110 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T
2.3THE INTERNAL ENVIRONMENT –
culture
The shared knowledge,
beliefs, values, behaviours
and ways of thinking among
members of a society.
EXHIBIT 2.6
Levels of corporate
culture
CORPORATE CULTURE
The internal environment within which managers work includes corporate culture, production technology,
organisation structure and physical facilities. Of these, corporate culture surfaces as extremely important to
competitive advantage. The internal culture must fit the needs of the external environment and company
strategy. When this fit occurs, highly committed employees create a high-performance organisation that is
tough to beat.57 Most people don’t think about culture, it is often expressed as ‘how we do things around
here’ or ‘the way things are here’. However, managers have to think about culture because it typically plays
a significant role in organisational success. Organisational culture has been defined and studied in many and
varied ways. For the purposes of this chapter, we define culture as the set of key values, beliefs, understandings
and norms shared by members of an organisation.58 The concept of culture helps managers understand the
hidden, complex aspects of organisational life. Culture is a pattern of shared values and assumptions about
how things are done within the organisation. This pattern is learned by members as they cope with external
and internal problems, and taught to new members as the correct way to perceive, think and feel.
Culture that can Visible
be seen at the 1. Artefacts, such as dress,
surface level office layout, symbols,
slogans, ceremonies
Invisible
2. Expressed values Deeper values
3. Underlying assumptions and and shared
deep beliefs, such as ‘people understandings
here care about one another held by
like a family’ organisation
members
Although strong corporate cultures are important, they can also sometimes promote negative
values and behaviours. When the actions of top leaders are unethical, for instance, the entire culture
can become contaminated. Consider what happened at News Corporation, a corporate giant with a
lucrative string of media properties all over the world. The Murdoch organisation has been accused of
frequently applying unethical, sometimes seedy tactics in business dealings. In addition, ‘blunt force’
spending has allegedly been used to cover up unscrupulous tactics and silence critics with multimillion-
dollar payoffs. ‘Bury your mistakes,’ Murdoch was fond of saying, according to news reports.59 But he
couldn’t bury the scandal that rocked the organisation after private investigators working for News
Corporation newspapers hacked private voicemail messages and journalists offered bribes to police
in the pursuit of hot scoops. One investigator went so far as to hack the voicemail of a murdered
13-year-old girl, Milly Dowler, while she was still listed as missing.60 As this example illustrates, the
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values and behaviours of top leaders have the potential to shape significantly the decisions made by
employees throughout the organisation. Mark Lewis, the lawyer for the family of the murdered girl,
pointed out: ‘This is not just about one individual, but about the culture of an organization.’61
Culture can be analysed at two levels, as illustrated in EXHIBIT 2.6.62 At the surface level are visible
artefacts, which include things such as manner of dress, patterns of behaviour, physical symbols,
organisational ceremonies and office layout. Visible artefacts are all the things one can see, hear and
observe by watching members of the organisation. At a deeper, less obvious level are values and
beliefs, which are not observable but can be discerned from how people explain and justify what
they do. Members of the organisation hold some values at a conscious level. These values can be
interpreted from the stories, language and symbols that organisation members use to represent them.
Some values become so deeply embedded in a culture that members are no longer consciously aware of
them. These basic, underlying assumptions and beliefs are the essence of culture and subconsciously guide
behaviour and decisions. In some organisations, a basic assumption might be that people are essentially
lazy and will shirk their duties whenever possible; thus, employees are closely supervised and given little
freedom and colleagues are frequently suspicious of one another. More enlightened organisations operate on
the basic assumption that people want to do a good job; in these organisations, employees are given more
freedom and responsibility, and colleagues trust one another and work cooperatively. At the Zappos Family
of companies, a culture of wellbeing and happiness has been instrumental in the growth of this successful
online retailer. The company has created a unique culture that is reflected in its core values. Fundamental
values are demonstrated in organisations through symbols, stories, heroes, slogans and ceremonies.

