Designing Cultures and Organizational Architectures

Speaker A Thank you for coming.

Speaker B Let's get started and we'll start with our first speaker, first session, the microfoundations of organizational design with a focus on organizational culture. He is William Ocasio and he is the John Kellogg Professor of Management and Organizations at the Kellogg School of Management. His research is on organizational politics, cognition, and culture with a specific focus on strategy, corporate governance, and organizational and institutional change. So I'd like to bring that.

Speaker A Thank you. I'm very pleased and honored to be in this conference. I'm actually a bit of you didn't mention design, but I kind of a clout that organizational design person in many ways are very interested in that don't always use the word, but always since the very beginning been interested in organizational design. I think not just in my work, in many ways in many works, in organization theory and even in strategy. Now, the topic I'm going to be today is really kind of a perspective, sort of talk in terms of different ideas that come partly from my research but also partly from my teaching in terms of both MBAs and executives and also a little bit from issues of consulting and also partly from part of that a reflection that issues about organizational design are often seen as quite separate from issues about organizational culture. That's actually particularly true among researchers. I think it's a little bit less true among consulting firms these days. Actually kind of really do see the connection quite consequential. And part of that is then sort of as my title says, I'm talking about how there's organizations that could design cultures, which for some people in the organizational research community, that's kind of anathema to say that there's such a thing as designing a culture and we'll be talking about that in a little more. But if you talk about designing a culture in the context of designing organizations more broadly, or sometimes, as people call them, organizational architectures. Now in prepared for this presentation, I looked at how is it that the organization, the design community talks about culture and read over some of the issues and particularly kind of the first issue of the journal Organization of Design and how many mentions of the word culture and how exactly they used it. I think it was used somewhat, apparently, but the word did come up, including in J. Alvarez. I think it was the first article in the journal and kind of towards the end of the article and I.

Speaker C Think reflects kind of a theme that.

