Lincoln’s comments:
A rich and interesting study; one that is exceptionally well-written, I would add. You really
seem to have taken the pulse of this organization, and it comes across in your report. Nice,
smooth handling of course ideas; thoughtful analysis; and good recommendations. The main
area that good be stronger is documentation. You are careful in most sections to add a passage
saying “you were told..” or “employees felt”, but these are pretty general and vague allusions to
evidence, and other assertions aren’t backed up by any documentation at all.
A STUDY OF
COMPANY X
BA 205 PART II
ORGANIZATIONAL BEHAVIOR
FINAL PROJECT
1
THE ORGANIZATION
San Francisco-based Company X is a for-profit application service provider for the
nonprofit sector that develops products and services to make philanthropy accessible, convenient
and efficient. The company's core business is the development and implementation of web-based
software solutions that easily integrate into nonprofits' websites to facilitate online fundraising,
event planning, recruitment, and communication with members. Company X’s mission is to
bring the efficiencies of application software and the Internet to nonprofit organizations.
Additionally, Company X manages direct charity donations via a searchable database of over
738,000 IRS-approved nonprofit organizations, and its own online charity fund.
The idea for the firm was born in 1998 when Stanford MBA students built a website that
enabled their classmates to buy textbooks from Amazon.com and then contribute a percentage of
the purchase price to the Special Olympics. The website’s popularity on campus spread quickly.
Within a few months, visitors across the country were shopping through the site, making both
purchases and donations. After graduating from business school, Company X's primary founder
Mr. Y continued to work with a team of volunteers to ensure that the site remained available. In
June of 1999, Ms. Z, another Stanford MBA, who had been involved with Company X from its
inception, formally joined the company as CEO. Under Ms. Z, Company X has significantly
expanded its business operations to include a full range of web-related services to nonprofits.
The company’s board and management team includes several experienced industry
executives, including former Oracle Senior Vice President, Jerry Held, former Morgan Stanley
Managing Director, Frank Quattrone, and former Sun Microsystems Vice President, George
Saab. Saab, one of the original java-code developers, currently leads Company X’s technology
team. The company is headquartered at 1st and Mission Streets in San Francisco’s South-ofMarket high-tech corridor. As of November 15, 2000, Company X employed 40 people. The
2
company is not yet profitable. Its revenues are generated from fees charged for various services
provided to nonprofit organizations.
METHODOLOGY
Researchers met with Ms. Z to define the objectives of the project and agreed upon a
focus on the company’s hiring practices and culture. We designed a survey for use in employee
interviews (see appendix). We met with 8 different employees, as suggested by CEO Ms. Z, and
used the survey in interviews that ranged from 30 minutes to 2 hours in duration. We then
reviewed the resulting data. We also reviewed the efforts of a team of employees who had
attempted to define the company’s culture some weeks before. Drawing upon class materials
and outside research, we analyzed our findings and developed recommendations for Company X
that would allow it to improve its current situation. Based on the company’s challenges, we
chose to adopt a macro framework for our analysis, focusing on the company’s structure, culture
and leadership.
FINDINGS
In the most recent 12 months, the company has grown from 4 to 40. As a result, the
company is going through transitional issues common in the startup world – 40 employees means
the organization is now large enough that the CEO/founders can no longer make all of the
decisions.
More formal structure is now necessary to complete mission critical tasks,
communication efforts, etc. Our team analyzed the impact of this transition period on the
company’s unique culture. Questions we asked ourselves included: Is commitment to the nonprofit world really still a core company value or do long hours and profitability pressures mean
Company X is just another for-profit dot com? Is the company adequately prepared to face the
3
challenges that await it in this now very competitive world? Is the mission still resonating
throughout the organization?
Our initial discussions revealed that, in general, employees are still very excited about the
company’s primary objective, helping nonprofits, etc. However, there are emerging issues,
primarily related to the notion that what was once a small and supportive culture is being
threatened by structure and leadership concerns that stem from the company’s growth. The
change in culture is felt by most, and is generally seen as a negative. Employees used words
