Saturday, October 31, 2015

The Question of Company Culture

There is a conflict at the heart of management - the question of culture.

Culture will eat strategy for breakfast, said Peter Drucker, and he, as always, was right on the money. And, yet, culture gets insufficient attention in management practise, although not in management theory. Many small companies, who collectively employ more people than ever, think of the question of culture really as a big company thing. 

The underlying view is simple - you worry about culture when you are a big company! It is logical too, because big companies are large, somewhat inorganic entity, having to align diverse elements all the time in pursuit of certain objectives. In contrast, small companies are, well, small, organic entities often consisting of a man and his dog, where the business is defined by the opportunity of the day. The day-to-day reality of the small company makes the question of culture, which is often long term both as a concept and in impact, a luxury.

But, the point is - even in this hand-to-mouth existence of a small company - one can rarely escape the question of culture. It is one of those things that live in the detail of the day-to-day life, defining, even if one is unaware, staffing and retention, products and customers, and ultimately, life and death.

This relative indifference towards culture - or, the approach of taking culture as a given thing - creates some interesting paradoxes. For one, it is easy to notice that while all big companies are trying to be more like small companies, talking about empowered teams, entrepreneurial managers etc, small companies are trying to be like big companies, trying to talk about processes and hierarchy. Steven Gary Blank's observation that a start-up is not a small version of a big company, but a really different form of business, is lost more often than not.

These are indeed broad terms - big company and small company culture - and admittedly, there are many shades of grey inbetween. However, there is one way of clearly delineating whether the culture of a company tend to be more like a big company, or like an ideal small company, and that is by looking at the ownership of the outcome. Frederick Brooks Jr's description of the software development process - producing a baby through one woman being pregnant for nine months as opposed to nine women being pregnant for one month apiece - is handy here. In a small company culture, designated people tend to own the outcome, and have considerable autonomy about the processes. In contrast, big companies have process owners, who is more concerned about doing things right rather than doing the right thing.

However, isn't it true that the organisations may start in the small form, but eventually, all the successful ones must become big ones, just like all children must go into adults? If we accept this, the question of distinctiveness of small company versus big company culture becomes one of when, not if. From this vantage point, companies that are called Unicorns, start-ups with big valuations, should go for the big company culture, as they have achieved maturity in some sense. 

However, the appeal of process-driven culture is not dependent on the bigness or maturity of the company, but in the nature of the business (as evident in the attempts of big companies to become like small companies). It is dependent on whether these processes, within the boundaries of a single firm, reduce the transaction costs and make the outcome more efficient. So, if a company could break down the lifecycle of doing something into discreet and efficient steps, resulting in lower transaction costs and efficiencies, a process culture would suit it best, regardless of the size of the business.

From this vantage point, it may seem that the big company culture that we have become familiar with is not the matured form of doing business, but an appropriate form of doing certain businesses. For example, this may be work perfectly in large scale manufacturing, or trading. But, equally, it may not work in business areas, which are centered on innovation or personal connection, and therefore, must give meaning to work (think of the metaphor Frederick Brooks Jr used).     

So, if one is in disruption business, being like a big company is the worst possible course of action a small company can take. This is because such efforts attract only the wrong sort of people. Big companies, despite the bureaucratic overhang, offer some good things - better salaries, job security, prestige. There are some people who would still spurn the lure of a big company because they want other things which these big companies can not give - ownership, meaning at work, quick growth! But a small company that wants to be a big company, and institute the big company culture, would drive these people away. It would also produce inferior work, one that values activities rather than outcomes, and create an illusion of progress. And, indeed, it won't be able to disrupt, only imitate, because doing things the right way is essentially about following established practice, rather than talking about breaking them down in the quest of a different outcome.

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