Center for Management of Emerging Companies

Organizational Culture Among Early-Stage Silicon Valley Technology Firms

Three years ago we did a post on the influence of founders on the organizational culture of new businesses.  Today we return to that topic with a report that details the fascinating results uncovered during a study of organizational culture among early-stage technology companies in the Silicon Valley undertaken by the Stanford Project on Emerging Companies.

Evaluating and Transforming Organizational Culture

Organizational culture is one of the cornerstones of effective organizational design and has its roots in a variety of sources including societal culture, industry norms and the preferences and ideas of the founders regarding how people in their organization should behave and interact with one another.  Regardless of how one feesl about attempting to manage organizational culture there are some basic steps tha can and should be taken to evaluate and analyze the cultural values and norms of an organization at any point in time.  To learn more please review this month's report on Evaluating and Transforming Organizational Culture.

Managing an Organizational Change Program

Organizations should continuously monitor their external environmental to determine what changes have occurred that may trigger a need to alter the key design components of organizational structure and culture.  For example, changes in technology, customer requirements, economic factors or competition can all change the landscape for an organization and adaptation is necessary for survival.  In order for organizational change to be effective a formal change program should be created in advance to ensure that members of the organization are fully informed of the changes and that they understand why change is required and how it will impact them and the entire organization.  A change program should incorporate mechanisms for obtaining feedback and constantly reinforcing the changes given that it is often difficult to change accepted behaviors and ways of conducting business.

• Has a customized change management program been prepared?  The change management program should take into account the specific characteristics of the proposed change and the history and culture of the organization.

• Has consideration been given to how the individual members of the organization will react to the proposed changes and how their day-to-day activities for, and interaction with, the organization will be impacted?  Consideration of these questions should guide decisions about supporting mechanisms such as communications and training.

• Have the lead sponsors for the change initiative been identified and are they at the appropriate level within the organization to be effective?  Sponsors should be active and visible leaders of the change initiative with authority to make and monitor all necessary funding and organizational design decisions.

• Does the change management plan include an effective strategy for communicating with members and external stakeholders of the organization?  An effective communication plan will be targeted to appropriate audiences, rely on various communication channels (e.g., meetings, face-to-face conversations, newsletters, presentations, Intranet Q&A, etc.) and provide for feedback to ensure that the change initiative is understood.

• Does the communications program include clear answer to key member questions such as “why are we making this change” and “what will happen if we don’t make this change”?  Members may find the broader vision of organization leaders to be interesting; however, they are usually most concerned about what it all means for them personally—another implicit question that each member has is “what’s in it for me”.  An effort should be made to preserve and honor the good things of the past even if changes are now thought to be necessary.

• Have managers and supervisors been involved in development and implementation of the change management program?  Managers and supervisors are crucial to success of any change program because they have close relationships with those that report to them and are best situation to manage how their direct reports experience and respond to the proposed changes.

• Does the change management program include adequate training for managers and supervisors?  The important role of managers and supervisors has been described above and it is essential that they be given the tools necessary to become and remain effective advocates of the change process.

• Does the change management program include strategies and plans for handling resistance that may arise from within the organization?  A distinction can and should be made between proactive strategies—which involve anticipating in advance which issues will be raised by members and crafting responses before the program is initiated—and reactive strategies—which include pre-established policies for reacting to unforeseen objections that arise once the program has begun.

• Has the organization established systems that will facilitate collection and analysis of feedback and measurement of progress toward the initial goals of the change program?  Before the program is launched the goals should be clearly defined in ways that permit objective measurement and feedback tools should be created and tested.

• Does the change management program include plans for continuous reinforcement of the proposed changes?  Any change in the way that things are down within an organization takes a long time to be absorbed particularly when the change related to deeply embedded values and norms.  The program must take a long-term approach and include strategies for reinforcing the new values and norms that the leaders wish to implement.

This material will appear in Alan Gutterman’s publication entitled “Business Transactions Solutions” and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.  Alan Gutterman is the Founder/Principal of Gutterman Law & Business (www.alangutterman.com), which publishes the Emerging Companies Blog and the Business Counselor Blog, and a Partner of The General Counsel LLC (www.thegeneralcounsel.net).

 

 

 

Organizational Culture-The Influence of the Founders

Organizational culture is often simply referred to as “how we do things around here”.   While this is certainly an accurate statement it does understate to some degree the influence that cultural values and norm have on the operations and performance of an organization, such as a company.  Culture impacts a number of crucial issues—how are work activities within the company carried out, how do employees communicate with one another, who is accepted into the company and who is ostracized, and what is the company’s overall morale.

