[Type the document title] THE CASE STUDY OF CORPORATE CULTURE: SUCCESS AND FAILURE THE CASE STUDY OF CORPORATE CULTURE: SUCCESS AND FAILURE Raj Singh Table of Contents About the Author ............................................................................................................................. 1 Abstract ........................................................................................................................................... 2 Introduction .................................................................................................................................... 2 I. Procter and Gamble: When Change is not Always Transformative ................................... 4 II. Procter and Gamble: When Change is not Always Transformative ................................... 8 III. Google Inc.’s ‘Don’t Be Evil’ Culture ..................................................................................10 Summary ....................................................................................................................................... 13 Conclusion: Ascending the Corporate Culture 14 References ...................................................................................................................................... 15 About the Author Raj Singh is the CEO of Safety@ Work and a leading Safety Health and Environmental Consultant with extensive experience and involvements in Oil & Gas (Upstream and Downstream), Petrochemical, Marine and Construction Industries for the past 18 years in Asia and Middle East. Raj has a Masters in Business Administration from the University of Adelaide, Raj has been providing consulting, advisory and training to the Top Management of organizations as well as projects. His driving philosophy is to create a better, more productive, profitable and professional workforce. Raj’s business acumen has allowed him to market his services to various organizations around the world. As a preferred supplier for the Energy Institute’s Hearts and Minds program, Raj comprehends the complexities and challenges senior executives face in their organization. This inner understanding of complex organization management has allowed him to conceptualize and offer custom solutions to busy executives. Raj’s is actively involved in developing training standards for safety. He also remains one of the most sought after expert witnesses in Singapore, having handled numerous expert witness cases involving fatalities whilst providing calculations and reports to the various courts. Raj has received extensive training in technical safety, investigations as well as Behavioural Safety. Raj is a prolific writer and author of two books. “Risk Assessment: Simplified” First published in 2004 and “The accident files: real industrial accidents.” In his free time, Raj enjoys spending his downtime at the driving range, running, and reading. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 1 Abstract This article explores fundamental reasons behind the rise and fall of management in leading their companies on top of the cultural ladder. In an attempt to understand the dynamics of corporate cultural development, three case studies are presented to better explain the phenomenon. At the very least, it is interesting to pry deeper into the background of corporate lifecycles with leading questions. How do companies fail despite of having leaders with competent backgrounds and excellent records of accomplishment? What are the factors that compel corporate leaders to fall from grace? What is the impact of company leadership to the performance of their organizations? Is there an ideal corporate culture? More so, how could companies recover from their failures and turn their crisis into cornerstone? Although it is inadequate to fully explain the rise and fall of corporations in this brief article, the paper exposes an area of study that could benefit business leaders. The successes and failures of companies are the best classrooms from where business leaders could learn. The following case studies are discussed in this paper: 1.) Procter and Gamble (P&G) and its bid to recover by changing culture 2.) The fall of Arthur Andersen 3.) Google and its unique corporate culture. These case studies are the knowledge platforms from where conclusions shall be drawn out and it points to a value-based culture as an indispensable factor for business survival. Introduction Peter Drucker said that the first duty of business is to survive and the guiding principle of business economics is not the maximization of profit but the avoidance of loss. Viewed from this perspective, we understand why corporate leaders and managers not only strive to gain profit but also deviate from systems and processes that translate to loss. Of what use is 100 horsepower engine if you have a leaking tank? However, loss does not only mean loss in profit or revenue. Loss is also in the intangibles – leadership quality, moral ascendancy, management values, and corporate character. In a www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 2 number of cases, these intangibles are overlooked due to the focus on profit and loss. Corporate leaders and managers are blindly concerned with revenue increase, decrease cost and