such as “diluted” and “unattended to” when speaking about the current state of Company X’s
culture.
Culture dilution and ambiguity are potentially serious issues at Company X.
The
company’s flat organizational structure means that informal networks and a unified vision are
key to the decision-making process. The founding team’s focused commitment to serving
nonprofits has been a tremendous asset in executing operational goals to date. Unfortunately, as
the company has grown in recent months, culture has emerged as an increasingly underutilized
asset – in part hindered by holes in the company’s organizational structure and a lack of clarity
surrounding CEO Ms. Z’s leadership role.
The following analysis discusses structure and
leadership at Company X as roadblocks to cultural strength. In doing so, this paper articulates
the current state of culture at Company X and its importance to the company’s growth efforts.
Also included are recommendations for addressing structural and leadership issues in the context
of creating a stronger culture.
Structure
In a presentation by Mitchell Harad of GetRelevant,1 he described the growing pains that
startups face when scaling up, and broke them down into “4 to 40” and “40 to 400,” referring to
1
From BA294.4 Lecture, October 12, 2000.
4
the number of employees in the organization. Company X is at the end of the first stage. It now
faces the task of achieving a structure that will function well given its current size. There are
many potential pitfalls in the future and current structural problems can escalate, as the
organization grows even further.
The current structure at Company X is typical of many startup companies. When a
company is small, a flat structure allows freedom to creatively tackle the wide range of problems
that startups face. Like many hi-tech companies in today’s new economy, Company X started
out with a flat organizational structure characterized by decentralization, professional
independence and self-management. Although Company X currently has proposed two levels of
formal hierarchy, many top-level management positions have not been filled, causing the
company to effectively operate with a flat organizational structure. The employees of Company
X commented on the need for more structure in their workplace, and recognized that additional
structure would make their jobs easier and more productive.
As the size of the company has grown, the lack of structure has left employees feeling
somewhat lost and unclear as to the direction of their efforts. There is little supervision and
infrequent formal coordination. Much of employees’ work seems to rely on informal networks.
Although work is still getting done, it is potentially taking longer than necessary. We believe the
lack of structure is negatively affecting job satisfaction and will potentially affect employee
retention if it is not addressed soon.
Company X’s organizational chart currently incorporates a degree of hierarchy; however,
the company continues to function as a flat organization because several key management roles
have yet to be filled (see appendix). Specifically, with the exception of the CTO and the VP of
operations, all senior managerial positions are vacant. There are plans to hire this new level of
management at Company X, but due to the current job market, the company’s selectivity in
5
hiring, and the lack of time dedicated to hiring, little has been accomplished in executing the
plan.
Leadership
Ms. Z demonstrates notable leadership qualities in her role as CEO of Company X.
Young and relatively untested as a leader, she has risen to the task and shown great capacity for
defining the vision of the company and inspiring employees with that vision. She unifies the
community at Company X and steers the company in the direction she believes offers the
company the greatest opportunities for success. Employees repeatedly commented on Ms. Z’s
commitment to the vision of the company and her ability to get them excited about that vision.
Based on somewhat limited information about Ms. Z’s leadership style (we did not
directly address her leadership in our interviews), researchers gathered that employees perceive
her strength as a leader as deriving from her vision, rather than any sort of supreme personal
charisma. In our survey, employees ranked the company’s mission as their No. 1 motivator,
while Ms. Z’s leadership style nearly always ranked at the bottom of the list. Nonetheless, as
researchers have learned,2 leadership comprises both qualities – vision and charisma, and leaders
can be successful without necessarily demonstrating both.
One significant challenge for Ms. Z will be her ability to develop good managers in her
organization. Currently, there appears to be a great void in the day-to-day management of the
company, which threatens to harm morale and eventually damage the company’s culture.
Meanwhile, Ms. Z’s schedule is filled with important appointments with outside stakeholders.
