Category Archives: Culture Change

Changing Corporate Cultures: The Bad, the Ugly and the Good: Part 3

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The Good

There are many examples of organisations experiencing and overcoming great crises, to become very successful, well-known and reputable organisations. Some of them are listed below.

Apple was founded in 1976 to develop and sell personal computers. For many years, Microsoft continued to gain market share with Windows by focusing on delivering software to cheap commodity personal computers, while Apple was delivering a richly engineered but expensive experience. Apple relied on high profit margins and estranged many customers who could no longer afford their high priced products. Apple also experimented with various other unsuccessful consumer targeted products during the 1990s.

Steve Jobs was brought back as advisor in 1997 and ultimately CEO – he began restructuring the company’s product line and worked collaboratively with Jonathan Ive to rebuild the company’s status. In the following years, Apple introduced a new all-in-one computer (the iMac), the iPod and the iPhone, and the iTunes store. All of these products became phenomenally successful. Between early 2003 and October 2010 Apple shares went up from around $6 a share to over $300. Apple’s resurrection is seen by many as the most profound business comeback in the last few decades.

IBM had a powerful reputation and extraordinary success in the 1960s and 1970s. It dominated the IT industry until the early 1990’s. Then it underwent a major crisis, and was in danger of becoming extinct. By 1994, IBM had lost almost $16 billion due to the changing dynamics in the IT Industry. This was attributed to its elephantine size, an individualistic corporate culture and inability to integrate the business to offer a suite of appropriate solutions to its clients.

Over the next decade, Lou Gerstner (who became the new CEO) showed that even elephants could dance. “Transformation of an enterprise begins with a sense of crisis or urgency,” he stated. “No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive.”

Gerstner saw the need for integrating the company as a team, common technical standards, and a culture focusing on client needs and performance. While Gerstner initially didn’t see culture as significant, he subsequently stated, “The thing I have learned at IBM is that culture is everything.”

General Motors once the world’s most respected carmaker, faced disaster in 2007 when it sacked tens of thousands of workers and filed for bankruptcy. The government bailed it out and just a year later, GM regained profitability. After trimming costs and killing struggling divisions, it raised $20 billion by going public again. By the end of 2013, the government sold off the last of its GM shares – the end result was an incredible turnaround which saved around 1.2 million jobs.

Delta evolved from a fleet of crop-dusting biplanes into one of the USA’s biggest airlines. Squeezed by higher fuel prices and increased competition, it filed for bankruptcy in the mid-2000s. It then renegotiated union contracts and expanded its fleet with used planes rather than new ones, and implemented other strategies. Delta merged with Northwest Airlines in 2008 to subsequently become the world’s largest airline.

Lego suffered in the 1990s because of the rise of video games and other competition, and in 1998, made a loss for the first time. In 2004, Jørgen Vig Knudstorp became CEO, cut costs and introduced some lines which became very successful. Lego was recently the world’s most profitable toymaker and in 2015, replaced Ferrari as Brand Finance’s “world’s most powerful brand.”

There are many other examples of such dramatic turnarounds. A common theme is the crisis and threat of extinction due to changing markets, technology and competition, and sometimes poor leadership. The turnaround then typically occurs with a new and visionary CEO (such as Steve Jobs and Lou Gerstner), who makes drastic changes, foresees future market needs, and implements successful far-reaching strategies. Such CEOs also recognise the need for ensuring corporate cultural change that will align with the organisation’s new vision, values and strategies. These case studies reinforce the critical importance of leadership. Of course, leadership is vital at all levels in the organisation – the CEO cannot do it alone.

Narayan van de Graaff

Changing Corporate Cultures: The Bad, the Ugly and the Good: Part 2

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The Bad and the Ugly
There are many case studies of organisations which either didn’t keep up with the rapidly changing world around them, had dubious leadership/management practices, or behaved unethically/unlawfully and paid the ultimate price. Here are some well-known local and international examples:

One-Tel was the fourth largest telecommunications company in Australia in 2001, with over two million customers and operations in eight countries. Key reasons for the collapse were seen to be strategic mistakes, incorrect pricing policy, and serious deficiencies in its corporate governance. These included poor internal control and financial reporting, the board’s oversight of management, and poor executive pay-to performance link. The collapse of One-Tel provided several key lessons on the role of corporate governance in preventing corporate collapse.

HIH Insurance was Australia’s second largest insurance company. It was placed into provisional liquidation in 2001, and was the largest corporate collapse in Australia’s history – losses were around $5.3 billion. Investigations into the cause of the collapse brought about conviction and imprisonment of some of HIH management on various charges relating to fraud. The director Rodney Adler, CEO Ray Williams and others were sentenced to prison for fraudulent activity.

