fulfil some of the same functions. How people identify with groups determines the units from within which culture emerges over time. Firms may have an identity (around which a culture may coalesce) just as groups within the firm will simultaneously have their own identities (and thus cultures). Importantly, people can and do have different – sometimes very different – identities at work from their non-work or ‘home’ identities (as well as the identities they may have in other, non-home groups). Firms’ identities are unique even if many of their attributes, symbols and behaviours are the same or similar and their language is similar or even almost identical. No two firms have the same identity, mix of people and groups, clients and history, or stories or myths that come from that history. Each firm has a unique identity; their cultures will all also be unique, however similar they may be to other firms in the industry. That difference can be an important source of commercial advantage.
4. Awareness, attention, noticing and anomalies
Attention is a neurological process that is non-random; we select to what we pay attention and how we attend to the world. How we pay attention and to what we pay attention matters considerably for what we do; so too for management activity. The cues for attention are, in part, socially programmed and culturally determined. In management, there are strong cultural pressures to attend to particular types of information and to do so in particular ways. These pressures are reinforced by the nature of education and business school curricula. We are encouraged to think in analytic detail; integrated, holistic or systemic thinking is less encouraged and tolerance of ambiguity is discouraged; we are encouraged culturally to attend to the world in a linear condition; to optimise, to minimise error and to ignore or minimse the importance of anomalous events or signals. Yet it is from these anomalies that our sense of and understanding of the world is tested and grows.
5. Behaviour & control
More than anything else, by examining ‘culture’ managerially, we are seeking to understand how people behave in the workplace and how to align that behaviour with the interests of the firm – and, its shareholders and ultimate owners – and how to ensure people’s behaviour is not aberrant or counter-productive. In looking at ‘culture’, we are seeking to control behaviour and to understand how management action influences behaviour in the firm. While there are no clear lines – no ‘levers’ to pull to change or drive behaviour, management action can influence behaviour as can both financial and non-financial incentives. It may be possible to increase materially our understanding of the link between management influence and control. But that may require rethinking ‘control’.
6. Organisational control
To become and remain successful, all firms must establish an organisational approach to control, to internal control. In the post-Sarbanes-Oxley world, many large firms’ internal control frameworks default to the SEC-mandated COSO, issued in its original form in 1992. But COSO had material flaws. Most importantly, it was a control framework focused on management by objectives and accounting control. Its attention to human behaviour is scant and superficial. We need to do better.
e all know we live in a complex world but many people's mental models of how organisations work fail to reflect this complexity; their reductionist assumptions are, instead, linear and they assume linear relationships of cause and effect. That has potentially significant consequences for how we understand the relationship between behaviour and organisational control.
8. Assessment & evaluation
Many managers expect and have systematically been taught that any quantity of importance can be measured; not so culture. Because culture is fundamentally social and behavioural, culture measurement reduces a complex reality in ways that neither its proponents nor anyone else can explain; it can only ever offer a partial view of the ‘real’ culture. Add to this that any perspective on culture is inherently filtered by the instrument or the perspective of the observer and evaluating culture becomes a fraught exercise. Any useful approach to evaluation must require qualitative methods in whole or part; the utility of qualitative methods depend critical on the skill of the observer.
9. Adaptation & change
As environments change, firms must adapt; that is as true of culture as of other aspects of organisational life and routines. It may be that culture follows other changes or that, for other changes to occur, culture must, first, adapt. Either way, there appears to be strong evidence that both cultures and many people resist change, especially when it is imposed managerially rather than emerging naturally or organically. The managerial challenge, then, must be to establish routines that promote adaptation to changing market conditions and to market signals.
10. Data and decision-making
How we acquire, interpret and apply data in relation to an uncertain and often ambiguous environment tells us a lot about a firm and its assumptions and beliefs – about its culture. Human systematically minimise the uncertainty and ambiguity in their environments in order to have a basis for action; there is a preference, especially in organisations, for presumptions of rationality in decision-making. This can often result in false or spurious presumptions of accuracy and utility of data and of decisions coming from data. Alertness to errors or anomalies is critical.