Speaker A Yes, culture is kind of recognized by some but not by all in the organizational design community, but it's typically not emphasized in many ways. What I'm going to say today needs to be emphasized a lot more. So here's kind of what he said here on the human side of the organization is being redesigned. So the sort of notion that you are redesigning the human part of organizations as well, but as well right. So it's kind of a side point in many ways of the argument in many forests, emphasis placed on developing shared values, which is one way that I think probably the most prominent way that organizations now use the take culture quite seriously, although sometimes it's more a public relations necessarily than taking the share values very seriously. They guide decisions without communication. Now, this part I thought interesting because actually I think culture is actually a lot about decision making with communication right, and the process of interaction. So we're going to focus on that. But certainly the issues about interdependent units and managers are important. The last sentence is interesting too because I think it's central to issues of design in the 21st century, this notion of developing a culture or designing a culture of collaboration that managing interdependence, which is much greater. Now, despite the fact that culture may not be necessarily a central topic in organizational design, I think it is very much a sort of topic that has this long history in the study of organizations and particularly started in 1980s when everybody was worried about Japan, right? And well, Japanese are doing better than the United States because they have a stronger culture. That was, I think, the perspective and Peters and Waterman actually kind of made this quite salient in their Inserts for Excellence book and kind of had a lot of influence with practitioners. Now it also had influence among academics. Now, this particular picture is of a Japanese office and I find it quite interesting because I actually visited Japan actually about ten years ago and here you see kind of the interplay between the hierarchy and the culture and it's sort of designed even here explicitly in the physical culture. I don't know how many of you have been to Japan and visited some of these offices. It's very kind of common feature that is table right, where there's very few actual private offices and the private offices don't typically have windows. So there's not necessarily a lot of privacy either. But the interesting thing about the hierarchical structure of the organization that it's reflected in the position of where you sit at the table, right? So as people get promoted, they move from one part of the table to the other and it's very, very seniority based organization, usually and this is changing, by the way, but it still might come in an organization and the department head sits at the end of the table, right? You also see kind of a lot of moving in and out so people are always in their table. So this is kind of an artifact of the culture but it very much reflects the collaboration that happens in organizations in Japan. What I'm going to talk today sort of more general is trying to make five points, which I think why this topic I think is really important. The first one, and perhaps in many ways the big lesson is that although culture is always, I think, an important feature of organizations and organizational design, it's actually more increasingly important and it's more increasingly important kind of from a kind of theoretical perspective, what I would call the decreasing decomposability of organizations. We can't necessarily put people in boxes anymore. That was never quite the case, but it's actually becoming less and less so and in that sense make culture more important. Another aspect which actually comes from kind of work in organizations is notion of embedded agents which goes beyond a boundary rationality, rational after model of individual behaviors and sort of a very different model about how humans behave. The other aspect that I kind of want to mention is that the cultures, we're trying to refine them, but they're ultimately emergent. And I think this is a general idea that I think is not only relevant for the talk about culture, but it's the talk about structure also because although we talk about designing structures, we actually end up with emergent structures which may not necessarily be quite reflect the formal design element. And we have to think about how these two relates. And then the question is some of particular ways that we should be able to do that in terms of the elements of design for the culture and then the elements for implementing that cultural design. So the first point about declining near decomposability some of you may be familiar with this very classic article in 1962 by Harvard Simon on the architecture of complexity. It's kind of a rich theoretical article about hiring and about structure. And basically he talks about systems more generally. But kind of one of his main notes is about organizational systems as basically being hierarchical by hierarchical. He not only means in terms of vertical hierarchy, but basically they're kind of nested systems. They're kind of nested on each other. And then another aspect in addition to hierarchy that he talked about is that systems are more likely to be also wide not only if they're hierarchical, but where they are what he calls nearly decomposable. And at the end of nearly composable systems is when the interactions within the system are greater than the interactions between subsystems. So most of the interactions, like most of the communications, then occur within the system rather than between the system, which I think has big applicability to the issues of organizational design, the communications happening within the boxes or what about the communications between the boxes? Right. And interesting, at the same year that Simon published this piece, chandler published his Strategy and Structure, where he talked about the multidimensional firm, the case of GM and Dupont, which is very much an example of a multi divisional excuse me, of a neolithical possible system. Now there's a lot of change that's happening. These we no longer have the type of organizations that we had in terms of the multi sort of forum. In many ways that's becoming much more common, much less common we had this increased emphasis in change and innovation the problem with the indicompostable system is that the other way that people talk about it is organizational silos right? Every kind of part of the organization is kind of separate from each other. So we're going to break the silos. We're going to make the interactions between the subsidize a lot greater. And the idea there is that then culture becomes quite consequential because we have to think about not of the structural design, but they're all of culture in breaking those interactions between the subsidies of the organization. And part of that I think, is reflected in all the changing organizational design moving away from the multidimensional firm, including in the high tech sector, you have firms even though as a multi business organization, they basically have functional structures. But how do they do that? Why would really culture is quite central to that. And in terms of even sort of more traditional firms, they're going to things like four dimensional structures. PNG was a four dimensional structure with products and geography and functions and customers. This is no longer a nearly proposal system. Right. The interactions between the boxes are going to be huge. I would say. Their culture is really important. There's complementarity of structure. So an issue that was always central. I think it's becoming much more central in organizations. And then the second point has to do with this notion of embedded agency. Traditionally in the literature, in organizational design, this notion is about problems of information processing. Sounded rationality being quite central to design. But there's still kind of a notion of rational based actors. There's kind of another notion from the literature on culture. Little institutions thinking about individual agents not only being rational actors, but also shaped by the cultures embedded in the cultures that they are part of. And this notion of cultural embeddedness is quite important. So we're looking at sort of human behavior the argument by a logic of interest or perhaps it's a logic of