Organisations should follow a four-stage model for creating functional cultures that includes analysing different environmental changes, says a study co-authored at Cambridge Judge.
The consequences of organisational culture have been extensively studied in management journals, but the ‘antecedents’ of cultures – how cultures are created and changed – have been relatively unexplored. A new study published in the Journal of Management addresses this by outlining a four-stage model for creating functional organisational cultures.
The study co-authored by Yeun Joon Kim, Associate Professor in Organisational Behaviour at Cambridge Judge Business School, calls on organisations to engage in co-ordinated actions to adjust their cultures to various changes to their environment through the four-stage process.
“We conclude that organisations should regularly go through the four-stage cycle to create cultures that fit the ever-changing external factors or environments that companies and other types of organisations face,” says Joon. “All members of an organisation should continually engage in these types of assessments because adaptation to change is not a one-off organisational event.”
The study is a review that draws from 74 studies in 68 articles across multiple disciplines ranging from management to social psychology to sociology.
Different types of environmental changes analysed
The study’s four-stage model calls for: diagnosing different types of environmental changes (ecological and manmade threats, market changes, external rules and regulations, industry characteristics, and technology); assessing the efficacy of current cultures to meet such changes in the environment; searching for alternative cultures to adapt to diagnosed environmental changes; and creating or implementing alternative cultures.
More specifically, the four-stage model for creating functional cultures entails:
1. Diagnosing internal and external environmental changes
An organisation needs to understand whether the different identified environmental factors affect performance and whether these changes create opportunities or pose threats, the study says. As it is unrealistic to assess all potential environmental changes, organisations need to perform strategic assessments of the environmental changes that are most relevant to their performance and survival.
2. Assessing the efficacy of current cultures for environmental changes
This entails a cultural audit and discovering the evidence needed to evaluate the efficacy of an organisation’s culture, ideally involving the participation of all or most members of the organisation.
3. Searching for alternative cultures suitable for diagnosed environmental changes
Which alternative cultures can properly address key issues arising from environmental changes? This is likely the most time-consuming phase of the four-stage process because it involves an understanding of complex interactions between cultures and environmental issues in predicting how well an organisation will respond.
4. Creating or implementing alternative cultures
While there is an underlying assumption that organisations are somehow able to create intended cultures, there are conflicting views in past research as to whether this is in fact the case. The authors advocate further research in this area to “understand whether and how organisations can create intended cultures”.
Decision-making is far from rational
This model draws on the theories of rational decision-making and assumes that organisations are perfectly rational to go through the four stages. In reality, however, their decision-making is far from perfect and rational.
“The theories of rational decision-making assume that a decision-making agent can obtain and use complete information to assess the current environment… and has the unlimited cognitive capacity to process all the information needed to make optimal decisions”, the study says. “These assumptions are unrealistic in real-world decision-making settings.” In other words, the four-stage model has an inherent limitation in its practicality.
Then, the remaining key question is: how can organisations resemble the process of rational decision-making when creating and changing cultures?
Joon says that “although individuals won’t be able to make perfectly rational decisions, an organisation as a whole may be able to closely follow the rational decision-making processes through co-ordinated actions”. In other words, if multiple individuals collaborate together and complement each other’s bounded rationality, they can generate a better decision that may be close to a rational decision and ultimately create functional cultures.
Leaders play a key role in co-ordinated actions
In doing so, there are also different roles for leaders and members to play. “Leaders should act as the initiators of co-ordinated actions to create functional cultures, and members should be the enablers in this process.”
As leaders have formal authority and social power, they are the ones who can initiate the whole process of creating functional cultures. However, a leader as an individual cannot create functional cultures due to the bounded rationality – he or she cannot go through the four stages alone. Thus, a leader needs other people – their colleagues – whose role is to enable the creation of functional cultures by putting their efforts together.
In summary, to successfully go through the four stages of creating functional cultures, organisations need close collaborations among leaders and members – co-ordinated actions. Most importantly, co-ordinated actions should be carried out continuously as business environments are seldom static.
The study published in the Journal of Management – entitled “Culture creation and change: making sense of the past to inform future research agendas” – is co-authored by Dr Yeun Joon Kim of Cambridge Judge Business School; Soo Min Toh of the University of Toronto Mississauga and the University of Edinburgh; and Sooyun Baik of ShanghaiTech University.