John P. Kotter - Corporate Culture and Performance

CORPORATE CULTURE AND PERFORMANCE

John P. Kotter

James L. Heskett

THE FREE PRESS
New York London Toronto Sydeny

Copyright 1992 by Kotter Associates, Inc. and James L. Heskett

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Printed in the United States of America

printing number

13 15 17 19 20 18 16 14 12

Library of Congress Cataloging-in-Publication Data

Kotter, John P.

Corporate culture and performance/John P. Kotter, James L.
Heskett.

p. cm.

Includes bibliographical references and index.

ISBN 0-02-918467-3
eISBN-13: 978-1-4391-0760-7

1. Corporate culture.

2. Organizational effectiveness.

3. Performance.

I. Heskett, James L.

II. Title.

HD58.7.K68 1992

658dc20 91-42893

CIP

This books roots go in two different directions. On Kotters side, there is twenty years of research on managerial behavior, work that has focused recently on the topic of leadership

Our collaboration began in the summer of 1987. Over a four-year period, we conducted four studies, the ultimate purpose of which was to determine whether there is a relationship between corporate culture and long-term economic performance and, if there is, to clarify the nature of that relationship, to explore why it exists, and to determine whether it can be exploited to augment corporate performance.

The studies were all supported financially by the Division of Research at the Harvard Business School. In addition, nearly forty corporations helped with data collection, and a number of individuals critiqued early drafts of this manuscript. The latter include Louis Barnes, Michael Beer, Richard Boyatzis, Jay Conger, Terry Deal, Nancy Dearman, Daniel Denison, Robert Eccles, Russell Eisenstat, John Gabarro, Linda Hill, Todd Jick, Julie Johnson, Ralph Kilmann, Robert Lambrix, Paul Lawrence, Jay Lorsch, Mal Salter, Edgar Schein, Leonard Schlesinger, David Thomas, Warren Wilhelm, and Michael Winston. This assistance, along with the manuscript-processing skills of Rosemary Brigham and Carolyn Saltiel and the research assistance of James Leahey, Andrew Segal, and Nancy Rothbard, made this book possible.

John P. Kotter

James L. Heskett

We encounter organizational cultures all the time. When they are not our own, their most visible and unusual qualities seem striking: the look of the traditionally dressed IBM salesman, the commitment to firm and product expressed by employees at Honda or Matsushita, the informality of Apple and many other high-tech companies. When the cultures are our own, they often go unnoticeduntil we try to implement a new strategy or program which is incompatible with their central norms and values. Then we observe, first hand, the power of culture.

* * *

The term culture originally comes from social anthropology.from one generation to the next. The American Heritage Dictionary defines culture, more formally, as the totality of socially transmitted behavior patterns, arts, beliefs, institutions, and all other products of human work and thought characteristics of a community or population.

We have found it helpful to think of organizational culture as having two levels, which differ in terms of their visibility and their resistance to change. At the deeper and less visible level, culture refers to values that are shared by the people in a group and that tend to persist over time even when group membership changes. These notions about what is important in life can vary greatly in different companies; in some settings people care deeply about money, in others about technological innovation or employee well-being. At this level culture can be extremely difficult to change, in part because group members are often unaware of many of the values that bind them together.

At the more visible level, culture represents the behavior patterns or style of an organization that new employees are automatically encouraged to follow by their fellow employees. We say, for example, that people in one group have for years been hard workers, those in another are very friendly to strangers, and those in a third always wear very conservative clothes. Culture, in this sense, is still tough to change, but not nearly as difficult as at the level of basic values.

Each level of culture has a natural tendency to influence the other. This is perhaps most obvious in terms of shared values influencing a ,groups behaviora commitment to customers, for example, influencing how quickly individuals tend to respond to customer complaints. But causality can flow in the other direction toobehavior and practices can influence values. When employees who have never had any contact with the marketplace begin to interact with customers and their problems and needs, they often begin to value the interests of customers more highly (see ).

Conceptualized in this way, culture in a business enterprise is not the same as a firms strategy or structure, although these terms (and others such as vision or mission) are sometimes used almost interchangeably because they can all play an important part, along with the competitive and regulatory environment, in shaping peoples behavior (see The beliefs and practices called for in a strategy may be compatible with a firms culture or they may not. When they are not, a company usually finds it difficult to implement the strategy successfully. But even when successfully implemented, the behavior patterns that represent a given strategy are not cultural unless most group members tend actively to encourage new members to follow those practices.

EXHIBIT 1.1 CULTURE IN AN ORGANIZATION

Structure refers to certain formal organizational arrangements. Such arrangements may call for behavior that is already pervasive in a firm for cultural reasons. They may call for actions that are not in the culture but are in no way incompatible with it. Or they may call for practices that are at odds with the culture. In this last case, we often find that people differentiate the formal organization from the informal organization.

Although we usually talk about organizational culture in the singular, all firms have multiple culturesusually associated with different functional groupings or geographic locations.

EXHIBIT 1.2 FOUR FACTORS THAT SHAPE MANAGERIAL BEHAVIOR

Even within a relatively small subunit, there may be multiple and even conflicting subcultures. Large and geographically dispersed organizations might have hundreds of different cultures. When people talk of the corporate culture, they usually mean values and practices that are shared across all groups in a firm, at least within senior management. Using the same logic, a divisional culture would be the culture that is shared by all the functional and geographical groups in a division of a corporation.