consequences, as Jim March would say, that this is also a logic of identity that shapes how people behave. And so focusing on issues of identification and socialization is really important in terms of managing people in organizations and to do that, we have to sort of think about culture. So instead of talking about sort of bounded rationality, we call it in terms of a model of bounded intentionality. Yes, people have intentions, but their intentions might actually be driven by the kind of strong identifications they may have with different organizations, different occupations, different institutions. And shaping those identifications is really central to the issues of organizational design and organizational architectures. Now, the third point I wanted to make was about emergence, which relates to this notion in organization theory. If you look at Fitzcott's book about open and rational natural and open system, this is kind of an idea. Well, we have a formal organization, and then we have an informal organization. They're almost kind of separate. And it's kind of many ways in many ways that the issues about organizational design has been seen. I would say that when we kind of have to reflect upon this to think about it not in terms of the formal and informal as being separate entities, but in fact ultimately the idea whether we're talking about structure or we're talking about culture is we're trying to design an organization that we can't do that completely. Here I have a quote from Phoenix. We also have an article in the organizational design journal. Organizational design is a particular form of human problem solving in which the problem is one of getting multiple individuals with diverse knowledge and interest to collectively achieve something they cannot do so by acting individually. And I really like this particular definition, but I think what I'm really saying here is you have to think about the emergent organization that comes able to achieve this problem solving right, that allows for the collective action to be more effective than the action of individual organization. So we're talking about defined the idea I would suggest in the mindset bringing together the formal and the informal. And I think this is particularly true for culture because we can never kind of fully control the informal aspect of culture. But I would say it's also true for issues of organizational structure. And part of that then we think about all the elements of organization, the structure, the culture, the technology, the economic system. To a certain extent we could actually try to design all of these, but there's always going to be an emergent part of that. So when you think about the organizational design, think about it from a more emergent perspective. Let's see how much more time I have here. One question here is then when we're talking about organizational culture, how do we define organizational culture? What are the elements organizational culture? This is actually a question that's a very tricky one and there's a lot of different literatures that give you very different definitions about culture. I'm going to put one that I particularly like as kind of a systems of rules and tools which includes kind of this more normative element of culture, but also this kind of more cognitive element for guiding attention, behavior and interaction in organizations and there is really no consensus about what those elements might be. As I was mentioning over for this talk actually here I think the organizational consultants are actually more advanced in many ways than the academics are with respect to where they are. And here I'm actually linking some ideas from one particular organizational consulting firm Strategy Ann, which was formerly Booz Allen and they had to talk about organizational DNA and they talk know, they actually don't use the organizational DNA, the word culture at least it's hidden in many ways. But they talk about three elements that I would put into culture. They're going to have the mindset, the commitments and norms of the organization and the idea that these are informal parts of the organization, but you can actually affect them in an important way. And I could link these to different aspects of the pre notions of attention, behavior and interaction that I talked about here. Attention with respect to mindsets. I could spend a lot more time than I have on this one particular issue because it relates to very sensually, to issues about research, but my own research. But for instance, organizations sometimes think of themselves as community, sometimes they think things kind of have a professional mindset. So shaping those mindsets really shapes how people pay attention in organizations. I also think the word commitment I think is really interesting because it's another way to talk about values. But the problem with the notion of shared value is that as I said earlier, has become in many ways just a PR statement. So the question here is in a sense things that you're truly committed to. So think about less about the there are certain values that are more important and including commitment to which are your key stakeholders in the organization, commitments that are shaped to those metrics. And a mission, to the extent that a mission is really something that's consequential. Many organizations have mission statements. Very few organizations are necessarily committed to the mission statements that they have. So I think think about commitment is important and notion about interactions also central in terms of interactions with collaboration and competition. The final point I want to make has to do with when you talk about deciding culture and the elements of culture, I think it's important to talk about the processes that you need to make sure that that culture takes hold, that you achieve that identification with people in the organization as I talked about. So this is kind of also I would say design elements, the sign elements that often we have Darden here, our HR team is kind of people people, right, HR people. So selection. I think one of the things we know is we want to shape and design an organization who we hire and we very to be the issues of cultural fit and also with diversity we can go the other way of having kind of too much of a group think culture that may not be biased the socialization process. This is interesting because the word socialization is kind of a very old idea in the literature that is kind of somewhat dead, but it actually is quite consequential because in many ways what organizations do is what you might call secondary socialization, right? The one beyond socialization you have in school basically try to socialize people in a particular way. One of the things that you have, one of the new words that I hear more and more these days is onboarding, right? And onboarding is very much a socialization process, right? To get people to conform to the norms of the organization, the issues and training. A lot of training. I remember being an emphasis in India. They spent six months training. A lot of it is not a technical training. It's a socialization process to have the conformity with the norms and commitments of the organization. And that's a really central part of that training. There's kind of also the sanctioning process, both in terms of the positive and the negative, sanctions, rewards and punishment. And a lot of this is not just material, because one of the problems that we know is that too much emphasis on material rewards might actually be detrimental to issues of getting people to be identified with the organization because then it becomes kind of an external identification motivation rather than a more influential one. The issues of symbols, the artifacts you saw that in the case of Japan and the model of Japan and kind of the symbols of the artifacts of the culture, including the material aspects, are really consequential. Also the language specific vocabularies that are very central through organizations. And ultimately it's about reinforcing all those elements through communication. Now, for communication to be reinforcing, it has to be transparent and credible. I think one of the difficulties organizations have in some of the communication processes is that what they communicate and what they actually do are two very different things. The rituals and the measurements are also consequential. And I'm going to stop right now. Any questions? Thank you. Let's see. We do have mics here for our questions.