INNOVATIVE WAY
ZAPPOS FAMILY
Zappos.com, an online retail site best known for its wide
selection of shoes and its free shipping, boldly proclaims its
unique culture in an offbeat set of 10 core values. CEO Tony
Hsieh believes that these values illustrate the company’s
innovative culture and demonstrate its ultimate business
goal – cultivating happiness. Hsieh’s management theory goes
like this – If you create a work culture that fosters wellbeing,
good practices and (eventually) good profits will naturally
flow out of the operation. So far, his theory is producing
outstanding business results. Zappos.com, Inc. is raking in
US$1 billion worth of annual gross sales, and employees
widely report that their work is exciting and challenging.
‘We really buy into the idea that the better we treat each
other, the better we’ll all be able to treat our customers’, says
Rebecca Ratner, director of human resources.
Hsieh knows firsthand how important a strong, positive
culture is when it comes to employee and customer
happiness. Before Zappos, he had experienced the joyless
grind of working in a job that had no meaning, where
technical skill was all that mattered. Hsieh decided to write
the book Delivering Happiness to document his journey
from ‘chasing profits to chasing passion,’ the life lessons he
has learned, and how those lessons have been applied at
Zappos. Here are some key points for business leaders:
✚✚ Get the right values. Zappos has a set of 10 core
values that include ‘create fun and a little weirdness’;
‘deliver wow through service’; ‘embrace and drive
change’; ‘be adventurous, creative, and open-minded’;
‘pursue growth and learning’; and ‘be humble’. But
Hsieh didn’t dictate the values from on high. He sent
an email to all employees asking them what values
should guide the company. The responses were
discussed, condensed, and combined to come up with
the final list.
✚✚ Get the right people. Zappos does two sets of interviews
when hiring new employees. The first focuses on relevant
experience, professional and technical skills, and the
ability to work with the team. The second focuses purely
on culture fit. There are questions for each of the core
values, such as ‘How weird are you?’ People are carefully
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selected to fit the Zappos culture, even if that means
rejecting people with stronger technical skills.
✚✚ Make culture a top priority. All employees attend
a four-week training session and commit the core
values to memory. At the end of training, they’re
offered US$2000 to resign if they believe that they
aren’t a good fit with the culture. Every year, Zappos
releases a ‘Culture Book’, in which employees share
their own stories about what the Zappos culture
means to them.

Copyright © 2010 Zappos.com, Inc. or its affiliates. Used by permission.

Sources: Carlin Flora. (September–October 2009). Paid to Smile. Psychology Today, 58–9; and Tony Hsieh, Delivering Happiness:
A Path to Profits, Passion, and Purpose (New York: Business Plus, 2012).

CASE STUDY
GREEN POWER
Many companies are pursuing reductions in their for reducing its greenhouse house profile, aiming ultimately
environmental outputs. Zara is an example of a business for eco-efficiency by 2020. Even service businesses are
that not only likes to stay ahead of trends in terms of its pursuing these goals; for example, Australia’s four big banks
fashion offerings, but is also doing many things to reduce its have recognised that they can contribute to environmental
deleterious impact on the green environment. Zara is careful progress in everything from the uniforms they buy, the
in the materials it buys, the transport systems it uses and buildings they use and the green energy that they procure.
even in its building designs – to ensure it has strong regard
Source: Dumaine, B. (24 June 2014). Is Apple ‘greener’ than Starbucks?. Fortune, http://fortune.com/2014/06/24/50-best-global-green-brands-2014/
(accessed 11 February 2017).