She devotes a significant amount of her time to raising funds that will fuel the expected growth
of Company X. This requires countless hours of preparation and execution of “road shows”
with current and potential investors. While Ms. Z may want to play the role of both leader and
2
Based on discussion in BA205 Lecture on leadership, September 26, 2000.
6
manager, this may not be in the best interest of the firm. Further, research indicates that the
personal qualities required for good leaders do not necessarily translate into a capacity for
management.3 In fact, these characteristics may be at odds – one of the primary reasons good
leaders need good managers. Discussions with employees indicated that Ms. Z might be better
suited for the role of leader, rather than manager.
Finally, assuming Ms. Z maintains her leadership role, she must significantly step up her
efforts to become a truly developmental leader.4
Ms. Z is a strong proponent of the flat
organizational structure that Company X has adopted. In our first interview with her, she stated
her intention to empower those around her to make critical decisions on their own. “I trust the
people here at Company X,” said Ms. Z. “Everyone here has been carefully screened and
possesses a high level of aptitude and competence. I make it very clear to my people that they
have the power and ability to make a decision on their own, without the fear of being punished if
it is the wrong one. I would rather they make wrong decisions on their own than not be able to
make decisions at all.” Another visible example of Ms. Z’s commitment to a flat organizational
structure is her choice of workspace, which is an ordinary cubicle located alongside her fellow
employees.
One requirement for maintaining a flat organizational structure is that leaders devote
significant time and energy to developing employees. While Ms. Z asserts her desire to be a
developmental leader, the fact is she may not have the time at present to do so. For example,
employees noted Ms. Z’s requirement that every company expense be approved by her. If the
marketing department wants to close a deal for an ad campaign, Ms. Z must first approve the
expense, thus contradicting her professed desire to give others responsibility. Some employees
See Abraham Zaleznik, “The Leadership Gap,” Academy of Management Executive, 1990, Vol. 4, No. 1.
For definition of a developmental leader, see David Bradford and Allan Cohen, “The Postheroic Leader,”
Organizational Reality, Addison-Wesley, 1997.
3
4
7
noted what they perceive to be Ms. Z’s discomfort delegating full responsibility to them. If this
is, in fact, occurring, it may be attributable to the shortage of managers to whom Ms. Z feels
comfortable delegating. That said, if Ms. Z wishes to lead Company X to success, she must
make development of managers a high priority. She must find the time to fill those vacant
manager positions with people she can trust and start turning over full responsibility to those
managers.
While Ms. Z’s leadership may not be a problem for the firm, per se, she must clarify her
role and commit herself or someone in the organization to hiring and developing good managers
for the firm.
Culture
Defined as “a pattern of beliefs and expectations shared by the organization’s members,”
culture5 plays a particularly important role in flat organizational structures. In any organization,
culture helps bind employees together and plays an important role in helping them make
decisions that are in line with company strategy. As discussed earlier, Company X has adopted a
flat organizational structure that is characterized by decentralization, professional independence
and self-management. One challenge of employing such a structure is that it leaves even more
room than usual for employees to make decisions that are out of sync with the values and
priorities of the firm. One approach for overcoming this challenge is to create a strong firm
culture that helps employees make decisions, even when supervisors are not present, that are in
line with the company’s values and objectives.
Charles O’Reilly, “Corporations, Culture, and Commitment: Motivation and Social Control in Organizations,”
Managing Human Resources, p. 12. More broadly, culture refers to “a way of life shared by members of a given
society and includes knowledge, belief, art, morals, law, customs, and any other abilities and habits acquired by
members of that society.” D. Ancona et al (eds), Organizational Behavior and Processes, Southwestern College
Publishing, 1999, p. 64.
5
8
Research into the culture of Company X revealed that employees generally view the
firm’s culture in positive terms, although the culture does not seem to play a significant role in
determining their job satisfaction.
The firm seems to have done a good job promoting a
consistent, positive work environment.
When asked to describe the work environment,
employees frequently used the word “fun,” in addition to the following words:

Energetic, exciting, eventful, potential

Intense, challenging, chaotic, confused, changing

Passionate, inspiring, committed

Cause-based, integrity, aware, socially responsible

Collaborative, supportive, open, unified

Professional
In fact, these adjectives describe the company’s norms and values, as perceived by
employees. The fact that this list shows some level of consensus indicates that Company X has
the potential to develop a strong culture. That said, very few employees ranked firm culture high
on their list of reasons for staying with the firm. As we have learned, there are two important
ingredients for a strong culture: intensity and consensus.6
Intensity is the amount of
approval/disapproval attached to an expectation.7 While employees seem to agree on what the
firm values, the firm would benefit from increasing the intensity with which it promotes these
values, both through communication and actions. The strength of a firm’s culture is dependent
on management showing clear, visible support for firm values. Employees must see those values
consistently reinforced across departments on a regular basis. At Company X, the firm’s culture
may not be causing harm to the firm; however, it appears to be an under-developed asset. The
firm could benefit from strengthening its culture to even further enhance employees’
O’Reilly, p. 22, “In organizations, during periods of crisis or when people are new to the situation, they often look
to others for explanations of what to do and how to interpret events. Strong cultures are typically characterized by
consensus about these questions.”
7
O’Reilly, p. 13.
6
9
performance and job satisfaction. Moreover, stronger culture would facilitate recruiting efforts,
which are critical to the company’s current growth objectives.
Mojo
One important step toward developing a strong culture is identifying symbols that one
can use to promote the values and norms of the firm. According to Ancona, “symbolism is the
elementary or fundamental process that makes organization behavior both possible and
meaningful.”8 Company X is fortunate to have just such a symbol in its lexicon, in the form of
the word, “mojo.” Early employees of Company X began using the term mojo to describe
certain personality traits that are important for being successful at the firm. Today, Ms. Z and
others use the term, although researchers noted some inconsistency across employees as to the
exact meaning of the term. Employees mentioned all of the following when defining mojo:
 Dedicated, motivated
 Likes to have a great time
 Helping nonprofits
 Kick-ass attitude
 Gung-ho
 Revolution
 Way, way better
 Recognizing birthdays
 How we differentiate ourselves from other dotcoms
 Zest for life
 Undercurrent that keeps everyone thinking together
 A willingness to get things done
 A positive, supportive culture
D. Ancona et al (eds), “The Cultural Lens,” Organizational Behavior and Processes, Southwestern College
Publishing, 1999, p. 65.
8
10
Building on the familiarity of the word mojo, management should consider clarifying the
term, perhaps defining it with three key adjectives, and then using it as a symbol at the center of
a campaign to raise visibility around firm values.
Potential obstacles to strong culture
As Company X enters a critical period in its development, growth will both threaten and
make necessary, a strong firm culture. Employees who have been with the firm since its
inception already fear that there has been some dilution of the culture. Especially if the firm
hopes to maintain its flat structure, culture will play a critical role in determining whether or not
firm values and objectives continue to inform employee decisions on all levels. Growth in the
number of employees will threaten the consensus that has been achieved around firm values,
unless those values are clearly defined and communicated regularly through symbols like mojo.
The lack of structural networks further enhances this danger because new people may not buy
into the company’s vision.
Company X may face several other obstacles in developing a strong firm culture. First,
morale among some employees is lower than would be expected. Employees acknowledged
being pleased with the mission of the firm, but pointed to problems with the structure and
leadership of the firm that were beginning to taint their experiences (see sections on structure and
leadership). Although strong culture can serve as a good substitute for centralized management
structures or authoritarian leadership, it cannot make up for large voids in the management
structure or poor leadership. In fact, strong culture cannot be instituted successfully in the
presence of serious morale issues. Employees indicated an increasing level of frustration and
confusion around reporting relationships, which has only been exacerbated by vacancies in toplevel management positions. In order to avoid jeopardizing the existing positive culture at
11
Company X, Ms. Z and her board would do well to address the firm’s shortage of managers
immediately.
Finally, employees indicated that the firm could do a better job of integrating new
employees into the firm. One employee noted that new hires enter with great enthusiasm, but
that this enthusiasm seems to diminish over time. While the novelty of a job will usually wear
off with time, the best firms are able to replace that sense of novelty with a dedication to the
firm’s culture. Company X would increase its chances of keeping new employees energized and
engaged if it concentrated more energy and resources on initiating new hires into the company’s
culture.
RECOMMENDATIONS
Our research reveals that, in general, Company X employees continue to be excited about
the company’s primary objective – helping non-profits. Nevertheless, with growth Company X’s
culture has lost strength and been diluted. The primary causes of this weakening and dilution
appear to be roadblocks created by the current structure and leadership of the organization. Our
recommendations address issues associated with company structure, leadership, and culture. By
integrating changes to the structure and leadership of the organization with efforts to strengthen
the culture at Company X, we hope the company will achieve increased productivity, successful
recruiting, and an even higher rate of employee retention (see Figure).
12
Figure: Integration of Recommendations
Focused Leadership
Mojo Campaign
Defined Structure
Increased Productivity
Stronger Culture
Successful Recruiting
Increased Retention
13
Structure
The company’s lack of defined structure is hindering the growth of a strong culture as the
organization expands.
On paper, Company X’s structure includes a layer of mid-level
management between the CEO and functional groups. However, due to difficulties in hiring for
key management positions, Company X is still functioning with the flat structure it started with
(4 to 40). Ms. Z must fill those key management spots in her organizational charts and create/fill
several new positions to assist in strengthening structure and therefore culture. Specifically, Ms.
Z should:

Hire a new CEO in charge of hiring and developing managers and shift her formal role
to acting as a corporate figurehead. With this arrangement, Ms. Z can continue to be the
entrepreneur, selling the dream to investors. Or Hire a CFO in charge of raising funds
while Ms. Z resumes her role as CEO and focuses on fulfilling her ambition to become
a developmental leader.