expenses, increase of profit, project turn a rounds, effective and efficient use of resources. The ‘intangibles’ should be equally addressed and given importance because they indirectly affect the overall performance of a company. In the end, a deteriorating corporate culture could eventually lead into the demise of an organization. While important questions should be addressed to management in assessing the quality of the said intangibles, it is as fundamental to evaluate the performance of employees based on the same criteria. The behavioral dynamics of the workforce are factors that could manipulate corporate outcomes. In the last two decade, there has been an outburst of teachings, readings, publications, seminars, and studies on addressing corporate culture. The so-called corporate gurus have become household names and even commercial brands. While Drucker and his writings remain as the backbone of management studies and corporate leadership, the likes of Stephen Covey, John Maxwell, and a congregation of corporate apostles has been contributing to the study on behavioral and cultural management in organizations. Corporations now accept that corporate culture is an area in business that should not be overlooked. Thus, it is a necessity to re-educate employees on developing corporate culture: behavior, mindsets, belief systems, values, work habits, and character. Employees and the workforce should feel that they are co-responsible for the future of their organizations. The challenge lies in the hands of management on how to infuse such culture wherein employees are not treated like machines made of gears and circuit boards. Management to address problems and issues in corporate culture implements organizational development interventions regularly. There were top rank companies that imploded because organizational development concerns were neglected. The industry that develops business culture has become good business. Steven Covey accurately describes the threat that misguided corporate leaders and managers bring to corporate culture: “The problem is, managers today are still applying the Industrial Age control model to knowledge workers. Because many in positions of authority do not see the true worth and potential of their people and do not possess a complete, accurate understanding of human www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 3 nature, they manage people as they do things. This lack of understanding prevents them from tapping into the highest motivations, talents, and genius of people. What happens when you treat people like things today? It insults and alienates them, depersonalizes work, and creates low-trust, unionized, litigious cultures. People stop believing that leadership can become a choice. Most people think of leadership as a position and therefore do not see themselves as leaders. They think that only those in positions of authority should decide what must be done. They have consented, perhaps unconsciously, to being controlled like a thing. Even if they perceive a need, they do not take the initiative to act. They wait to be told what to do by the person with the formal title, and then they respond as directed. Consequently, they blame the formal leader when things go wrong and give him or her credit when things go well. In addition, they are thanked for their "cooperation and support.” This widespread reluctance to take initiative, to act independently, only fuels formal leaders' imperative to direct or manage their subordinates. This, they believe, is what they must do in order to get followers to act. In addition, this cycle quickly escalates into co-dependency. Each party's weakness reinforces and ultimately justifies the other's behavior. The more a manager controls, the more he or she evokes behaviors that necessitate greater control or managing. The co-dependent culture that develops is eventually institutionalized to the point that no one takes responsibility. Over time, both leaders and followers confirm their roles in an unconscious pact. They disempower themselves by believing that others must change before their own circumstances can improve.” I. Procter and Gamble: When Change is not Always Transformative Even a corporate giant like Procter and Gamble (P&G) had to deal with restructuring to solve stagnant growth and revenue loss in the late 1990s. This US-based multinational known as the leading fast moving consumer goods company implemented a six-year organizational restructuring program. The process included a radical revamping of P&G’s organizational culture, streamlining of hierarchies and downsizing of the workforce. Durk Jager, P&G President and CEO of that time, launched the restructuring plan coined as ‘Organization 2005’ in 1999. The goal was to increase global revenues from $38 billion in 1999 to $70 billion by 2005. The corporate direction that Jager undertook was both praised and criticized especially by those who had a background of P&G’s corporate history. The company has survived for more than 150 years because it has remained rooted to its corporate culture since the mid-1800s. However, analysts also opined that it was high time for P&G to reconstruct its traditional culture and adapt a more progressive mindset in order to survive. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 4 William Procter and James Gamble in 1837, brother-in-laws who merged their businesses, founded P&G. While Procter was candle maker, Gamble was a soap maker. Barely thirty years after its establishment, their company became one of the largest companies in the US with over $1 million sales. Aside from its successful sales and marketing, P&G gained a reputation for its people-centric policies. P&G has the oldest profit-sharing plan and the first to introduce a shorter workweek. Employees were treated like family members and they enjoyed a wide range of benefits – life insurance, disability insurance, guaranteed fixed-term employment, lifetime employment, and leave with pay, among others. The welfare of P&G’s employees was as important as profit. P&G has proven its strength and stability during the Great Depression in the 1930s that while most manufacturing companies closed, P&G remained operational. P&G was also a forerunner in benchmark human resource practices. It encouraged lifetime employment by offering stock options and other benefits for those who decided to work permanently for the company. Its recruitment process was extensive, well planned, and effective. HR staffed went directly to colleges and universities to recruit the best minds and most talented students. Resumes were thoroughly scanned for the promising prospects. Applicants underwent aptitude tests for leadership, problem solving, interpretative skills, and reasoning skills. P&G used these tests as basis to correlate their high score with the job that best fits the candidates. Aside from these test, the applicants passed through a series of interviews where their behavior, commitment, and purpose was thoroughly examined. The corporate culture of P&G set the environment where employees could build a lifetime career. As early as recruitment stage applicants were made to understand P&G’s corporate culture. Since the company was ‘like a family’, values and commitment were www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 5 inculcated early on. Both management and the workforce collaborated to chart the career path for the employees. In time P&G developed the Work and Development Planning System (W&DP), designed to systemized on how superiors could develop their subordinates. The W&DP had four components: 1.) The previous year's plan versus the results. 2.) Areas for further growth and development. 3.) Near-term and long-term career interests. 4.) In addition, a development and training plan for the year ahead. Management regularly reviewed the W&DPs and became a basis of corporate decisions. Through the years, P&G has evolved into a tradition-driven and conservative culture that resisted change. After all, the antiquated organizational framework was still keeping the company intact. Employees were satisfied with its stock options scheme and other traditional benefits. Fast–forward sixty-years later under Jager’s watch. At least from his perspective, the CEO foresaw that P&G was bound to implode from such a restricted environment and culture. He thought that their current stagnancy of that time was reflective already of the timeworn corporate culture in their company. Jager took the challenge of changing P&G despite the odds. The Organization 2005 program restructured P&G into four geographic business units to five global business units (GBUs) based on product categories. The company relied heavily on IT to speed up decision-making, innovate products, introduce new products, eliminate bureaucracy, and reduce cost. As a result, the management created a more informal working environment where knowledge sharing was encouraged in the workforce. P&G also introduced Stretch, Innovation and Speed (SIS) philosophy, aimed to revamp the work culture of the company during those fast-changing times. In an interview, Jager said, "Organization 2005 is focused on one thing - leveraging P&G's innovative capability. Because the single best way to accelerate our growth - our sales, www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 6 our volume, our earnings growth - is to innovate bigger and move faster - consistently and across the entire company." This move changed the company’s approach in individual appraisals, adapted a stretch goal plan, and set aside its conservative goal-setting plan. P&G’s usual practice was to appraise employees based on the targets set and their achievement - but this had a loophole. Employees were open in setting easy targets for easy achievement that created a space for under performance. On paper, Jager’s change strategy seemed doable, if not, effective. However, the results showed otherwise. P&G suffered a rise in cost and a decline in profitability. By April 2000, the company announced an 18% decline from its net profit for the first quarter of 2000, the company’s first profit decline lost in eight years. Jager resigned as CEO just after a 17-month stint as head of P&G. Alan George Lafley took over the reins of P&G as the new president and CEO in June 2008. He steered the company back to the old culture and discontinued the radical changes that Jager implemented. Under Lafley, P&G had a positive turnaround as financial performance improved significantly. The company's share