Reasons for changing organisational culture

A business may change its culture to restore reputation, arising from negative publicity as highlighted by Barclays and their ‘aggressive pursuit of profit’ culture.
It is this pursuit that has seen Barclays deceive its customers, and its staff perform illegal acts. Their culture worked so that the most profit could be made, workers miss-sold PPI to customers that they didn’t know they had bought, they thought nothing of manipulating the interest rates in their favour. Bosses at the bank overlooked this – as it gave them large returns, which in effect, meant they could get their large bonuses.

The cost to Barclays is just over £2billion, to repay customers for miss-selling of insurance, while its managers got huge bonuses. In an attempt to fix its reputation Barclays has tried to repay most customers, but after a significant drop in profits from £5.9billion to just £246million in 2011 as well as a huge loss in market share, it seems that its once loyal customer base has gone elsewhere.
It’s likely that Barclays will have to wait a while before consumers return their trust, and the newly appointed CEO has to show the customer that the business is changing. If Barclays don’t change, it will impact on share price – as both customers and investors have lost their trust, sales – because their competitors will have gained the customers that have left, and a repeated lowering of profits; this will occur as the cycle continues, if the bank doesn’t change in time, the customers will lose more trust, the investors won’t see it as a worthwhile investment and the sales will drop once more.  This cycle will heavily impact on where Barclays goes from here, as a bank it wanted to avoid government intervention, to keep itself private and keep the bonuses rolling in. It is likely that if the culture doesn’t change and the cycle comes into effect, there will be some sort of intervention, giving the taxpayer the control. The success of the change depends on the new CEO’s communication to the employees, and this will need to be a quick change as media pressure mounts to overcome the resistance from the employees that are so used to Bob Diamonds profit and bonus centred business.

Another reason for a business to change its culture is to increase competitiveness in response to its rivals. This is highlighted by Kodak and their culture of internal focus and complacency.
In 1996 Kodak’s profits peaked at £16billion, had a 90% market share, and developed the first ever digital camera. Despite creating the first, it never used the technology leading competitor Fujifilm to take advantage of this complacency.
Fujifilm has a culture of innovation and risk-taking, to them, the digital camera was a brilliant, if not risky opportunity but it eventually paid off. 

Kodak refused to change its culture to take risk, which was also seen when they failed to recognise the importance of sponsoring the LA Olympic Games – again Fujifilm took advantage of this and created huge brand awareness.
The significance of both of these actions of complacency from Kodak have meant the business has had to retreat from loss making markets, such as their cameras and their digital film processing, as the company suffered its 9^th consecutive quarterly loss in 2012, with a latter of £222million showing that customers have really had their last ‘Kodak moment.’ The continual loss making and retrenchment strategy has occurred because Kodak failed to respond to change. This has had significant impact on the reputation of the business and the film industry; Fujifilm have taken over all of Kodak’s losses and have gained huge amount of market share, custom and profits.  The likelihood of Kodak being able to fully recover is doubtful, the company has been far too complacent for far too long. Its competitor, Fujifilm, has been netter at taking risks and advantage of Kodak’s losses. It is this that Kodak will have to adopt in order to grow again and save the company. One way of changing organisational culture is through training existing employees into the new ways of the company.

A business may change its culture because of the entry of a new leader. Leadership is a key factor in what the culture of a business is like. Often, the culture is built upon the values and beliefs that the leader has, and whether these are bad or good depends on the company. For example, Herb Kelleher ex-CEO and founder of Southwest Airlines; he built the culture of the business to make ‘every person count.’ Herb made it his priority to know every member of staff, and to make ‘work fun and home like work.’ This culture heavily motivates the employees and builds a strong sense of trust; Herb tried his hardest to never make any redundancies. Having such a strong positive culture has helped Southwest Airlines become the 4^th largest airline in the United States with a 15% market share, and the only airline to have 40 years of consecutive profits.
In contrast, Jeff Skilling created a culture at Enron that eventually led to its closure. He believed that the money was everything; he tried to buy loyalty and rewarded those who embraced his aggressive profit hungry culture even if was unethical and illegal. He promoted selfishness and greed. This led to the company to deceive its customers and lie about its debts. This culture was toxic, and Skilling now faces a prison sentence.

Problems with changing culture

One problem with changing culture is that there may be a resistance to the cultural change. This may be because of an old, loyal workforce as seen at Royal Mail.

Cultural change is needed as the company faces privatisation and increasing competition from its large e-commerce rivals. However, most of Royal Mails employees have been with the company for decades, they may be resistant to such a change from their existing culture, to a fast-paced and profit driven culture, as they are focussed on self-interest.