Select a team of employees who care about the firm’s culture to actively cultivate and
strengthen the culture: a Mojo team.
The Mojo team would engage enthusiastic
employees at all levels and promote periodic activities that enhance Company X’s
culture.
Ms. Z should provide the team with a budget and give one employee
responsibility for leading the team: Chief Mojo. Researchers believe that if someone at
the firm assumes formal responsibility for preserving the company’s soul, positive
elements of the culture that have been lost, such as bonding over a game of foosball and
spontaneous company outings for beer, may be safeguarded.

Assign mentors or corporate buddies from the Mojo team to meet with new employees
during their orientation period to introduce them to the firm’s culture. Mentors would
14
also be responsible for initiating new employees into the informal networks that are so
important to the healthy functioning of a startup.
The execution of these goals will be key not only to addressing the current problems, but
also to preparing the organization for future growth.
Leadership
Ms. Z must make some difficult decisions concerning the role she is to play at Company
X. Though she may think otherwise, it is presently highly ineffective for her to play the role of
entrepreneur, CEO, and general manager. She simply is, as one employee stated, “spread too
thin.”

Ms. Z should delegate responsibility to managers that are hired to give them a sense of
empowerment and to increase employee job satisfaction.
By properly delegating
responsibility, Ms. Z can free herself up to do what she does best, focus on the strategy
of Company X and selling the company.

Foster the development of new leaders in order to prepare the organization for growth
and the replacement of key personnel who may leave or be promoted. As shown in the
article “Inner Strength,”9 there is value in promoting from within, both in assuring the
quality of candidates and maintaining job satisfaction. This is especially important to
consider regarding the technical group, which for example would not be prepared for
the loss of the CTO.
9
Robert McGarvey, “Inner Strength,” Entrepreneur Magazine, August 1, 1998.
15
Culture
During the firm’s transition from a “4 to 40” organization to a “40 to 400” organization,
company culture has been negatively impacted by insufficiencies in both structure and
leadership. As the specific issues of leadership and structure are tackled, the culture must be
addressed separately in order to strengthen it and instill it in the employees as the organization
continues to grow. Culture is one of Company X’s greatest strengths. The centerpiece of a
strong culture should be the unique mission of the firm and the associated employee enthusiasm.
Company X needs to devote time and resources to promoting the culture and attracting suitable
candidate for job openings. In order to better focus on culture for existing employees as well as
new hires, the following changes are recommended:

Increase consensus and intensity around firm values by communicating them often and,
even more importantly, demonstrating them.

Create attractive opportunities for employees to volunteer, while recognizing different
levels of commitment to community service and not forcing anyone to engage. Build
enthusiasm for volunteering by identifying rewarding activities for employees to
engage in, perhaps with Company X’s local nonprofit clients.

Create informal settings that enable employees with nonprofit backgrounds and those
with IT backgrounds to get to know each other. Company X has a unique opportunity
to merge two distinctly different cultures and to be THE destination for dot-commers
with a nonprofit heart and vice versa.

Use its mission as well as the profit/nonprofit diversity in the backgrounds of
employees as a competitive advantage for hiring.

Develop a consistent and rewarding new employee orientation program.
Use the
company coined term Mojo to brand the culture for new hires.
16
CONSTRAINTS
Implementation and execution are the most significant constraints to reform at Company
X. Our recommendations include actionable items, which will require the commitment of
resources, including management’s time. The company’s short-term financial performance may
affect the execution of our recommendations. If the company’s core business continues to grow,
it will be easier to implement change. Continued financial strength facilitates the commitment of
internal resources. Additionally, financial success significantly eases recruiting efforts, which is
a critical issue. That said, market forces are another possible constraint. It takes a special kind
of employee to lead at Company X. Despite offering market wages, the company has struggled
to recruit top-quality personnel. The continued tight labor supply in the high-tech San Francisco
market is a very real constraint.
Other constraints include employee turnover. Employee turnover in a small organization
can significantly affect company morale, particularly if a key leader leaves. This is a concern in
the programming department, which is led by CTO. The CTO is an industry legend, whose
excellence and charisma inspire his subordinates. If the CTO were to leave, others would be
certain to follow, and operations would be significantly impacted. The CTO, and the can-do
attitude of the programming department are critical to the positive corporate culture at Company
X. The retention of the CTO, and others is critical.
Ms. Z herself may also be a constraint. Despite our recommendations, Ms. Z may not
relinquish some of her responsibilities. Ms. Z may enjoy her involvement in various aspects of
Company X’s business. She may not like the idea of a more focused role within the company.
Nevertheless, we are reasonably optimistic that at least some pro-active action will be
taken to strengthen culture at Company X; primarily because senior management recognizes the
importance of culture to the success of the company.
17
Appendix