Creating and influencing organisational culture is one of the most important things leaders do, because
this has a significant impact on performance. In comparing 18 companies that have experienced long-
term success with 18 similar companies that have not done so well, James C. Collins and Jerry I. Porras
found the key determining factor in successful companies to be a culture in which employees share such
a strong vision that they know in their hearts what is right for the company. Their book, Built to Last:
Successful Habits of Visionary Companies, describes how companies such as Hewlett-Packard, Walt Disney
and Procter & Gamble have successfully adapted to a changing world without losing sight of the core
values that guide the organisation. Some companies put values in writing so they can be passed on to new
generations of employees. Hewlett-Packard created a list of cultural concepts called ‘The HP Way’, which
is evident wherever one goes in the Hewlett-Packard world. Companies known for their strong, distinctive
cultures, such as Hewlett-Packard, regularly show up on lists of the best companies for which to work.63
The fundamental values that characterise cultures at these and other organisations can be understood
through the visible manifestations of symbols, stories, heroes, slogans and ceremonies. Any organisation’s
culture can be interpreted by observing these factors.

symbol
An object, act or event that
conveys meaning to others.
S Y M BO L S
A symbol is an object, act or event that conveys meaning to others. Symbols can be considered a rich, non-
verbal language that vibrantly conveys the organisation’s important values concerning how people relate
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to one another and interact with the environment.64 Mindy Grossman, CEO of HSN
Inc., found that something as simple as an office chair can be symbolic. When Grossman
became HSN’s eighth CEO in 10 years, she inherited a downtrodden workforce. During
her first few months, Grossman learned as much about the business as possible. ‘As
I grew to understand the business, it became clear that it was fundamentally broken. To
fix it, I needed to dramatically alter the company’s culture,’ she said. Part of the cultural
transformation included improving the work environment, which had dirty offices full
of broken-down furniture and clutter. ‘I looked around and realized we had 40 different
kinds of office chairs. So I bought several thousand Herman Miller Aeron chairs,’ said
Grossman. She received over 100 emails expressing appreciation on the day they were In February 2014 Toyota voluntarily recalled
delivered.65 For Grossman, the new office chairs were an important symbol of a new 1.9 million Prius vehicles after concerns about
a potential programming error. The recall
company value of caring for employees. Symbols are often used by senior executives to was viewed as a significant change to how
it handled the 2010 crisis and Toyota now
let staff and other stakeholders know of the expected standards of behaviour and service. recall more vehicles than any other automaker
in the United States. Critics attributed the
company’s reticence to go public in 2010

Source: Reuters/J. P. Moczulski

ST O R I E S with its quality problems to its deep roots in
Japanese culture, in which airing dirty linen
in public is impolite. However, the Toyota
A story is a narrative based on true events and is repeated frequently and shared among culture has also been historically linked with
a powerful commitment to quality, which has
organisational employees. Stories paint pictures that help symbolise the firm’s vision and enabled the company, under the leadership of
values and help employees personalise and absorb them.66 A frequently told story at UPS president and CEO Akio Toyoda, to return to
its previous strong market position.
concerns an employee who, without authorisation, ordered an extra Boeing 737 to ensure
timely delivery of a load of Christmas packages that had been left behind in the holiday
rush. As the story goes, rather than punishing the worker, UPS rewarded his initiative.
By telling this story, UPS workers communicate that the company stands behind its commitment to
worker autonomy and customer service.67 See Chapter 10 for a
focused discussion
on leadership.

H E RO E S
A hero is a figure who exemplifies the deeds, character and attributes of a strong corporate culture. Lee story
A narrative based on true
Iacocca is a well-known US hero who proved the courage of his convictions by working for US$1 a year
events that is repeated
when he first went to Chrysler. Heroes are role models for employees to follow. The deeds of heroes are frequently and shared by
organisational employees.
out of the ordinary, but not so far out as to be unattainable by other employees. Heroes show how to do
the right thing in the organisation. Organisations with strong cultures take advantage of achievements to
hero
define heroes who uphold key values. Many people have wondered if the culture that Steve Jobs created A figure who exemplifies
at Apple would be sustained after his death in 2011. Jobs exemplified the creativity, innovation, risk-taking the deeds, character and
attributes of a strong
and boundary-breaking thinking that made the company famous.68 When Jobs’ health began to fail, Apple’s corporate culture.
board began considering replacements who could sustain the fertile culture that Jobs created. They chose Tim
Cook, who long had served as second-in-command. Cook now cultivates a culture that reflects the values
and behaviours of Apple’s hero, Steve Jobs. ‘Apple has a culture of excellence that is, I think, so unique and
so special. I’m not going to witness or permit the change of it,’ he said.69