Speaker D Thank you. Will, I was thinking about the definition that you provide for culture. And it might be a terminological thing, but I was curious about these things. The first one, the word the adjective shared is not there. Right. I know that you refer to the reality of organizations, but here you're providing a definition and why share is not in the definition. And also, in your mind, what's the difference between behavior and interaction? Because I see interaction as one kind of behavior. So I know that you attach commitment and normal to those different words. But conceptually how you I'll start with.

Speaker A The second one, which is kind of a simpler one. Right? Yeah. Interaction is a form of behavior. I agree with that. But there's also behavior that is not in the context of interaction. And when we're talking about culture, it affects what we do as individuals when we are ourselves in the cubicles or in the seats and table. And that's not elite interaction, but also about when we're actually working together with others. So it's both. But you're right. Interaction is a particular form of behavior. With respect to issues of shared, that's a big question, and I'm certainly taking a particular view here. That's a subject of one of the reasons there's not more research on culture in organization is the fight over that question. Well, some people believe that you have to define culture as shared and some people don't. And I'm kind of in the camp on the don't right now. Cultures are distributed among people in the organization and there might be some differentiation instead of fragmentation. There's a combination of that. So Joanne Martin has this book that she published in 1992 that actually goes into this particular issue. So I would say it's a system and there's interconnection between the parts of the system, but not everybody shares all the values and the sale. You're as committed to the same thing. So in that sense I want to both stay away from.

Speaker E So thank you for some very thought provoking comments. When I look at things like Agile Software development, which comes out of Agile manufacturing in Japan, it's not the elimination of coordination through shape culture. What it is is it's the radical decentralization of all of this. And so you have stand up meetings where all the members of the Scrum team talk to each other about what their issues are. And you have a scrum of scrums at the next level up, where the leaders of each of these 1210 to twelve person teams talk with each other about interactions across boundaries. But the senior managers just set the high level goals. They call them user stories and stand back and wait. And they're not allowed to interfere. They're not allowed to do what some of the software people call drive by shootings to throw in new ideas or new scope or new requirements. They set the high level goals and they stand back and the team works it out on their own. And to me it has to be done this way because this is a generation that's grown up coproducing media instead of being passive recipients of media, and they're not going to be given detailed work breakdown structures and specifications of the happy. So to me, again, it's a decentralization more than it is an elimination coordination.

Speaker A Yes. But I would say is that that deserves a cultural design and they may not necessarily use that word right. But in fact that is what's happening in Agile. Actually, my brother works in Agile software. Right. And a company was recently acquired developing coordination processes at the team level with that particular interactions with hierarchy, which is very much about creating identifications, creating, I would say, norms, commitments and mindsets. The three things that I talked about I think are central to making Agile software development work.

Speaker C Yes, fascinating talk. One thing I would observe as a practitioner is many people talk about structure, power and cultures orthogonal. But I think you correctly point out that culture is an emergent behavior. So from my experience, certainly culture is an integral function of some structure and power over time. Do you have any idea for how that works? Because my observation is you can change the structure, you can change the power, but you can't change the culture without giving it time to cook, if you will.

