Understanding organizational culture - Part II of III

BY EDGAR H. SCHEIN - 2016-08-12

The culture of an organization has to evolve with the changing marketplace. This can be a matter of survival. The example of Digital Equipment Corporation (DEC) shows what happens when a company’s culture gets outdated as the times change.

Ken Oslen founded DEC as a hardcore engineering company in 1957. The engineers prided themselves on their ability to create innovative products. The values upheld at DEC were freedom and creativity. Driven by such a culture, which upheld these values, the company became the second largest computer manufacturer in the world.

The Company was successful for nearly three decades. But the same culture turned out to be its undoing. The company failed to evolve when computers became a commoditized product. DEC was not founded and run for making profit. It was founded for giving life to innovation and creativity. But the commoditized computer market wanted a product that was economical. The innovativeness of the product was not that important.

Under the innovation-based culture, products were required to compete with each other internally. Based on this culture, DEC funded every good idea that ever occurred to its engineers. When computers became a commodity, nobody in the company was sure which model to back (three groups were working on three different PC models). The lack of focus on a single product delayed the arrival of the final product in the market, and the company was also less competitive in the marketplace. The major problem was the lack of adequate resources for competing models within the firm. One group was working on a large water – cooled computer that needed expensive technology and a lot of funding. Another group was working on the ‘Alpha’ chip that needed the same level of funding. DEC could not fund both adequately at the same time. It could have chosen one of the two. But neither the founder nor the board was sure which would be the best bet. Neither of the groups was willing to allow higher priority to the other. Each was sure about the potential of their product and wanted the founder and the board to focus on it.

Innovation demands a culture which encourages debates and arguments. For over three decades this style characterized decision-making at DEC. but this model of decision-making degenerated into indecision, with each group manoeuvring for resources for its pet project.

The new market conditions demanded a culture that emphasized cost-cutting. A culture that abhorred inefficiency was the need of the hour. But the top management at DEC was not willing to sacrifice its legacy. It believed that the company’s new products would generate to sacrifice its legacy. It believed that the company’s new products would generate enough growth to make up for its inefficiencies. Changing the culture was absolutely necessary. but the founder himself believed in the old culture. Bringing in any change would have required a complete overhauling of the company’s leadership, including doing without the founder himself. Bringing in new leadership might also result in the loss of the company’s best engineers, and killing off many promising projects.

But despite the strains, the board decided to go ahead and overhaul the company. Without these changes DEC might have been history. The company’s board fired Ken Oslen, and slashed the product line. It also fired most of its employees. Finally the company survived as an entity, but was an entirely different DEC.

In the case of DEC, the company had to go through turmoil because it was not ready to change its cultural fabric when the market environment changed. As long as the survival of organization depends on its success in the marketplace, it has to pay attention to changing trends. Culture is a binding force that gives coherence to organizational efforts. It should propagate success and not failure. When it is not steering the company towards success, it has to be changed or abandoned, using all the available means.

In case you missed it, my last post was Kaizen: Understanding organizational culture - Part I of III

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