S L O GA N S
A slogan is a phrase or sentence that succinctly expresses a key corporate value. Many companies use slogan
A phrase or sentence that
a slogan or saying to convey special meaning to employees. For example, Disney uses the slogan ‘The
succinctly expresses a key
happiest place on earth’ and The Queensland Tourism Board used an effective slogan ‘Beautiful one day, corporate value.
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ceremony
A planned activity that
makes up a special event
and is conducted for the
benefit of an audience.
See Chapter 12 for a
focused discussion on
communications.
EXHIBIT 2.7
Four types of corporate
culture
perfect the next’. The Ritz-Carlton adopted the slogan, ‘Ladies and gentlemen taking care of ladies and
gentlemen’ to demonstrate its cultural commitment to take care of both employees and customers. ‘We’re
in the service business, and service comes only from people. Our promise is to take care of them, and
provide a happy place for them to work,’ said former general manager Mark DeCocinis, who managed the
Portman Hotel in Shanghai, recipient of the ‘Best Employer in Asia’ award for three consecutive years.70
Cultural values can also be discerned in written public statements, such as corporate mission
statements or other formal statements that express the core values of the organisation. The mission
statement for Hallmark Cards, for example, emphasises values of excellence, ethical and moral conduct
in all relationships, business innovation and corporate social responsibility.71
CE RE MONI E S
A ceremony is a planned activity that makes up a special event and is conducted for the benefit of an
audience. Managers hold ceremonies to provide dramatic examples of organisational values. Ceremonies
are special occasions that reinforce valued accomplishments, create a bond among people by allowing
them to share an important event, and anoint and celebrate heroes.72
The value of a ceremony can be illustrated by the presentation of a major award. When Dryen
Australia, a company in Melbourne of some 40 people that imports and manufactures sheets, wanted to
recognise and reward its longest-serving staff, it presented plaques and significant monetary rewards at a
celebratory dinner to its 10- and 15-year employees. When the company achieved record sales revenue,
managing director Peter Dryen gave each employee a AU$300 shopping centre gift voucher in recognition
of their hard work and contribution.73 This practice led to higher levels of motivation and grew loyalty and
has been repeated from time to time in that firm. Such ceremonies are a powerful form of communicating
the values and priorities of an organisation. Yet nothing stays the same for long – in 2016, Peter Dryen
sold that business which had been in his family for 40 years, to a new Chinese owner, who merged it with
another iconic Australian firm it acquired: Moran (furniture).
Needs of the environment
Flexibility Stability
External
Adaptability Achievement
culture culture
Strategic focus
Involvement Consistency
culture culture
Internal
Sources: Based on D. R. Denison and A. K. Mishra. (March–April 1995). Toward a Theory of Organizational Culture and Effectiveness.
Organization Science, 6:2: 204–23; R. Hooijberg and F. Petrock. (1993). On Cultural Change: Using the Competing Values Framework
to Help Leaders Execute a Transformational Strategy. Human Resource Management, 32:1, 29–50; and R. E. Quinn, Beyond Rational
Management: Mastering the Paradoxes and Competing Demands of High Performance (San Francisco: Jossey-Bass, 1988).
 2 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 115

In summary, organisational culture represents the values, understandings and basic assumptions that
employees share, and these values are signified by symbols, stories, heroes, slogans and ceremonies.
Managers help to define important symbols, stories and heroes to shape the culture.

R EMEMBE R THIS
◗◗ Organisational culture is the set of key values, beliefs, understandings, and norms shared by members
of an organisation.

◗◗ A symbol is an object, act or event that conveys meaning to others.

◗◗ A story is a narrative based on true events and is repeated frequently and shared among
organisational employees.

◗◗ A hero is a figure who exemplifies the deeds, character and attributes of a strong culture.

