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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


Core Group Therapy

In other words, Mr. Skilling recognized that Enron’s culture was so prone to risky bets, and so loyalty-deficient, that he had to police his junior people — hard. In such an atmosphere, it’s not surprising that members of senior management, who are much harder to police, would look for ways to bend the rules. The infamous partnerships may have started as precisely such a maneuver.

Cultures of Consensus
Meanwhile, the older, more mainstream oil companies (which also have their own trading desks) generally have the same policy — they, too, pay traders a flat wage, not a percentage. As a result, those traders often grumble and sometimes leave. But these mainstream companies don’t develop questionable schemes like the Enron partnerships — not because their people are more noble, but because they are culturally risk-averse. These companies tend to have deeply instilled cultures of consensus and caution, evolved from years of managing accidents in refineries and offshore platforms, where a simple misstep can lead (for instance) to drowning or deadly fire.

I’ve been at oil company meetings where the first few minutes are reserved for safety procedures, on the million-to-one chance that we have to beat a hasty exit from the hotel room. And I’ve even been asked by oil company acquaintances to curb my habit of crouching on sofa arms. They don’t seriously expect me to fall, but the precariousness of my posture just bothers them. They are also used to investments, like refineries and oil platforms, that take 20 years to pay back their costs. That kind of mind-set makes it far more difficult for people to go out on a limb with questionable deals.

Of course, such companies may find themselves prone to other forms of folly — squelching innovation in some parts of their businesses, for instance, simply because they find it too risky. And some companies may seem like Enron on the surface, and even have a similar reputation for ruthlessness, without succumbing to the same temptations. What’s really needed is deeper perspective, from both inside and outside, to identify the cultural forces that determine why some companies become Enrons, others become Kodaks, others become Exxon Mobils, and still others become Ben and Jerry’s.

For several years, I’ve been informally studying the ways in which each organization’s cultural predisposition (for example, the attitudes, values, and behaviors it celebrates and tolerates) influences its strategic direction and its purposes as a business. In this context, I’ve come to see all organizations, including corporations large and small, as the aggregate sum of the decisions made at every level. It’s as if every company were a giant computer game controlled by thousands of small joysticks, each pulling in a different direction. Some people (at the top of the hierarchy) have more sway over the cursor than others (below them), but all employees have influence; even a decision about which brand of paper clip to buy may contribute, in a tiny way, to the organization’s ultimate direction.

What, then, are the common threads to all these individual decisions — the patterns that add up to large-scale organizational predispositions? I have come to think that there are basically three universal factors that influence corporate culture. I have never seen an organization operate without them, but their characteristics vary dramatically from place to place. If you understand all three in a particular organization, you truly understand how to reinforce what the organization is doing right, or change its direction.

The Core Group
Any organization is trying, at heart, to fulfill the perceived needs and wants of a Core Group of privileged people. In every organization, there is a group of people — its exact nature and makeup varies from workplace to workplace — on whose behalf decisions are made. This Core Group (as I call it) is never mentioned in any formal policy, for it has no formal authority. Instead, it has legitimacy: the respect, recognition, and fealty of decision makers throughout the organization, who continually favor its members as they choose which deals to close (and how to close them), which suppliers to court, which products to promote, and which initiatives to quietly let die.

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