The big freeze: values can lead to organisational inertia



It is encouraging to see that values led leadership has become very influential in managerial thinking. Leadership based on ideals other than profit would appear to be the best solution to bust and boom cycles, fuelled partly by greed. But, like all business approaches, there can be too much of a good thing. Values in business feed directly into company identity. Identities can become frozen and unable to change. Organisational inertia and failure may follow. This is how to understand and avoid the big freeze.


 


|Matt Offord

Facebook is having a difficult time.  Just over 9% of its share value has been wiped out in a crisis of trust.  Users of the social media platform are dropping and other platforms are encouraging us to #deletefacebook (see The Economist).  The controversy over the data-mining of Facebook accounts and the misuse of personal information is a question of values.  Facebook core values are: be bold, focus on impact, move fast, be open and build social value.  It is difficult to see how Facebook is currently building social value but there is no doubt that Facebook is open; that is the problem.  In this case clinging to values about openess has cost Facebook dear.  It is a clear warning about the minefield that leadership values can create.

Just over six years ago Kodak, the photography giant, filed for bankruptcy. It was an ignominious end to a company synonymous with the photographic industry and, ironically, with technological innovation. I say ironically because it was Kodak’s failure to embrace digital technology that killed it in the end. Yet, Kodak had made a name for itself by pioneering affordable cameras and the development process. Somehow, the Kodak identity did not stem from innovation or exploitation of new markets though. In the eyes of Kodak executives, the technology itself became the focus. Kodak was about film and not about innovation. Even when Kodak began to develop (excuse the pun) the means to shift its technology away from film, as early as the 1970s, it failed to convert this technology to digital, seeing it as a side-line. By the 1990s Kodak was already losing out. But even at this stage Kodak was unable to change direction. It is a classic case study in organisational inertia, well known to every MBA student and organisational researcher.

There are, of course, plenty of examples of companies which fail to adapt and therefore die. Kodak is an example of the negative side of identity and values and that is what I want to discuss. Especially now as identity is becoming ever more important to western companies. Take Google, for example, a company keen to flaunt its values, or Lego. Both companies provide unique working environments to enhance the creativity and productivity of their employees. Values are becoming increasingly more important in leadership as social responsibility rises in significance. Wally Olins writing about the “Power of Identity” in 2006 points out that corporate identity has become synonymous with brand. Brand has the power to make or break companies. Wally tells us that identity consists of:

• Who you are
• What you do
• How you do it
• Where you want to go

Identity consists largely of values then. This is good news for leadership developers and researchers like me because it is easy to tie leadership values with vision and mission, strategy and shared values. It provides the perfect means to align resources (especially people) with organisational goals. So far, so good. But beware the power of identity to energise and organise a company in the wrong direction. No wonder that toxic leadership teams can quickly create toxic organisations. How do values and identity turn an organisation into a super-tanker that cannot turn around quickly?

The mechanism which turns values into identities, and identities into frozen carcases is people. People need values. As Maslow pointed out, once we take care of the basics like shelter and food, values quickly become important. However, expressing values is notoriously difficult. Values are usually expressed as codes or vision and mission statements or something like that. The problem is how to define a brand as something unique that people will want to read? How many mission statements are laminated, stuck on a wall and ignored? However, if values are successfully translated in codes (how we do things here), they are immensely powerful.

Organisational researchers Michael Hannan, László Pólos and Glenn Carroll have conducted extensive research into how organisations rise and fall. In their seminal book, Logics of Organisation Theory (2007), they point out that codes which govern the behaviour of an organisation can become entrenched as a key part of an organisation’s identity. At this point, it becomes very hard for those codes to change. These codes are not always beneficial. Take, for example, an Italian sports car. A zealous fan of Italian motoring will be rather proud of a sports car which looks good, goes fast but is not the most reliable. Italian motoring companies have to ensure this essential “Italian” spirit is in all of their cars. The worst outcome for them is an efficient car which is seen as too “German”.

Both Hannan et al. and Olins are keen to point out that audiences (stakeholders, customers, government etc.) have a key role in shaping identity. The recent controversy over the plight of the British Bulldog has shown how supply and demand can lead to extraordinary changes. In this case the British Bulldog has been bred out of recognition for bulldog owners who, we are told, prefer a shorter nose. However, moves to change the breed standard for the dog have been fiercely resisted. Why? Because the breed standard (a code) has become the very identity of the British Bulldog.

In the case of Kodak, its founding values became the reason for its failure. This is what happens when identity becomes frozen. Much as we think we love values which stand the test of time, the truth is (especially in the Information Age), we need to constantly evaluate and refresh ourselves and our values.

Here is how:

• Remind yourself of your organisational values regularly. Are you following the spirit or the letter of the law?
• Listen to your customers, how do they interpret your values?
• Do not to think of values as completely stationary.
• Never let values and strategy oppose each other.

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