◗◗ A slogan, such as Disney’s ‘The happiest place on earth’, succinctly expresses a key corporate value.

◗◗ Managers hold ceremonies, planned activities at special events to reinforce company values.

2.4 TYPES OF CULTURE

We have already established that the external environment is a big influence on internal corporate
culture. Cultures can vary widely across organisations; however, organisations within the same industry
often reveal similar cultural characteristics because they are operating in similar environments.74 The
internal culture should embody what it takes to succeed in the environment. If the external environment
requires extraordinary customer service, the culture should encourage good service; if it calls for careful
technical decision making, cultural values should reinforce managerial decision making. In considering
what cultural values are important for the organisation, managers consider the external environment,
as well as the company’s strategy and goals. Studies suggest that the right fit between culture, strategy
and the environment is associated with four categories or types of culture, as illustrated in EXHIBIT 2.7.
These categories are based on two dimensions: (1) the extent to which the external environment requires
flexibility or stability; and (2) the extent to which a company’s strategic focus is internal or external.
The four categories associated with these differences are adaptability, achievement, involvement and
consistency.75

A DA P TA B I L I T Y C U LT U R E
The adaptability culture emerges in an environment that requires fast response and high-risk decision adaptability culture
making. Managers encourage values that support the company’s ability to rapidly detect, interpret and Characterised by values
that support the company’s
translate signals from the environment into new behaviours. Employees have the autonomy to make ability to interpret and
decisions and act freely to meet new needs, and responsiveness to customers is highly valued. Managers translate signals from the
environment into new
also actively create change by encouraging and rewarding creativity, experimentation and risk taking. Lush behaviour responses.
Cosmetics, a fast-growing maker of shampoos, lotions and bath products made from fresh ingredients
such as mangoes and avocados, provides a good example of an adaptability culture. A guiding motto
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at the company is ‘We reserve the right to make mistakes’. Founder and CEO Mark Constantine is
passionately devoted to change and encourages employees to break boundaries, experiment and take
risks. The company kills off one-third of its product line every year to offer new and offbeat products.76
Other companies in the cosmetics industry, as well as those involved in electronics, e-commerce and
fashion, often use an adaptability culture because they must move quickly to respond to rapid changes
in the environment.