price shot up by 58% by July 2003. Although analysts expressed doubts whether Lafley's leadership would sustain P&G's growth in the long term, nonetheless the leadership transition redeemed the company. Lafley reversed the radical direction that Lager undertook and reintroduced the traditional culture of P&G. He restructured the management team and transferred 15 senior managers, assigned women in higher roles, and appointed 42-year old Deborah Henrietta as head of P&G global baby care division in preference to 78 senior managers in the company. With the leadership restructuring, the average age of P&G Global Leadership Council was pulled down to 49, compared to 54 in 1999. He promoted healthy competition among its top management team and disclosed the financial results of each unit to entire company each quarterly meetings. Lafley has steered back P&G to its profitable course by re-establishing the founder’s corporate culture. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 7 II. Arthur Andersen: The Erosion of Integrity and Demise of a Corporation Arthur Andersen (Andersen) was one of America’s prestigious and respected accounting firms. It was founded in Chicago by Arthur Andersen and Clarence Delaney in 1913. Being a partnership, all the chief auditors have a share in the firm. At that time, Arthur was one of the youngest Certified Public Accountants (CPA) in the US. Brilliant and idealistic, he was invited to be the first salaried president of the New York Stock Exchange because of his expertise and knowledge in the field of finance. Andersen declined the offer despite of its prestige, as he wanted to fully concentrate on Andersen. His firm was initially known as Andersen, Delaney & Co, engaged in the business of offering accounting services to companies. The company name was changed to Arthur Andersen in 1918 and earned a reputation for ethical practices, honest accounting, and avoiding conflict of interest with clients. Andersen believed that 'public accountants sh ould be answerable also to the investing public and not to the companies they audit.’ Andersen started to change the organizational philosophy in order to garner more clients. The younger and incoming generation of younger accountants did not share a deep bond with core group and its values. Two factions started to form within the firm when the old culture started to clash with the new generation of auditors. More resentment emerged when the twoyear practice audit rule was removed and new auditors were taken into the leadership circle even if they lacked credibility and experience. At this time, this internal crisis did not yet affect the exterior growth of the company. Big companies like computer giant IBM was one of the prized clients of Andersen. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 8 By the 1980s, the conflict between auditing and accounting divisions worsened. To end the animosity, the two groups agreed to work separately but with the agreement that the group which earned more should give 15% in the earnings of the other group. More so, the two factions agreed to report only to the consulting partners and not to the auditing partners. By 1989, the consulting partners owned 40% of the $2.8 billion total revenues. While Arthur Andersen underwent internal conflict, the erosion of corporate culture ensued. The firm was compelled to compromise because of the auditing services industry was at a low. Among the so-called Big Five auditing firms, Andersen had the slowest growth rate of 12.6%. The entry of other competitors like KPMG and Ernst and Young were also taking a substantial slice from the market. Pressured to remain competitive, Arthur Andersen imposed a dictatorial style of management wherein employees were not allowed to question their superiors and were instructed to comply even with improper orders. As transparency eroded, the unethical activities were institutionalized. Decent employees who believed in integrity were torn by the dilemma. The deterioration of culture, infighting, unethical practices, rise of competitors and immoral leadership paved the way for the company’s eventual downfall. The final chapters of the Arthur Andersen story were embroiled in the Enron controversy. In March 2002, the US Department of Justice for obstructing of justice and hampering the investigation against the once mighty energy company giant indicted Andersen. The firm shredded volumes of Enron-related documents that were demanded from them by the US Security and Exchange. A severe blow shook the foundations of the company and blackened the reputation of Arthur Anderson worldwide. Within three months of the controversy, Arthur Andersen lost nearly 700 clients. Senior partners, employees, and staff abandoned the sinking ship – they joined other firms. As revenues fell, the firm had a massive lay-off of nearly 18,000 employees. When the US Department of Justice found Arthur Andersen guilty for obstructing justice, the SEC revoked the company’s license to audit public limited companies. It was the last nail in the coffin. Arthur Andersen was gone after closing its office across the US in August 2002. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 9 III. Google Inc.’s ‘Don’t Be Evil’ Culture Google Inc. (Google) is one of the most successful companies in the world because of its Unique corporate culture. The search engine giant thrives on informality, creativity, individuality, and a fun culture that allows employees to enjoy their work as if they were in their homes. However, Google’s corporate culture still receives criticism and dissension from pundits despite of its success. Google’s success story is baffling. The founders paved a very unconventional way in building a successful business empire. Traditional business gurus could not understand how Google management runs its corporation by ‘breaking management rules.’ Google’s culture is uniquely Google’s. The ‘Google culture’ can be traced back to its founders, Larry Page and Sergey Brin. Both of them graduated from Stanford University with a degree in computer science in 1995. Young, passionate and idealistic, the partners began to extend their summer by working on a concept of search engine. They envisioned a technology capable to retrieve data from Internet in a fast and accurate way. Initially, they named the program ‘BackRub’ because it acquired data by connecting with the ‘back links’ of websites. Slowly the search engine gained a following due to its relatively good search results. From then on, Page and Brin continued to further develop their technology, resolved not to stop until they got the search engine they wanted. Page and Brin decided to purchase terabyte memory disks that are capable to store huge amount of data. Page set-up the data center in his dormitory room while Brin used his room for their front office. Convinced that they have developed the most superior search engine ever, the partners went around looking for investors who could finance their expansion, development, licensing, and marketing operations. David Filo, the founder of Yahoo, was impressed by their technology. Although he did not join the partnership, he advised th e two technology entrepreneurs to set-up their own start-up www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 10 company. It was a difficult climb for the two. They had to clear their office dorms, pay the debts they incurred from the purchase of their storage disks, and put their doctorate plans on hold. Help came quickly when a faculty member from Stanford University introduced the two to Andy Bechtolsheim, one of the co-founders of Sun Microsystems. With an eye for technology and impressed by the presentation, Bechtolsheim gave them a check of $100,000 to help their startup. They deposited the check under the corporation’s name: Google Inc. A total of $1,000,000 of investments from families and acquaintances poured in. Finally, Larry Page and Sergey Brin opened office on September 7, 1998. The rest, as they say, is history.The success of Google Inc. as a $9.7 billion company with $72 billion of assets with 32, 467 employees worldwide is credited to its corporate culture. Google employs the best people for its positions and provides a working environment that is uniquely Google. Wikipedia describes Google’s work environment concisely: “Google's headquarters in Mountain View, California is referred to as "the Googleplex", a play on words on the number googolplex and the headquarters itself being a complex of buildings. The lobby is decorated with a piano, lava lamps, old server clusters, and a projection of search queries on the wall. The hallways are full of exercise balls and bicycles. Each employee has access to the corporate recreation center. Recreational amenities are scattered throughout the campus and include a workout room with weights and rowing machines, locker rooms, washers and dryers, a massage room, assorted video games, table football, a baby grand piano, a billiard table, and ping-pong. In addition to the recreation room, there are snack rooms stocked with various foods and drinks, with special emphasis placed on nutrition. Free food is available to employees 24/7, with paid vending machines prorated favoring nutritional value. In 2006, Google moved into 311,000 square feet of office space in New York City, at 111 Eighth Avenue in Manhattan. [196] The office was specially designed and built for Google, and it now houses its largest advertising sales team, which has been instrumental in securing large partnerships.[196] In 2003, they added an engineering staff in New York City, which has been responsible for more than 100 engineering projects, including Google Maps, Google Spreadsheets, and others. It is estimated that the building costs Google $10 million per year to rent and is similar in design and functionality to its Mountain View headquarters, including table football, air hockey, and Ping-Pong tables, as well as a video game area. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 11 However, what sets Google apart is its ‘unofficial’ business motto that encapsulates its corporate culture is hinge: Don’t Be Evil. This straightforward and down-to-earth company slogan was jab to other companies who exploit on the data of their users. By internally adapting this slogan, Google placed itself in a moral pedestal by believing that one can make money without being evil. Wikipedia explains that, “‘Don't be Evil’ is said to recognize that large corporations often maximize short-term profits with actions that may not be in the best interests of the public. Supposedly, by instilling a Don't Be Evil culture, the corporation establishes a baseline for honest decision-making that disassociates Google from all cheating. This in turn can enhance the trust and image of the corporation, which may outweigh short-term gains from violating the Don't Be Evil principles.” Ironically, Google has been involved in a number of controversies that apparently violates its ‘Don’t Be Evil’ corporate culture. A class lawsuit filed against Google by more than 8,000 publishers and authors for copyright infringement, unauthorized digitalization of books, and for selling e-books online without the right holder’s permission. Furthermore, Google critics point out the loopholes of their ‘pay per click’ advertisements that was disadvantageous to the advertisers. Google users are also about privacy issues and security of data that they input in the search engine site. Aware of the danger of ‘becoming just one of the dot.com companies’, Google set-up a Director for Corporate Culture whose main task is to ensure that the original culture and vision of Google is preserved amidst their growth, development, and profit. The founders of the company believed that the culture that propelled them to succeed is an important factor to preserve the company. To date, Google remains as profitable company, one of the biggest countries in the world with net profit amounting to billions of dollars. At least 65% of Internet users around the world prefer Google as their search engine. Although the company had lapses that made them deviate from their core culture, nonetheless, Google has shown its willingness to rectify its mistakes, be accountable for its actions, and exert effort to be the Google its founders first envisioned. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 12 Summary The three cases above-mentioned demonstrate the importance of preserving corporate culture and its co-relation to performance of the team, quality of work, profit, revenue, and loss, among others. P&G’s case is a classic example of a company attempting to adapt with the changing times by revamping its culture. Although this may appear to be good ideas since companies need constant reinvention in order to survive, not all changes are transformative. P&G was a company founded on traditional values and people-centric culture. The said culture has proven itself as a stable organizational framework. After all, it is rare for companies to survive more than 150 years. Revising portions of corporate culture is indeed necessary for P&G must innovate and adapt. However, Jager miscalculated and revamped even the aspects that should have been left untouched. Management must also be selective on which areas of their culture should be modified, revised, or completely changed. For these reasons, it should be wise for corporate leaders to consult and conduct talks with the workforce before implementing a major change. There are corporate changes that would not lead to transformative scenarios and such was the case of P&G under Jager. Arthur Andersen’s is a tragic case of corporate self-destruction wherein the corporate heirs completely turned their backs to integrity, transparency, and honesty in order to cope up with competition. What is equally disturbing is that fact that Arthur Andersen was an audit company tasked to make sure that corporate accounting are accurate and correct. Arthur Andersen failed to audit itself and this was the core reason for its downfall. The sinews that hold a corporation together disintegrates when basic values are neglected. One small act of greed is followed by a bigger one until its unsuitable appetite for profit eats up the institution at all cost. Google Inc. has shown weaknesses in cultivating its corporate culture. The fact they they have infringed copyright laws and the maintain the loopholes of their advertisement profit schemes are crack signs in the walls of the corporate giant. No corporation no matter how huge is strong enough to withstand the stormy consequences of dishonesty and lack of integrity. Despite of this, Google Inc. is promising and it has shown the strength of not becoming an ‘evil company’. The vision, values, and dynamism of its founders are good guideposts. Google should not allow profit to compete with corporate culture so that they will not have reason to neglect the former. www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 13 Conclusion: Ascending the Corporate Culture Finally, we can conclude that the ladder of corporate culture has no summit or top. This means that a company could never claim that it has perfected itself and that they have reached the summit of their success. Winning hearts – of both employees and clients – is a lifelong work. No company could ever say that it has done enough. The ascent to on the ladder of corporate culture should be constant and consistent. No amount of loss or profit should distract the corporate leaders form keeping their eye on the bright spot that looms on top. Hearts are won by character, values, and vision. 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Accessed from http://en.wikipedia.org/wiki/Procter_%26_Gamble www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 15