The people who join an organization are probably the most important influences on the organizational culture and a large part of the cultural differences among organizations can be explained by the fact that these organizations recruit and retain members with distinctly different values, personalities and ethics.  Once the personality-based elements of an organization’s culture have been formed they are constantly reinforced by the way in which the organization selects and socializes new members.  In the company context, as time goes by the values and personality characteristics of managers and employees tend to become more similar, and distinguishable from other companies, and those who do not share those characteristics do not seek employment with that company or, if they are already employed by the company, leave to pursue other opportunities that are more in line with their personal beliefs.

The personal values and beliefs of the company founder or founders obviously have a very strong and potentially long-lasting impact on company culture.  The influence begins at the time that the company is formed and the members of the founding group reach agreement on the reasons for forming the company in the place and establish and define the overall goals and mission for the company.  As part of this process the founders knowingly or unknowingly develop the initial cultural values and norms, including the terminal and instrumental values of the company, which will guide their actions and behaviors and those of each employee that eventually joins the company.  For example, from the time that he was involved in the launch of Microsoft Bill Gates was known for his passion for hard work and long hours and these became the basis for that company’s terminal values of excellence, innovation and high quality and for the related instrumental values of hard work, creativity and high standards.  His work ethic and manic commitment pushed other employees to come in early and stay late since that was the way that he worked and employees soon developed similar expectations of innovation and quality relating to their activities and the work of others within the company.  Decades later the same story can be told about how the founders of Google introduced certain practices and norms that have contributed to the creation and maintenance of an entrepreneurial culture even as the company has gone through exponential growth—common offices, lobbies and recreational areas encourages interaction among employees and sharing of ideas, news and excitement about new products and technologies; explicit empowerment of employees to invest time in pursuing new ideas increases the likelihood of successful innovation; and rewarding creativity that leads to new products and services through distribution of ownership interests.

The influence of the founders is also heavily felt through the way in which they recruit and socialize the first employees of the new company.  Since the founders are presumably heavily involved with the recruitment process at that stage there is a high likelihood, if not certainty, that these new hires and the founders will share the same personal values, interests and goals for the future of the company.  Eventually these persons, if they remain with the company, can be expected to rise to positions of leadership within the organizational structure and serve as important emissaries and teachers of the values and beliefs of the founders even as the founders themselves become more and more removed from day-to-day interaction with employees as the company grows.   In fact, the contribution that the founders make to development of the company culture can often be so strong that it overrides the influence of subsequent members of the senior management team and makes it more difficult for new leaders to make their own mark on cultural values and norms and orchestrate a change in the culture to coincide with a new strategic direction.

Why Not Ask "Why Not?"

The organizational culture influences the way that companies see the world and the manner in which they seek new opportunities and how they deal with those opportunities once they appear on the doorstep.  While much time and angst is devoted to decisions made by senior management that did not turn out as planned, consideration should also be given to the consequences of failing to pursue opportunities that may have been a good fit for the company’s core competencies.  Senior management is not likely to be criticized for sins of omission since it is obviously more difficult to pinpoint when and if a company was too conservative in striking out into new areas.  Nonetheless, a company should attempt to institutionalize a mindset that is open to new ideas regardless of how crazy they might seem at the beginning.  One way to do this is for senior management to make a practice of greeting each opportunity that it sees by asking “Why not?” rather than by challenging advocates with “Why would we want to do that?”.  This is a good way to build in a cultural bias toward risk taking, rather than staying the course, that is more likely to encourage managers and employees to search far and wide for opportunities to innovate.  Of course, this doesn’t necessarily mean that companies will go down every path; however, it does force an evaluation of how the risk/return ratio on new ideas compares to the current deployment of resources.  At the end of the day the company may decide that while the new idea has promise it just does not make sense to pursue given current resources and/or the existing projects that the company has already launched and must still be closely managed to see if previous investments have been worthwhile. 

Obviously one of the risks of expanding the notion of what might be doable for the company is that too many ideas will be accepted and the company will soon find itself overwhelmed with projects.  In order to temper this approach and make sure that sound resource allocation decisions can be made senior management should work on finding ways to engage in “intelligent experimentation” that allows the company to efficiently test as many proposals as possible to gather more information before a decision must be made about whether a major investment of resources will need to be made.  In many cases it is impossible to really tell whether a new idea has promise until certain key assumptions have been tested.  If companies can find a way to conduct these tests quickly and accurately then senior management can place a large number of small bets based on the instincts and gut feelings of those most closely involved with a particular market or technology.  If something doesn’t work out the cost is limited to the testing stage; however, the chances of identifying a breakthrough are substantially increased and the higher number of “winners” will more than offset the resources that will need to be diverted to the experimentation teams.