David Demski, SPE, and James McCormick, Business Fundamentals Group.

This article was published in the January, 2004, issue of the Journal of Petroleum Technology. It was prepared in response to the concerns expressed at a recent E&P Collaboration Conference organized by The Energy Forum.

The strategic value of corporate culture is once again emerging as a hot topic. It's the handy, new scapegoat as organizations seek to explain why new technologies failed to deliver the expected gains in efficiency, productivity, and cost savings that were anticipated in the 1990s. But is it fair to blame corporate culture? Or are there other factors that tripped up the “miracle cures” that technology once promised?

What Is Corporate Culture?
Corporate culture is the set of tacit understandings and beliefs that form the foundation of how an organization works. It is a mental model about the nature of an organization and how it sees itself. Within an organization, culture is “how things are done around here.”

Certain elements of an organization's culture are unobservable and below the surface, including beliefs, values, attitudes, and assumptions. These are based on an organization's collective experience and shared awareness of how it works. These underlying assumptions determine the elements of culture that can then be observed in the work place, such as the following:

• Individual and team behaviors.
• Corporate definition of norms.
• Specific processes.
• How individuals and the organization make decisions.

Where Does Culture Come From?
When a group of individuals initially get together for a specific purpose, the newly formed group has no culture. However, over a period of time, a culture develops that reflects the common beliefs of what is acceptable behavior within that group.

It develops from the individual behaviors and group reactions to those behaviors. The culture then becomes the sum of all experiences within the group.

Since we all participate in a variety of organizations, we are all familiar with a variety of cultures. Organizations, such as our family unit, our church, our poker group, our work group, and others, have their own unique culture that has grown from the interaction of the group members. Whether or not we can articulate these unique cultural characteristics, we all conform instinctively to these cultural expectations.

What Impact Does Culture Have at Work?
The culture of an organization is extremely important, as it allows large and varied groups of individuals to work together. Individuals rely on their shared values, beliefs, and assumptions to deal with new inputs and demands on them to get their work completed. Using these shared cultural assumptions, the individuals can exhibit the “appropriate” behaviors and make the “right” decisions, which are based on the past experience of the organization.

Examples of various corporate cultures abound. Wal-Mart, Southwest Airlines, and Nordstrom's are all known for their strong customer-service culture. Bookshelves, magazines, and word of mouth have spread stories of the lengths employees from these companies have gone to in order to satisfy the customer. On the other hand, the decidedly different and equally strong culture of Enron and WorldCom facilitated their rapid growth and risk taking, which then led to inventive financial engineering, inappropriate risk analysis, deceit, fraud, and, eventually, the collapse of the business.

Is Culture to Blame?
At the recent E&P Collaboration Conference in Houston, the topics of corporate culture and cultural change were clearly on everyone's minds. During discussions of technology, strategy, and project-implementation value, we heard phrases such as:

• “It's not the technology, it's the culture,” in reference to the lack of return on investment of projects.
• “Culture eats strategy for lunch,” when discussing current management challenges.
• “We have plenty of technology. What we need is to pause and change the culture to capture the value,” in discussing how management should proceed.

The culture of an organization can be appropriate and supportive to an organization's goals and strategies, or it can hinder its initiatives and projects. Usually, major change for an organization, such as deployment of new technology, radical strategic shifts, or new initiatives, is countercultural. That is, the change breaks existing cultural rules and assumptions, and the change is automatically resisted and thereby impeded.

The voyage of the Titanic can serve as an analogy. In this case, corporate management believes it is on a cruise. They understand their goals, objectives, and destination. The ship employs the most modern technology; therefore, management firmly believes it is “iceberg proof.” As a result of this belief, there is no need to slow down or change course to avoid the looming icebergs. Management believes what it wants to hear and see, until it is too late: The iceberg has been struck, and the damage is fatal.

Culture has a very powerful influence on all activities within every organization. The fundamental beliefs, values, attitudes, and assumptions that form the foundation of culture are so powerful that they strongly influence work processes, decisions, and behaviors in the work place. Having such a broad reach, culture therefore has a direct impact on business results. Culture can influence the business outcome as much as, and sometimes even more than, written policies and procedures or organizational structure.

Put Culture to Work for You
Generally, culture supports continuation of doing things the way things have always been done. This inertia can be positive to the extent that it facilitates operating and maintaining the company's business, as well as supporting ongoing initiatives to develop and introduce new products, building new facilities, and replicating the organization as it grows. However, major problems can occur when the organization attempts a change initiative that is outside the accepted norms of an existing culture.

It is important to understand the organization's culture and underlying mental model before embarking on large, new initiatives. In these cases, it is essential to have the underlying culture of the organization support these changes.

Why Change the Culture?
There are many reasons that an organization would want to change its culture. One reason is that the culture might have evolved to include undesirable features for the current business. Examples might be: “We don't care about the customer,” “Management doesn't really reward change,” or “Office politics are more important than performance.”

Another reason that culture may need to change is that conditions are now different, so that the existing culture is no longer appropriate. We have all seen or experienced some of these situations:

• Business conditions change markedly, and the existing culture doesn't facilitate appropriate responses.
• New strategic direction is implemented that the culture does not support. New initiatives are resisted.
• New technologies are deployed, requiring a new culture to realize the benefits.
• And, usually, a major corporate reorganization requires new cultural aspects as well.

The Barriers to Change
Since cultural inertia supports doing things the way they have always been done, any attempt to change or modify the culture will be met with resistance. This can be attributed to the embedded beliefs, values, attitudes, and assumptions in the existing culture that act as a filter and prevent individuals from recognizing why change is necessary. The organization has been operating with its current culture for a long time; why would it want to change its perceived “success paradigm”?