11. Organisational politics and power
Organisational power is usually thought of as directive influence, which is relatively visible; less visibly, power also implies the ability to influence meanings attached to symbols and words used in organisational discourse. This more subtle – or 'cultural' – form of power influences the nature of and probability of dissent. Organisational routines can reduce the influence of power by encouraging 'rational' approaches to acquisition, interpretation and use of data in decision-making. However, beliefs and assumptions – a vital aspect of culture – also influences selection of external (and internal) data sources to which the organisation attends, how and from where data are acquired, interpretive routines and the roles of subjective assessment of utility and the openness to dissent in the decision process.
12. Incentives, motivation and performance
Current approaches to remuneration commonly assume that people are motivated best by financial reward. Not only may this assumption be flawed but providing strong financial incentives that are not closely tied to shareholders’ interests may have disastrous effects on individual risk-taking on behalf of the firm. While strong financial incentives appear to have a strong influence on the assumptions, beliefs and behaviour of incentivised personnel, they may also have a corrosive effect on efforts to control those people and on other, less-financially-incentivised people in the firm. The impact of strong performance incentives in risk-taking areas on assumptions and beliefs throughout a firm appears to be high and may reinforce problems associated with risk-asymmetric rewards on threatening long-term value.
13. Ethics and trust
The discussion around ethics and culture has focused recently on rule-following. However, rule-following is not unambiguously positive; it can decrease innovation and can lead, if pushed too far, to an unhealthy focus on conformance by making divergent thinking problematic. Trust also plays a role, culturally, in ethics and is, itself, an important attribute of control in a firm. Higher levels of trust, if reciprocated, reduce opportunism and lower transaction costs including within the firm; compliance is more reliable and aberrant behaviour more effectively discouraged. A key ethical dilemma is how and why people’s ethical attitudes change as they ‘walk through the door’ at work. Perhaps there is a ‘banality’ of non-compliance in which bureaucratisation has a dissociative effect where people just do what they think is expected of them. The formation of that expectation is inevitably partly cultural. Therefore, how people are enculturated in to the firm will have impacts on people’s understanding of expectations and, from that, the ethicality of their behaviour.
14. Cultural impact of technology
Since Gordon Moore authored the paper in 1965 that gave us Moore’s Law, the world has been changing fundamentally technologically. The growth in microprocessor density and processing speed has allowed previously unimaginable advances in a range of technologies with applications from finance to healthcare to remote sensing. The ubiquity of such technology we no longer question. What has gone less observed are the behavioural and cultural changes, including the effects of changing skills requirements in the workplace and demographic shifts in working that have accompanied those developments. These changing roles and demographies impact firms’ cultures as well as process and duration of enculturation. How does that impact culture and control?
15. Structures, processes & routines
Our current approaches to control are dominated by process-based thinking. Our thinking on processes is dominated overwhelmingly by mechanistic thinking which is essentially linear. Yet the world in which we operate is irreducibly complex and uncertain. Our approaches to structures, processes and routines are frequently bureaucratic and fail to build in sufficient variety to reflect the complexities of the environments in which firms operate. Without this ‘requisite variety’, control is compromised. As a result, our assurance routines may be grossly over-confident and produce an ‘illusion of control’ in their audiences that creates a dangerous gap between perception and reality of control. The perception of the world in mechanistic terms (or, at best, organic or ‘organismic’ terms) is deeply rooted in our assumptions and mental models. These are ingrained in organisational cultures and business-school curricula. Changing them is difficult.
16. Failure, performance and culture
The link between culture and performance is poorly understood. It is clear that a tightly-uniform or ‘strong’ culture can have disastrous effects; a ‘weak’ or divergent culture can also have particular benefits in specific business conditions. It appears it is not possible to imitate culture; cultural “best practice” (as with the concept in other settings) is illusory; culture is enormously situationally dependent and only poorly imitable. It appears that culture can be a key source of ‘non-rational actions’ that are not otherwise justified or justifiable analytically. Critical to overcoming these problems is dispassionate and systematic challenge of assumptions that underlie firms’ ‘theories of business’ or business models. Key to this process is seeking to understand anomalies – unexpectedly positive and unexpectedly negative results or outcomes. Seeking to understand the firm’s culture is critical in firms that are performing well (to maintain that performance) or poorly (to correct it). Clear and robust systems to reflect market prices in to the firm’s resource allocation decision-making is an essential discipline for aligning behaviours in the firm with market realities outside it.
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