Enron Corporation was a US company, and one of the world’s major electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named it “America’s Most Innovative Company” for six consecutive years. In 2001, its reported financial condition was shown to have been sustained by systematic and creatively planned accounting fraud. The scandal brought into question the accounting practices and activities of many US corporations, and ended up causing the dissolution of Arthur Andersen.

Arthur Andersen was forced into bankruptcy in 2002, because of indictments during the Enron investigation. Many believed that its downfall was due to its relationship with Enron for largely legal reasons. However, analyst Charles Ellis disagreed. “Arthur Andersen, once the world’s most admired auditing and professional services firm, descended through level after level of self-destructive decline to its ultimate death.” Ellis linked the firm’s decline to the 1950s, when senior management shifted their focus from professional excellence and integrity to beating their competitors’ revenue. When Enron became a key client in the late 1990s and were clearly using dubious practices, Arthur Andersen’s culture had reached a point of no return.

The Global Financial Crisis (GFC) was brought about by a series of major collapses in short succession, as a result of dubious financial practices. Many large financial companies collapsed in 2008, as increasing numbers defaulted on housing loans. From 2003, Lehman Brothers had invested heavily in mortgage debt, in markets deregulated from consumer protection by the US government. Losses increasingly grew in 2008, and the company was forced to file for bankruptcy after the US government refused to extend a loan. The various major collapses triggered a global financial market meltdown.

Lessons to be learned?

The common threads weaving together these and other major collapses appear to be highly dubious values and unethical/corrupt behaviours of key players, and lack of effective controls. History does have a habit of repeating itself, unless we learn these critical lessons.

Narayan van de Graaff

Changing Corporate Cultures: The Bad, the Ugly and the Good

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What do we mean by corporate culture? It has been defined as the shared values, attitudes and behaviours that characterise members of an organisation, which in turn are linked to the organisation’s strategies, structure, and approaches to its stakeholders. These patterns of values and behaviours define what is encouraged and discouraged in the organisation – they may be implicit or explicit.

All thought leaders would agree that it is no easy feat to change a corporate culture, just as it is not easy for individuals to change entrenched values, habits, behaviours. Research has shown that only 10% of people who have had heart bypass surgery or an angioplasty make the necessary major modifications to their diets and lifestyles. In other words, most individuals (and organisations) don’t alter behaviours, despite overwhelming evidence that this is necessary.

In a previous article, I referred to a model which shows that humans typically deal with major change and uncertainty in four phases: denial (this isn’t happening; this won’t affect me), resistance (this is terrible; I’m going to fight this), exploration (this could work; I’ll give it a try); and finally commitment (this is great; I’m going to make this work). Unfortunately, many people and organisations never get to the commitment phase.

I attended a seminar on mergers and acquisitions some time ago, where an attendee told us that he was part of a company which had been taken over by another company 18 years ago. The employees of his company were still wearing the ‘old’ company uniform and not communicating with employees from the ‘new’ company! Another attendee then shared that this had happened in his company, but it was only twelve years ago!!

Fortunately, many organisations have shown us that major, positive corporate change is possible. My next article will examine some key organisations that didn’t change when they needed to and in fact paid the ultimate price (the ugly), as well as organisations that were quite unethical and even unlawful, and also paid dearly for those transgressions (the bad). The following article will then examine organisations that overcame significant challenges and implemented effective strategies to become highly successful (the good).

Corporate Paradigm Shifts
A paradigm is a distinct set of thought patterns, a way of looking at something. Albert Einstein’s theory of relativity created a new paradigm which challenged the Newtonian way of thinking.

Organisations have paradigms that drive their strategies, policies and procedures. When there is a takeover or merger, paradigm shifts are likely to occur. I have worked with some major organisations involved with mergers, and seen first-hand the paradigm shifts and also paradigm paralysis (inability or refusal to see beyond the current models of thinking) that can occur. This can be driven by resistance to the merger/takeover, particularly when the corporate cultures of the two organisations were very different. For example, in one merger, the one company had a fairly informal, laid-back culture, whereas the other company was more formal, aggressive and rules-driven. Employees of both organisations were quite critical of, and threatened by each other.

In the next two articles, we will see examples of paradigm paralysis, as well as powerful paradigm shifts.

Two questions for you: how would you describe your organisational culture? Does it resist or encourage positive and necessary change? And how do you deal with significant change?

Narayan van de Graaff