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Culture. It is a word we hear so much of on a day-to-day basis, and many of us associate it with different things. In the case of a company, it’s common to describe culture as the visible elements of a working environment: casual Fridays, free sodas in the cafeteria, or whether you can bring your dog into the office. But as MIT’s Edgar Schein-one of the world’s leading scholars on organizational culture-explains, those things don’t define a culture. They’re just artifacts of it. An office that allows T-shirts and shorts could also be a very hierarchical place. Would that still be a “casual” culture?

Culture is far more than general office tone or guidelines. Schein defined culture, and how it is formed, in these terms:

Culture is a way of working together toward common goals that have been followed so frequently and so successfully that people don’t even think about trying to do things another way. If a culture has formed, people will autonomously do what they need to do to be successful.

Those instincts aren’t formed overnight. Rather, they are the result of shared learning-of employees working together to solve problems and figuring out what works. In every organization, there is that first time when a problem or challenge arises. “How do we deal with this customer’s complaint?” “Should we delay introducing this product until we’ve been able to go through another round of quality testing?” “Which of our customers is the top priority?” “Whose demands will we pay attention to, whose can we ignore?” “Is ‘good enough’ an acceptable standard for deciding when a new product is ready to ship?”

In each instance of a problem or task arising, those responsible reached a decision together on what to do and how to do it in order to succeed. If that decision and its associated action resulted in a successful outcome-“good enough” product quality made the customer happy, for example- then the next time when those employees faced a similar type of challenge, they would return to the same decision and the same way of solving the problem. If, on the other hand, it failed the customer stormed off and the employees’ manager reprimanded them-those employees would be extremely hesitant to take that approach again. Every time they tackle a problem, employees aren’t just solving the problem itself; in solving it, they are learning what matters. In the language of capabilities from the previous chapters, they are creating an understanding of the priorities in the business, and how to execute them-the processes. A culture is the unique combination of processes and priorities within an organization.

As long as the way they have chosen keeps working to solve the problem-it doesn’t have to be perfect, but working well enough-the culture will coalesce and become an internal set of rules and guidelines that employees in the company will draw upon in making the choices ahead of them. If these paradigms of how to work together, and of what things should be given priority over other things, are used successfully over and over again, ultimately employees won’t stop and ask each other how they should work together. They will just assume that the way they have been doing it is the way of doing it. The advantage of this is that it effectively causes an organization to become self-managing. Managers don’t need to be omnipresent to enforce the rules. People instinctively get on with what needs to be done.


There are many examples of firms with powerful cultures. Pixar, for example, which is known for highly creative and critically acclaimed children’s films such as Finding Nemo, Up, and Toy Story, might not seem that different from other animation studios on paper. But Pixar has developed a unique culture.

To begin with, its creative process is very different. Many film studios have a development department to come up with the ideas for movies, and then they hand those ideas out to directors to make a film. But Pixar does it differently. Instead of the group creating ideas and assigning them to directors to execute, Pixar recognizes that directors are naturally going to be more motivated to build out their own ideas-so it focuses on helping directors refine them. The Pixar development team provides daily input to build a story, and they do this for every film in progress across the company. That process includes no-holds-barred feedback from people who are not involved in the making of each film. They can be brutally honest sessions. Yet Pixar’s employees have come to respect that honesty because everyone at Pixar agrees on the same goal: making high-quality, original films. That’s the priority. Unvarnished feedback is valued because it helps to make better movies.

These processes and priorities have coalesced into Pixar’s creative culture. Because working this way in film after film has been so successful, the culture has crystallized and now people don’t feel they should hold back from criticizing a film’s story because it might derail the timetable. They know it’s more important to produce a great movie.

That’s not to say that the way of working together at Pixar is the way that every company in the film industry should work. Rather, we can simply say that the folks at Pixar have used this way of working very successfully, year after year. Now the employees don’t even need to ask how to behave, how to make decisions, or how to make this trade-off against that one. Pixar has become in many ways a self-managing company, thanks to its culture. Management doesn’t need to dive into the details of every decision, because the culture- almost as an agent of management-is present in the details of every decision. As long as the company’s competitive and technological environments remain as they are today, the strength of its culture is a blessing. If the environment changes substantially, however, then the strength of the culture will make it hard to change things, too.

Schein’s articulation of how culture is created allows executives to create a culture for their organization-provided that they follow the rules. It starts with defining a problem- one that recurs again and again. Next, they must ask a group to figure out how to solve that problem. If they fail, ask them to find a better way to solve it. Once they’ve succeeded, however, the managers need to ask the same team to solve the problem every time it recurs over and over again. The more often they solve the problem successfully, the more instinctive it becomes to do it in the way that they designed. Culture in any organization is formed through repetition. That way of doing things becomes the group’s culture.

Many companies see the value in assertively shaping their culture-so that the culture, rather than the managers, causes the right things to happen. Once it has been shown to work, they write it down and talk about it, as often as possible. Netflix, for example, invested a great deal of time in defining and writing down its culture-one that may not suit everybody. Not only is this available to employees, but it’s freely available online. It includes:

No vacation policy: take as much as you want, as long as you’re doing a great job and covering your responsibilities.

“Outstanding” employees only: doing an “adequate” job leads to your getting a “generous severance package,” so the company can hire an A-player in your place.

“Freedom and responsibility” vs. command-and-control: good managers give their employees the right context in which to make decisions-and then the employees make the decisions.

But management can’t just spend time communicating what the culture is it must make decisions that are entirely in alignment with it. While Netflix built an early reputation for doing this, it’s not uncommon to see a company release a document about culture, and then completely fail to live up to it.

Famous examples abound-Enron had a “Vision and Values” statement. It aimed to conduct itself in line with four Values (each starting with a capital letter): Respect, Integrity, Communication, and Excellence. Respect, for example, had the following detail (as reported in the New York Times): “We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness, and arrogance don’t belong here.”

Clearly, all the way from the top, Enron did not live the values it espoused. If you don’t articulate a culture–or articulate one but don’t enforce it-then a culture is still going to emerge. However, it is going to be based on the processes and priorities that have been repeated within the organization and have worked. You can tell the health of a company’s culture by asking, “When faced with a choice on how to do something, did employees make the decision that the culture ‘wanted’ them to make? And was the feedback they received consistent with that?” If these elements aren’t actively managed, then a single wrong decision or wrong outcome can quite easily send a firm’s culture down entirely the wrong path.

Book: How Will You Measure your Life?: Finding Fulfilment Using Lessons From Some of the World’s Greatest Businesses

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