It is therefore likely that Royal Mail’s employees have a low tolerance to change, as they are keen on the security and stability of their work, changing the culture threatens this stability, and can cause some resistance.

Resistance, as Kotter explained can come from lack of communication causing a miss-understanding at Royal Mail. It is likely that the workers will feel their job is at risk to be replaced with technology, it can be this worry that manifests itself and creates a group problem, and this can lead to industrial action, because the method of the cultural change hasn’t been addressed.

For an effective change in the culture, the communication of the issues and changes must be clear to all of the employees. This creates a mutual understanding and will ease the changing process. Herzberg’s hygiene factors, also point to a possible area of conflict, as any changes in their working conditions amounts to frustration from employees. It may also be said that a sense of security and belonging, as spoken about by Maslow, may be threatened when a business wants to change its culture.
However, the significance of the resistance depends on whether the force driving change exceeds the force of resistance. Lewin’s suggests; this means that for Royal Mail to effectively change their culture, and keep the resistance down, they must look at their internal communication between the new CEO and the employees.

The success of the change depends on the mutual understanding at Royal Mail, and how confident each and every employee feels with its implementation. If no change occurs in Royal Mail, it will mean that its e-commerce competitors will gain a huge advantage – over the one they already have, the business may have to use hard human resources management and make redundancies to workers and may have to shut down operations in certain places whilst adopting a retrenchment strategy. This will have an impact on consumers, and their beloved UK Company could be no more. The significance of Royal Mail failing as a business is huge – especially as it was the model many other countries built their mailing systems on. If the change is good, and made in good time, the new strategy will become a success, and therefore allow Royal Mail to keep up with its e-commerce rivals.

In addition a business may face problems with changing the culture of a business it has recently taken over. One business to face this was supermarket Morrison’s, during their takeover of their larger rival, Safeway. The top managers at Morrison’s failed to recognise such a cultural difference between the two businesses; Morrison’s was a family-run, customer service conscious brand, whereas Safeway was impersonal and bureaucratic focusing on how to get the biggest profits. The two types of culture attempting to mix saw little motivation from Safeway employees, and lowered the morale of the business, as well as its profits. It affects the culture as a whole when morale is down and can have an impact on the customer service that a business provides. If the service is repeatedly bad, customer loyalty can leave and it can create a gap for competitors to fill; although Morrison’s managed to keep their original customers loyal, they did struggle to grow that base within their Safeway takeover. Success of takeovers and mergers depends on a well-thought out plan, and this must include the culture differences. Morrison’s faced problems when trying to change the Safeway culture in to their own, this lessened profit for both the existing Morrison’s stores and the converting Safeway ones, leading to profit warnings and a decline in shares. 

In contrast, TATA’s takeover of Land Rover was well thought through, TATA kept all the trade unions, employees and UK government fully included throughout the purchasing process. This significant level of communication is one of the reasons that TATA did so well in keeping a good culture within Jaguar Land Rover, and has led to a loyal and motivated workforce furthering the product range the factories build. It is a prime example of how good communication can keep the culture of a business positive when merging to completely different firms.

Ways of changing organisational culture

One way of changing organisational culture is through training existing employees into the new ways of the company. Barclays has started this process, they are trying to change the negative culture of their business by directing the change themselves. 2013 saw the end of the aggressive profit hungry culture, with Bob Diamond leaving and Anthony Jenkins as the new CEO. By training their existing employees, Barclays can keep hold of their experienced and valued staff, and avoid the costs of recruitment. Training can be both time consuming and expensive but it is essential when trying to change such a large culture.

Training will benefit Barclays because it will show their employees how to model their new values of putting the customer first and becoming a successful team. This therefore means employees will be better equipped to make the correct decision and ensure that everyone throughout the hierarchy is doing their part. This minimises the risk of further unethical or illegal actions and ensures that employees act with more emphasis on the customer and Barclays as a whole instead of them as individuals. It is this that will help gain back consumer trust, which has fallen since the news of the error became public and plummeted their profits from £5.6billion to a mere £246million.

The success of the training does depend on the effective communication of the needs and ways of training from the new CEO, it is a significant change for Barclays and if it is successful it will build consumers trust, change their reputation and may persuade for new investment. Barclay’s negative culture was reinforced with the bonuses when targets were met; Lewin’s unfreeze-change-refreeze model suggests that the use of rewards will determine how successful the business is, as now the scorecard is different. This motivation for change will filter from the new CEO to all employees, but will ultimately depend on the effectiveness of the communication with employees, so they don’t fall back in their ways of Bob Diamonds Barclays.