CASE STUDY
MCDONALD’S
Ray Kroc, founder of McDonald’s, once said, ‘I don’t know
what we’ll be serving in the year 2000, but we’ll be serving
more of it than anybody’. From its founding through to the
early 1980s, McDonald’s changed with consumers’ tastes,
seeming to give us what we wanted before we even knew
we wanted it. Today, however, Kroc’s bold claim does not
seem so assured. Although McDonald’s still has a majority
share of the US fast-food market and continues to expand
internationally, the company is slipping fast in its ability to
recognise and shape popular trends.
Some analysts and investors believe the widespread
problems with McDonald’s are due to the company’s insular,
arrogant culture. The average top executive at McDonald’s
started working at the company when Richard Nixon was
President of the United States, and the company has been
reluctant to bring in outside leaders to guide management as
the external environment changes. And the board is made
up of close-knit insiders who have done little to agitate for
change. As performance declined, top leaders tended to
blame others, such as dissident franchisees, news reporters
and Wall Street analysts. ‘If there were one thing I would
change about McDonald’s,’ said senior vice-president Brad
A. Ball, ‘it would be to correct the misconceptions and
misperceptions that have become so pervasive in the last
few years.’
In the late 1990s, McDonald’s embarked on an effort to
reform. Management was reorganised, and the then-head of
the US domestic division, Jack M. Greenberg, brought in at
least a handful of new managers, including executives from
Burger King, Boston Market and General Electric. He also
Sources: Euromonitor International. (September 2013). Country Report: Fast Food In The US. http://www.euromonitor.com/fast-food-in-the-us/report
(accessed 3 November 2013; Leonardt, D. (9 March 1998). McDonald’s: Can it Regain its Golden Touch? BusinessWeek, 70–7
divided the United States into territories, creating smaller
companies to recapture some of McDonald’s entrepreneurial
zeal. ‘We are not afraid to do things differently,’ Greenberg
said. Managers began to recognise that, even though
McDonald’s was still the world’s most successful restaurant
company, it was far from achieving its potential. They were
trying to return McDonald’s to the healthy, adaptive culture
of the early years, when it was constantly in touch with the
tastes of consumers.
By the late 2000s, McDonald’s had made many changes,
was operating more efficiently and sustainably and offering
new products such as salads and café products. It increased
sales across its 35 000 stores, obviously giving its 60 million
customers per day an experience that they value, while also
increasing the company’s stock price by a factor of three
over the five years to 2007. Growth in emerging economies
has been very solid. McDonald’s has more recently
refurbished its stores and redesigned its products in leading
markets such as Australia, now making many products to
the specific orders of its customers. By 2014, McDonald’s
had substantially accomplished this product and process
upgrade through rolling it out on an international basis. As
of 2016, McDonald’s has engaged in significant innovations,
from ‘Create Your Taste’ to table service options and a
range of new services and initiatives. McCafe’s, which are an
Australian innovation for McDonald’s, have been rolled out
internationally. These new services have led to significant
sales growth, and have even brought new customers to
consume from McDonald’s.
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AC H I E V E M E N T C U LT U R E
The achievement culture is suited to organisations concerned with serving specific customers in the achievement culture
external environment, but without the intense need for flexibility and rapid change. This results-oriented A results-oriented
culture that values
culture values competitiveness, aggressiveness, personal initiative, cost-cutting and willingness to work competitiveness, personal
long and hard to achieve results. An emphasis on winning and achieving specific ambitious goals is initiative and achievement.

the glue that holds the organisation together.77 Brewing giant InBev provides an example. When InBev
bought Anheuser-Busch, it replaced lavish perks and generous spending with a no-frills culture focused
on cost cutting and meeting strict profit goals. Managers also created an incentive-based compensation
system to reflect ‘an increased focus on meritocracy’. The system handsomely rewards high performers
rather than spreading dollars more evenly among employees. ‘We always say, the leaner the business,
the more money we’ll have at the end of the year to share,’ said Carlos Brito, InBev’s CEO.78

I N VO LV E M E N T C U LT U R E
The involvement culture emphasises an internal focus on the involvement and participation of employees involvement culture
to adapt rapidly to changing needs from the environment. This culture places high value on meeting A culture that places high
value on meeting the needs
the needs of employees, and the organisation may be characterised by a caring, family-like atmosphere. of employees and values
Managers emphasise values such as cooperation, consideration of both employees and customers, and cooperation and equality.

avoiding status differences.

CO N S I ST E N C Y C U LT U R E
The final category of culture, the consistency culture, uses an internal focus and a consistency consistency culture
orientation for a stable environment. Following the rules and being thrifty are valued, and the culture A culture that values and
rewards a methodical,
supports and rewards a methodical, rational, orderly way of doing things. In today’s fast-changing rational, orderly way of
world, few companies operate in a stable environment, and most managers are shifting towards doing things.

cultures that are more flexible and in tune with changes in the environment. However, Pacific Edge
Software (now part of Serena Software), successfully implemented elements of a consistency culture
to ensure that all its projects stayed on time and under budget. The husband-and-wife team of Lisa
Hjorten and Scott Fuller implanted a culture of order, discipline and control from the moment they
founded the company. The emphasis on order and focus meant employees could generally go home
by 6.00 p.m. rather than working all night to finish an important project. Although sometimes being
careful means being slow, Pacific Edge managed to keep pace with the demands of the external
environment.79
Each of these four categories of culture can be successful. In addition, organisations usually have values
that fall into more than one category. The relative emphasis on various cultural values depends on the
needs of the environment and the organisation’s focus. Managers are responsible for instilling the cultural
values the organisation needs to be successful in its environment.