Does Organizational Culture Affect Performance?

Exploring the four cultural types
by Dave Hofferberth and Jeanne Urich, SPI Research

This is the first article in a two-part series. This article introduces the concept of organizational culture and defines the four dominant cultural types found in professional service organizations. Part two discusses the effect of culture on performance by reviewing results from the 2012 Professional Services Maturity Model™ Benchmark, published in February.

Many professional services organizations (PSOs) begin with a couple of founders, a great idea and an initial strategy on how to capitalize on it. They add a few qualified people, core business processes and enough money to get started. They may even have potential clients lined up based on their past work or partnerships, so they can generate revenue while they chart their course over the first year. The initial group of employees understands what they need to do and how to perform because they’ve worked with the leader elsewhere.

Defining organizational culture

Few young professional service organizations have predefined the type of organizational culture they want to build. Nonetheless, early-stage culture is strong and usually models the founder’s individual personality and decision-making style.

Organizational culture comprises the unwritten customs, behaviors and beliefs that determine the “rules of the game” for decision-making, structure and power. It’s based on the shared history and traditions of the organization combined with current leadership values. In effect, culture dictates the way we do business here and the organizational survival tactics that facilitate assimilation and personal success.

With a strong organizational culture, employees do things because they believe it’s the right thing to do and feel they’ll be rewarded for their actions. However, if the leadership team lacks integrity or squelches diversity, powerful cultures can morph into cults, cliques, castes and insider clubs.

Does the type of culture affect the level, or potential level, of performance? Does culture set up PSOs to succeed or to fail? SPI Research continues to investigate the impact of leadership and culture on performance based on responses from 216 professional service organizations surveyed in the 2012 PS Maturity™ Benchmark survey.

Which term best describes your organization’s culture?

To simplify the PS Maturity™ Benchmark research, SPI created four cultural types based on two primary dimensions — is the reward system primarily focused on individual or group achievement? Is decision-making primarily based on subjective intuition or do decisions require objective proof?

Figure 1 outlines these dimensions and the corresponding cultural definitions.

Figure 1. Culture Types

  1. Creative. (Leadership example: Steve Jobs, Apple.) In creative cultures, the primary driver is self-expression. Leaders focus on creative brilliance and celebrate individuals and teams who break the mold with new innovations. The fluid organization structure typically contains self-organizing work teams and collaborative project groups. Creative cultures foster an environment where discontinuous innovation is possible. For instance, Apple’s move from PCs to the more successful iPod.The unbalanced form of power in creative cultures can be like cults, fashioned after a dynamic and visionary leader who can inspire the team to drink the Kool-Aid regardless of the consequences. Their favored functions are research and development and professional services.
  2. Collaborative. (Leadership example: Dave Packard, HP.) In collaborative cultures, the primary driver is teamwork and building consensus. Leaders tend to base decision-making on building a shared view of desired results. The negative aspects of collaborative cultures can be slow decision-making and excessive time to evaluate alternatives. They value trustworthiness and teamwork above creativity and aggressiveness. Collaborative companies seek to develop deep, long-lasting relationships with their clients and often use customer satisfaction as a metric for the organization. Typical collaborative companies use matrix management and complex double and triple line reporting structures. The unbalanced form of a collaborative culture can be insider clubs and analysis paralysis where the company invests unwarranted time and effort to reach group consensus. Their favored functions are marketing and customer service.
  3. Competitive. (Leadership example: Scott McNealy, Sun and Larry Ellison, Oracle.) In competitive cultures, the primary driver is personal and team achievement, often defined as winning. Leaders concentrate on beating the competition and often create quarterly competitive hit lists to squash the competitive enemy of the month. They value personal knowledge and killer instincts. Competitive cultures celebrate individual achievement more than teamwork. This culture and its leaders love management dashboards, which show competitive trends and market-share gains. The organization structure usually develops tiger teams tasked to achieve specific, measurable goals. Companies that want to win at any cost are an unbalanced form of the competitive culture.Overly competitive cultures often blur the line between competing and cheating with personal value based on unnatural competitive wins and compensation. Barry Bonds is one example. Overly competitive cultures may form cliques organized around sales superstars. Their favored functions are sales and product development.
  4. Controlled. (Leadership example: Lou Gerstner, IBM) In controlled cultures, the primary driver is order and alignment based on clear goals and objectives. Leaders create hierarchical reporting structures where power and authority are vested at the top. They value quarterly improvement metrics and benchmarks to determine operational excellence. The organization highly values annual and quarterly business plans and key performance measurements. Overly controlled cultures can lead to excessive bureaucracy, red tape and rules. Employees may feel un-empowered to make decisions without management review and approval.In the unbalanced form, controlled cultures may morph into a caste system where individual competency and achievement take a backseat in favor of maintaining order and status quo. The worst form of an unbalanced, controlling culture develops into a Mafia mentality where loyalty and direction from the top-level Godfather overrules personal morals and convictions. Their favored functions are finance and manufacturing or supply chain.

The good and bad of organizational culture

On the upside, organizational culture helps team members prioritize activities and make decisions by way of the unwritten code of behavior. The downside of culture comes from unbalanced forms of power, which exclude individuals and teams from decision-making. The majority in an unbalanced culture may reject minority employees or groups who challenge group norms or shun them as a negative influence. They believe the challengers upset the status quo. Unbalanced cultures may develop characteristics of cults, cliques, castes or insider clubs.

If you follow SPI and its PS Maturity™ Model, you’ll see that organizational culture appears in the leadership pillar. This function sets the direction and tone for the PSO. The decisions made in the leadership pillar affect every other service performance pillar (function) because it determines the mission, goals and objectives for the organization. Leadership also identifies the types of clients to pursue, the types of services to offer and the interrelationship among other groups and functions.

The 2012 PS Maturity Model™ survey asked the participating companies to identify their culture. The following shows the results:

  • Collaborative culture: 60 percent.
  • Creative culture: 20 percent.
  • Competitive culture: 10 percent.
  • Controlled culture: 10 percent.

These results highlight the nature of professional services as being one primarily driven by teamwork and on-the-spot subjective decision-making.

In part two, SPI Research looks at how each type of organizational culture affects service performance.

About the authors

Jeanne Urich, Service Performance Insight Managing Director, is a management consultant specializing in improvement and transformation for project- and service-oriented organizations. She has been a corporate officer and leader of the worldwide service organizations of Vignette, Blue Martini and Clarify, responsible for leading the growth of their professional services, education, account management and alliances organizations. She is co-author of the PS Maturity Model 2011 Benchmark report. Contact Urich at jeanne.urich@spiresearch.com or 650-342-4690.

 

Dave Hofferberth, Service Performance Insight Managing Director, has more than 25 years of experience in information technology, serving as an industry analyst, market consultant and product director. Hofferberth focuses on the services economy, especially on white-collar productivity issues and technologies that help people perform at their highest capacity. Hofferberth’s background includes the management of application development teams and analytical tool development to support business decision-making processes. He is also a licensed professional engineer. Contact Hofferberth at david.hofferberth@spiresearch.com or 513-759-5443.

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