Additionally, managers who are deeply embedded in the culture are often the same ones who are responsible for cultural change and improvement. Their mental models have obscured the problems, which makes it difficult for them to realize that the culture needs to be changed. In most instances, organizations fall back on their culture when faced with impending change. They use their embedded cultural beliefs to “rationalize” maintaining the status quo. Some of the rationalizations you hear are:

• We are different.
• Let's stick to our tried-and-true approaches.
• Just be patient; this crisis will pass.
• We can't afford to disrupt things now.
• Let's count on our people in the front lines; they'll do the right thing.

Approaching Cultural Change
There are three general approaches to changing the culture of an organization. Depending on the circumstances, all can be appropriate ones to employ.

Top-Down Change
In this approach, the organization's leader sets the goals, describes the outcomes desired, provides feedback as to how the goals are being met, and gives rewards for desired performance. The focus is on performance driving the change. This approach is appropriate when the organization's leader unilaterally controls all the levers: is able to set a clear new direction; able to establish meaningful measures to determine if change is succeeding; able to convince the organization that change is needed; able to establish new processes and get them running effectively; and able to establish appropriate rewards, recognition, and punishment. Additionally, the leader has to have the guts to focus relentlessly on the change and on the new culture and be willing to listen to feedback and modify the approach if necessary. This can be successful when the cultural change required is a fairly small behavioral change and the results are immediate. This approach is not as successful for making significant and lasting changes in the culture and when there are several leaders that need to cooperate to make the change.

Transformational Leadership
This approach presumes that culture change grows at the grassroots level-from the people who know what needs to be done. In this case, the change leaders inspire the organization through vision, optimism, enthusiasm, and emotional appeal. They provide personal support and encouragement, set personal examples, and challenge their peers. Transformational leadership works by influencing the values and priorities of the organization. As a result, individuals change how they feel and what they believe; eventually, people adopt the new behaviors, leading to a new culture. The hope is that the culture changes to deliver the desired performance. This approach encourages employee “buy in” and is often successful in implementing cultural change throughout the organization. Its weaknesses are that it's a slow process and may not be well focused.

Strategic Approach
This approach postulates that cultural change requires a business focus, connecting the culture with the organization's vision, goals, and strategies, as well as using measurements to track progress. The strategic approach focuses on changing the way things are done and what is measured in an organization so that, over time, the culture changes as well. In changing the way things are done, experiences change. And with new experiences comes the opportunity to develop new beliefs that reinforce the required behavioral changes. Members of the organization see the connection between their actions and behaviors and the desired results. Clear and focused communication from management during this process helps people “connect the dots” between new ways of doing things, altered beliefs/values, and enhanced business results. Over time, a new culture evolves that supports the desired business direction. This approach results in broad levels of cultural change that have a clear business focus. Implementing this type of change is, however, more complex than the previous two approaches.

Cultural change may not be the answer to the problem when performance needs to be improved quickly. As we've shown, changing culture is difficult and arduous. Expecting to derive short-term results from significant cultural change is unrealistic.

Best Practices for Successful Change
Research into organizations that have successfully implemented initiatives requiring cultural change has led to some Best Practices that are worth noting:

• Strong leadership is essential to demonstrate an unswerving resolve to implement change.
• A compelling case for action is necessary. Explain why the organization must change or perish.
• A shared vision is needed that defines the new behaviors and values that will be critical to success.
• Establish a clear link between an organization's strategy and the desired cultural characteristics.
• Meaningful changes need to be implemented in key work processes and performance standards. Measurements and rewards reinforce the desired results. This requires following through on consequences.
• Leaders require courage to tackle the resistance early and head-on.
• Executive role modeling is mandatory; leaders must walk the talk.
• Ongoing and continuous communication from top management is necessary to identify progress and wins, identify heroes and success stories, and repeat key themes and successes.
• Symbolic and highly visible changes in nonmission-critical processes and leaders' behaviors can be used to reinforce change. For example, Gordon Bethune at Continental Airlines had a phone mailbox for employees to address their concerns directly to him and also held open houses for all employees.

In short, being successful in changing the culture requires difficult, long-term effort by management: perseverance, consistency, relentlessness, and commitment. It must be recognized that new initiatives reinforcing radical shifts in strategy, deployment of new technology, or other significant organizational changes will not succeed without cultural change. Culture underpins everything in the organization-from work processes to decisions and behaviors. Without focused attention on changing the underlying culture, major new initiatives will likely be impeded and resisted, and, as a consequence, desired results will not be reached.

David Demski, SPE, is a former Associate with Business Fundamentals Group. He has more than 30 years of experience in the energy industry, primarily in E&P with BP and Amoco. He has held numerous engineering and leadership positions in business and support organizations, both domestically and internationally. In the late 1990s, he was Manager for Business Improvement in Amoco Intl. Operations group, where he implemented successful improvement initiatives. He also held leadership roles in Amoco Business Process and IT Re-engineering Projects. He is currently a consultant to energy companies on ways to improve business operations.

James McCormick is a former Associate with Business Fundamentals Group. He has more than 30 years' experience in the energy industry, primarily in refining and chemicals with Shell Oil Co. As Shell Manager for Transformation, he had responsibility for developing new management systems for more effective and faster decision making. Since leaving Shell, he has led and worked with several re-engineering teams in a variety of industries and has consulted on designing and deploying new tracking systems, on implementing IT systems, and on how company leadership should effect large-scale change.