Speaker A Well, first of all I would say that those three things are coevolved. They're all emergent because power is also emergent, right? And you think about power yes you can perhaps give people a title that doesn't necessarily you're going to give them the power. Right? So you have to think about the kind of power structures or also kind of emergent structures in organizations. And it's not just about having the formal authority that you design a power structure in an organization. I think, yes, you can do so. The formal aspects of structure can be are more designed also but that isn't necessarily going to affect who actually ends up communicating with who. And actually part of the Agile idea is that you want to develop structures that allow for self emergence, self organization, right. And for that you have to have a combination of what is traditional thought about structure and the cultures that allow for those two things to take place. Self organization is a critical aspect, I think, of the organizations that we have that is part of Agile, for instance, right? Finding out when is it that not having the top in the organization put a kind of particular way when they have to do it or who actually needs to participate but align for self organization to emerge. And that's where I was saying kind know, rather think about designing for emergence and that I would say for those three things. Now, there's actually one of the things that John had said I was out of time, so I didn't put back out of my last slides here is that there's a lot know, designing for emergent organizations. And the second part research on the culture structural linkages. There's something that we don't really know a lot about. And I think there has to be a lot more research on this particular topic.

Speaker F Thank you for sharing your thoughts with us.

Speaker E One of the things I come from.

Speaker F The under the continuum practitioner and one of the things that we do when we do the strategy work and really on InDesign is we define the cultural and behavioral attributes that need to be on fire at the end of the redesign process. I'm wondering that work comes out of Albert Churn's work from the late 60s, early seventy s and one of his design principles being something called design compatibility which is basically the process of design has to fit with the intended culture at the end. Did you come across that in any of your research and how does that fit in with what you have?

Speaker A Well, I think you know, I mean there's multiple different kind of manifestations of that idea, right, that some use the word culture and some don't, right? Even from Jay Galvaiso star model which didn't use the word culture but talked about humanization or nazar tuschfit and then kind of the congruent fit idea. So they're all kind of part of this. I mean, this is in a sense an old idea. I would also say that perhaps the part that I kind of emphasize more here is that there is kind of an active design of that organization that we have to be kind of more proactively that culture that we have to be more proactive about at the same time that we are realizing that we cannot have total control over it. Right. But given how much we know about organization and human behavior, there are things we can more or less predict that's going to go right and then it's a process of emergence. I feel the same way about strategy. Right. Ultimately you start with a plan and then the strategy that's of emerging is not going to be the same thing as the plan. So in a sense what I'm really saying is all of these things are emerging and they have to think about how the different parts co emerge with each other. And yes, some are more stable than others and I think that the point is that the culture part is probably harder to change and more stable than some of the others. But you have to think about the relation between the stability and the change in all these different elements of the organizational architecture.

Speaker B Thanks.

Speaker G There is an implicit assumption that runs through most of the literature in management and also in the culture literature is that it is good to build a strong culture. And I think that your presentation also follows that tradition as to how to build a strong culture. But of course we know that strong culture has both positive and negative consequences. The next question is can we identify the conditions under which a strong culture is going to be good for certain purposes and under certain conditions and strong culture might lead to bad consequences? Now this is one example here of a General Electric under the former CEO of Chad Welch is all your business oriented. Now under the current world he really wants to push it for innovation. So there are really two different cultures, but the stronger culture that you have, the more difficult it is to change the culture. So I just want to open up this conversation beginning under what conditions strong culture is good for what purposes and under what conditions strong culture is bad and also for what purposes.

Speaker A Thank you. I think I might time it, but I was going to say actually that I don't agree with the notion that we want shared cultures and I totally did not mean to imply that in fact and also when you're talking about strong culture, strong cultures at what level? Right. So you may have a strong culture at the level of the department but not necessarily strong cultures at the level of corporation. So actually I don't particularly think that strong culture debate is the most necessarily useful to think about it because there are so many contingencies and it's very close. To the question about shared, right. Because the notion of shared is also strong, is very much related to how shared they are. And I think sometimes you want to have distributed cultures in an organization and depends on the particular strategy, business model, et cetera. Right. One of the difficulties with all of this, and it's the biggest difficulty with generation story design, is that there are no simple answers, right. And we're talking about these complex configurations, not just of this structure, but of culture and their interactions. Okay, thank you. Thank you.