Why Companies Fail: Culture, Not HR

Author: Dave Crisp

19 Feb

In a lengthy article in The Atlantic, senior editor Megan McArdle makes very good points under the title “Why Companies Fail.”

Zeroing in on GM a year after its return via IPO as a public company, she notes it tried to revamp its culture on a number of occasions previously, but quickly fell back into its old way. She wonders whether this time will be different.

She concludes only time will tell if the culture change sticks, but this time the inputs are bit different: the unions are more cooperative, poor dealerships and factories have been closed and wasteful model duplication eliminated. In other words, there is almost literally only culture left on the table as a failure point. She doesn’t limit her critique to GM, citing a number of times when the US auto industry and others have been declared on the way out and then hailed as fully recovered only to go through the cycle again as soon as the companies began to believe once again in their own infallibility and success and old habits return.

The bottom line – it’s at least as hard to change culture, that amassed body of habit that organizations develop, as it is to change our own personal habits – poor diet, lack of exercise, procrastination or any of the hundreds of other challenges we face individually – and make them stick.

This has to be the biggest corporate culture change experiment of all time – a $50 billion bailout – will it have a payback? $50 billion for just one company! The US has recently pushed the banks into allocating just half this amount to help a massive number of underwater homeowners. Europe is hesitating at turning over not so much more, $179 billion, to bail out an entire country that could bring down the entire European Common Market. One could conclude that such a bailout for just one company ought to have a guaranteed likelihood of working. But that may be wrong. That’s why this is such a terrific experiment, if perhaps not the wisest use of money we could dream up. If it can’t work for whatever reason, we may have to conclude this sort of culture change is a foolish gamble.

Don’t hold your breath. This isn’t likely to be the over-night fix so many would like to see. That’s probably why the last year’s IPO shares have fallen by a third in price. It’s maybe easier than expecting a new US President in one term to eradicate the effects of the worst spending debacle (Iraq and Afghanistan), the worst domestic financial meltdown and subsequently one of the worst developed world meltdowns in history, but it probably depends at least in part on those being fixed.

GM has had a good start in one way – with pent up demand after the meltdowns leading to an massive 10%+ increase in auto purchasing. They were aided further by Toyota losing sight of its own cultural strengths and producing problem vehicles for the first time in memory plus massive setbacks from the Japan tsunami. With these three boosts on its side, GM has, in one year, retaken its status as seller of the most vehicles world wide for the moment and it has a chance to re-build its culture in a new image while Toyota struggles to restore its to what it used to be.

Whatever happens, this is a contest to watch that is as important to future strategies in HR as any in history. We can’t know for sure when, if ever, we can expect a definitive victory. In fact, it’s arguably foolish to expect that at all. What we really need to see is whether any of these giants can not only re-orient and recover temporarily, but whether they can keep adapting, changing and innovating to last another 30, 50 or 100 years. In theory that ought to be possible. In practice it will be a massive comment on the evolution of human behavior whatever the outcomes.

Bookmark and share this post

Filed under: 3 Strategic - Thinking, 5 Habits - Action, Current Affairs, Fix The Jerks, Human Resources (HR), Learning Organization

4 Responses for "Why Companies Fail: Culture, Not HR"

Craig Allen February 21st, 2012 at 12:44 pm 1
A change in culture sounds very sweeping (and very deep). I wonder if an organization even resembles itself after a true change in its culture – and is that different from liquidating the organization and letting the marketplace redeploy its remaining productive assets?

Another path might be to accept that all corporate cultures (as with all individuals) have strengths and weaknesses – and are very difficult to engineer and construct. There, the path for an organization in trouble would be to leave the culture intact, and reposition the organization to a market where its strengths have maximum value.

Before the financial crisis, the German economy was seen as increasingly outmoded for a developed nation – an economy that continued to be based on production of goods (specialized, and high-end, but not the services model seen in the Anglo countries). Today, the German model is seen as something to envy (no doubt, there will be further twists and turns in this road). The point is that an economic culture will have its ups and downs, but that these are rarely conclusive with regard to the merits of that culture.
Dave Crisp February 21st, 2012 at 1:38 pm 2
Thanks Craig, that’s a very insightful comment. We bandy the term around ‘change the culture’ without really paying much attention to it at times. We think we can change one or two aspects of culture – make a company more customer friendly for instance, but when that doesn’t work we’re quick to say, ‘well, we should have changed more of the culture so this piece would fit and work.’ We rarely recognize that your comment is likely correct – to change a significant piece, we may have to change the entire thing.

In the case of GM and Chrysler, perhaps that’s what we intend or should want to see, but it may be too much to expect especially with very large organizations. I think it might be more appropriate to say what these companies have tried is to eliminate parts of their cultures or organizations that were flawed and maximize the remainder as you suggest. But if quality, for instance, was a big issue and you just cut out the low quality plants, for instance, will the rest necessarily be strong enough to survive? It’s definitely a larger task than one piece.
Craig Allen February 22nd, 2012 at 1:20 pm 3
Indeed, it may be a matter of semantics what is called culture, vs what is called other things (e.g. “strategy”).

Here’s an article in this week’s Fast Company that lists some of the components of “culture” and contrasts that with other aspects of the organization.

http://www.fastcompany.com/1817137/culture-vs-strategy-is-a-false-choice
Dave Crisp February 22nd, 2012 at 1:33 pm 4
Definitely true and worth saying that you need both to be successful. At least we understand strategy a bit better, but we often don’t recognize as much the link between the two. At my former employer they changed ‘strategy’ (often on a significantly major scale) several times a year and on a smaller scale almost monthly. Although the culture began to recognize the need to shift gears continually and quickly, they were never able to do so THAT quickly… and that led to a lot of confusion, conflict and lost effort.