Alternatively another way to change the culture is to recruit for new employees to bring innovation and fresh ideas to the business. Royal Mail has seen to be adopting this strategy. The new CEO, Moya Green, has been appointed when Royal Mail is facing extreme pressure from its large e-commerce rivals and believes that the business needs some new, fresh and innovating ideas from new staff. As this is the quickest way to help change the culture of un-innovative at Royal Mail.

            It is unlikely that this will be the quickest way to change Royal Mail. As although new employees will be brought in, there is no direction for the existing employees to follow therefore making it unlikely to change effectively and within a short amount of time.
Recruitment of new employees will benefit Royal Mail because it will bring in new and innovative minds to the business; this therefore means the new employees are more likely to contribute to the change of culture that Moya Green wants. This minimizes the risk of Royal Mail not changing quickly enough for their competitors to change. This will help increase competitiveness and the rate of change will be more efficient within the business, aiding to raise their £12million profit from September 2011.

Royal Mail will have to make sure that their recruitment process fully understands the need for change, and even if this is done, it still will have no impact on the existing workforce.
In comparison to Barclays, Moya Green intends to change Royal Mail from the outside in, by bringing these new employees to manifest the change. Anthony Jenkins however has made it clear that he wants Barclays to change with the employees it already has, but wants to make them successful in a different way.

Another way of changing organisational culture is through creating incentives for the employees to follow. This can be seen at business like John Lewis, where they have a positive bonus culture, wherein every employee is rewarded financially. As Taylor stated, financial rewards for progress are a big motivator, and although the rewards are given across the business, it is likely that different levels of reward will be given out. This will be an effective way of improving the productivity and motivation of the employees and this will have a significant impact on the customer service and also the profits of John Lewis. The impact of positive employee performance will continue to make John Lewis a reputable business for both investors and consumers alike, therefore it means that the John Lewis partnership with Waitrose is likely to gain large amounts of market share and further boost its profits. The business already saw a 60% increase in its sales in only the first half of 2012 a clear sign that excellent customer service is likely to impact on the business in a highly significant manner

However, a bonus culture is not always good for the business, this was seen at Barclays, and is one of the reasons that the business is in need of a change of culture. Their profit hungry and bonus focused business turned the culture into a negative one, and even lead staff to preform unethical and illegal tasks. Barclays show that a bonus culture, if it is not a positive one like John Lewis, can have significantly bad results. It was this as previously stated down on profits with just £246million in its last year. Having a culture that rewards certain behaviours is something Lewin stated in his unfreeze-change-refreeze model, as the reward is the reinforcement to the action, regardless of whether the action is good or bad. This process could aid in the change of the culture at Barclays, maybe even keeping the bonuses; but the new CEO should be careful that the business doesn’t slip into its old ways once again.

Impact of Organisational Culture on business strategies and performance

An Organisational Culture is the beliefs and values behind the way a company does its business.

A strong positive culture can impact business strategies and performance in an extremely positive way.

Having a strong positive culture wherein all employees are brand loyal and believe in the same core values; always putting the customers first, and their mission to deliver happiness, can aid in the happiness and motivation of the employees. If the employees are happy at work, they are likely to pass this onto the customer and good customer services encourages brand loyalty, and it is this that has lead Zappos to becoming the world’s largest online shoe retailer.  By continuing to recognise the importance of their culture they are not only satisfying their customers but also enabling their employees to provide a good service and feel valued as part of a team. This will have an impact on sales and profits and will enable Zappos to keep their lead in the online shoe market.

Another example of a strong positive organisational culture can be seen at Southwest Airlines - where every employee is 'celebrated'. This rewarding empowered culture has given Southwest Airlines a unique selling point that their CEO has labelled intangible. This USP attracts custom, satisfying the need of profitability when running such a low cost service. Employees are more likely to take pride and interest in their work if they're enthusiastic and committed. This affects profitability but more importantly their productivity. High levels of productivity result in high profits for Southwest Airlines, enabling them to remain competitive, all because of their culture.

On the other hand, having a strong negative culture can badly affect the performance and strategies of a business.
This was predominantly seen at Enron, where a culture of lies, deception and profit focus lead to the eventual shut down of the business. They illegally hid profits and mislead both customers and staff, to try and get the biggest profits. It was this that led to the close of Enron and their leader to face a 24 year prison sentence.
This culture was a severe take on a profit centred culture; Barclays have tried to change before their culture, similar to Enron, got to that point.

Barclay's power and profit hungry culture led to staff at the firm to view their illegal activities as a prime way of growing profits. Although it was good while it lasted, Barclay's were caught, and faced a fine of £2,362,000,000 as well as facing a public outrage. A flattened reputation and millions of customers that feel betrayed, is one result of the strong negative culture. It has lead performance to fall and customers to bank elsewhere.