AsCEOofFordMotor,AlanMulallytookonFord'sculture.

|Reuters/BrendanMcDermid
Corporateleadersandacademicshavebeendebatingtheconnectionbetweeninstitutionalcultureand
growthformorethanthreedecades.Yetmostcantreallyputtheirfingeronthesingleaspectofan
organizationsculturethatsmosteffectiveatdrivingfinancialperformance.
StanfordGraduateSchoolofBusinessProfessorCharlesA.OReillyandfellowresearchershave
foundtheanswerliesinakeyword:adaptability.
Youllseeculturemostlytalkedaboutasstoriesoranecdotes.Itsavagueconceptthatpeoplesortof
knowisimportant,buttheydontquiteknowhowtoapply.
CharlesO'Reilly
InhisrecentresearchupdatepublishedintheAugust2014JournalofOrganizationalBehavior,
OReillyteamedwithcolleaguesJenniferA.ChatmanandBernadetteDoerrattheUniversityof
CaliforniaBerkeleyandDavidF.CaldwellatSantaClaraUniversitytoexaminewhethercorporate
culturehadapositiveimpactinthefastestgrowingcompaniesspecificallyhightechnologyfirms.
TheteamnotedthatthesupremelyadaptiveculturesinSiliconValleyandbeyondcontain
transformativemedicineformostcompanies,nomatterwhattheindustry.
OReillycanrecitealonglistofcorporateculturesuccessandfailurestories,notingthatsome
traditionalcompanies,likeFordMotorCompany,provideexcellentillustrationsoffailureontheroad
tosuccess.OReillysuggeststhatFordsrecentlydepartedCEOAlanMulallysucceededwhere
previousleadersfailedbecauseherealizedtheautomakersproblemsbeganwithitsrigid,outdated
corporateculture.
Cantheleadergetthepeople,structure,metrics,andculturealignedwiththestrategy?asksOReilly.
Fordattemptedthreeturnaroundeffortsoverthelast15years.Twoofthemfailedabysmally.Thislast
one,underMulally,finallyworked.QuotingBryceHoffmans2013bookAmericanIconabout
MulallysturnaroundatFord,OReillysaidMulallysucceededbecauseheattackedtherootofthe
problem:Fordscorporateculture.

WhatDoesAdaptabilityReallyMean?
OReillyandhiscolleaguesdefinecultureasasocialcontrolsystemthatdrivescertainkindsof
behaviors.Adaptiveculturesarethosethatencourage:

Risktaking

Awillingnesstoexperiment

Innovation

Personalinitiative

Fastdecisionmakingandexecution

Abilitytospotuniqueopportunities

Yetadaptiveculturesarealsonotableforthebehaviorstheychoosetominimize,OReillynotes.
Thereslessemphasisonbeingcareful,predictable,avoidingconflict,andmakingyournumbers.

PointingtoHewlettPackardsOct.5announcementthatitwouldsplitintotwocompaniesone
focusedonPCsandtheotheroncorporatehardwareandservicesOReillynotedHPsmovetoa
moreresultsfocusedcultureunderformerCEOCarlyFiorinain1999andcontinuedundersuccessor
MarkHurdthrough2010crippleditsabilitytogrowandinnovate.(Thegreatestirony,ofcourse,being
thatStanfordgraduatesBillHewlettandDavePackardcreatedhightechsadaptivemanagement
culturebackinthe1940s.)
OReillyandhiscoresearchersusedanupdateof1991researchtoidentifyculturesamongparticipants
intheUnitedStatesandIreland.Next,theteamfocusedontheintensityofadaptabilitywithintheir
culturalnormsand,finally,investigatedtheresponsesofadaptabilityinclinedcompaniesandother
culturalnormsonoverallfinancialperformance.
Theresearchfoundthatcorporateculturesthatemphasizeadaptabilitygenerallyproducerevenue
growth,marketandbookvalue,mostadmiredratings,employeesatisfaction,andstockanalysts
recommendations.
Theessentialmechanism,OReillysays,isthealignmentofculturewithstrategy.

EmbracingConflict,Speed,AndaBitofMess
OReillysayseventhoughAmazonchairmanJeffBezosgetscriticizedfortherazorthinmarginsthat
haveproducedspottyprofitabilityattheworldslargestonlineretaileroverthelast20years,Amazon
isamodelofalongterm,adaptivegrowthculture.
TheAmazoncultureischaracterizedbyfrugality,decentralizeddecisionmaking,andtakingrisks
outsidetheircorebusiness,hesaid,notinghowAmazonsKindleinitiallythreatenedthecompanys
legacybookbusiness.AmazonswillingnesstoexperimentsuchasstartingaHollywoodstudioand
amorerecentmovetowardopeningabrickandmortarstoreinManhattanallowsforplentyof
clashingviewpointsamidstrictpoliciesregardinghonestyandprotectingemployeeideas.
Thatisaverydifferentapproachthanmanycompaniestake,OReillyexplains.
Ifyouthinkabouttheculturethatdevelopsinmostlargesuccessfulfirms,youcanseehowwhats
requiredforsuccessinmaturebusinessesisalmosttheopposite.Thatis,anemphasisonmakingyour
numbers,nottakingrisks,stayingfocusedontodayscustomers,incrementalimprovement,and
increasedcentralization,heexplains.Inthesecircumstances,managersandsystemsreward
behaviorsthatwhilesuccessfulintheshorttermdontencouragetheexperimentationthatsneededfor
longtermsuccess.Theresult?WeseecompanieslikeHPmissingnewmarkets.

BecomingtheChiefCulturalOfficer
Companiesfailtograspthelinkbetweencultureandperformanceforseveralreasons,butOReilly
saysoneisparamount:Inlesssuccessfulorganizations,managersgenerallycantagreeonwhatthe
cultureis.
Youllseeculturemostlytalkedaboutasstoriesoranecdotes.Itsavagueconceptthatpeoplesortof
knowisimportant,buttheydontquiteknowhowtoapply,saidOReilly.Forexample,arecent
Deloittesurveyshowedthat94percentofexecutivesbelievedthatastrongculturewasimportantto
businesssuccess.Butifyouaskedthemwhowasresponsibleformanagingcultureorhowtheywould
manageit,mostwouldnthaveaclue.
Theresearchfoundthemostpowerfulcorporateculturesembracenonuniformbehaviorsand
adaptabilityinparticular,demonstratingtheyperformbetterfinanciallythanwillorganizations
characterizedbylowerconsensus,lowerintensityaboutadaptability,orboth,OReillysaid.

Culturerepresentsnormsintheorganizationthatshapebehavior,headds.Thesenormsshouldsignal
toemployeesandotherswhatmatterstothecompanyororganization.
"Parsingorganizationalculture:Howthenormforadaptabilityinfluencestherelationshipbetween
cultureconsensusandfinancialperformanceinhightechnologyfirms"waspublishedintheAugust
2014issueoftheJournalofOrganizationalBehavior.
CharlesA.OReillyistheFrankE.BuckProfessorofManagementatStanfordGraduateSchoolof
Business.Heiscurrentlystudyinghowthealignmentoforganizationalcultureandstrategypredicts
subsequentfirmperformance.