Organizations are Products too!

Alignment with Customer and Culture Determines Survival

Societies create organizations in order to fulfill a need. As such, organizations are products of culture. An organization that falls out of step with the needs of the customer, or the cultural language of the times, risks obsolescence as they drift out of step with the world around them.

Every organization exists because a society had a need (for food, shelter, information, care, entertainment, safety, luxury; the products of a far flung culture, or the tastes of home). The organization exists as an expression of culture. Everything it builds reflects it: assumptions about what good work looks like, who deserves authority, what counts as success, how disagreement gets handled. In the early years, an organization’s alignment with the society around it is inherited as an extension of the brand. The founders, and early employees, are products of that culture, so the organization they build naturally reflects it.

But cultures evolve as societies change their place in, and experience of, the world. Values shift. Expectations shift. An organization that continues to adhere to the image of its founding era, is making a powerful statement. And what happens next? Does it continue to bring into future eras its own era of strength, industry, agency, optimism, or rebellion? What if those values struggle to align with those of the modern era? Some organizations keep pace and thrive, while others quietly fall out of step, and face irrelevance or erasure.

The arc of transformation

Even as it becomes the face of a different era, an organization that’s going to last has to keep re-aligning itself as the culture around it evolves. Organizational sociologists Michael Hannan and John Freeman studied why large, established organizations have more structural inertia (resistance to change) than young ones. Their research identifies reliability (consistently delivering the same quality) and accountability (able to show why a decision was made, and who made it) as the core traits that let organizations build trust and endure.

But building the systems that produce reliability and accountability (standardized procedures, defined roles, precedent, institutional memory) also creates structural rigidity. The architecture that earns an organization its cultural status, resists further change. Success arrests the arc that produced it.

The two customers of every organization

The first: People personally connect with the brands that express, and shape, their identity (self-expression, affiliation, values alignment, or even as an aspirational identifier). An organization’s output connects with them (customers, clients, the public), through values, goals, or expectations that will determine if the organization continues to matter to them.

The second: The people inside the organization depend on each other’s work to do their jobs. They negotiate, rely on, and determine the experience of the value created by others within the organizational system. Misalignment within that internal relationship (unclear expectations, buggy handoffs, incomplete decisions) erodes an organization the same way losing touch with the external market does.

It is possible for a company to build something marketable while its internal culture suffers increasing rates of disengagement and churn. It is also possible for a company to provide an idyllic work environment, while having lost touch with its customers.

Misalignment doesn’t kill; it finances borrowed time

Brand reputation, recognition, and legitimacy earned over decades don’t evaporate the moment they stop being earned. When an organization falls behind a changing society, it slowly fails as its customer base dwindles, and ages. Hannan and Freeman’s research points to age and size as major contributors to an organization’s survival, even after structural inertia has set in. An established organization has greater reserves and accrued (perceived) value.

Eastman Kodak engineer Steve Sasson built a working digital camera in 1975. By 1989, Kodak had prototyped a digital camera (more than fifteen years ahead of the mainstream adoption). But the digital camera didn’t sell film, it didn’t drive prints, and it didn’t fit any of the systems the company had built its success upon. So the organization kept doing what it was built to do, until the film industry collapsed, and took the company with it. Kodak didn’t fail to see the future; it failed to act.

Every one of Kodak’s individual decisions was sensible and defensible: film revenue was growing, quarter over quarter through to 1996. This would be a correct tactical, and even operational, determination, at least at those depths. What was missed was the same question at the grand-strategic depth.

Is film still performing well for us? Yes.

Will this industry exist in twenty years?

Film revenue was the output everyone measured; long-term survival was the outcome that no one owned.

Innovation theater, and why change is not internal

An organization is a product of the culture that built it. Its systems and structures are predicated on the assumptions, values, and tastes of that culture. This creates structural biases and structural blindness.

A team tasked with ‘reform’ will struggle against an unreceptive architecture until they reproduce the very patterns they were tasked with changing. Many organizations go through costly cycles of change, just to end up with a new vocabulary applied to the old behavior.

Agilewashing, Agile-in-name-only, Water-scrum-fall…, these are all terms for the same type of innovation theater. A new framework, a new set of values on the wall, a reorganized chart; all without changing any of what actually happens from day-to-day.

In 1993, Kodak the company brought in George Fisher, from Motorola, specifically to force the kind of digital transformation the company had spent two decades avoiding. Fisher fought the structure, but the structure won. The film division still generated the overwhelming majority of company profit; they controlled the budget, and the board. Fisher’s initiatives were persistently underfunded. He left in 1999 with the transformation still incomplete.

The signal arrived alone, into a system whose existing structure was fully intact, and well-positioned to absorb, and silence it.

The myth of the Eureka moment, and why change is external

The myth of the Eureka moment has been debunked, over, and over, and in many ways. Innovation is a social effort; the process is slow, and it takes the input and synthesis of many ideas, most of which are not yours!

When organizational researchers Paul DiMaggio and Walter Powell studied why organizations in the same field tend to converge on similar structures over time, they identified three distinct channels through which outside pressure reaches an organization.

Coercive pressure: something having the power to force compliance, like a regulation, law, a competitive threat.
Mimetic pressure: adopting a framework, a methodology, or a structure that worked for another organization.
Normative pressure: new people or new professional standards (new hires, coaches, research, or changing cultural expectations).

Nearly every real source of organizational change fits into one of these three channels.

What is significant, isn’t the channel, it’s the commonality. Every one of these, comes from outside. Which also means that every one of these will first go through the existing culture’s interpretive filter, before anything changes.

Internal resistance has a home team advantage over external change effort

A new framework, introduced for its fresh perspective, is reinterpreted to fit existing habits. A new hire, recruited to introduce ‘new blood,’ is socialized into the prevailing norms faster than they can challenge them. A new regulatory requirement is adopted, at the minimum level necessary to achieve compliance. This filtering is culture protecting itself, and it persists until it is consciously designed to do otherwise.

External pressure can fight the filter, but the game is already rigged so that the filter wins.

A combination of external pressures, often at the level of a survival threat, is required to overcome the internal forces supporting the status quo.

Lou Gerstner arrived at IBM in 1993, as an outsider. He was brought on as the CEO of a company in crisis. Having lost tens of billions of dollars, the company was threatened with collapse. Gerstner dismantled the structural protections of the old culture. He ended IBM’s decades-long policy of “no layoffs,” and restructured the company around integrated customer needs instead of the internal divisions that had long protected their individual fiefdoms.

In 2002, during a presentation Gerstner remarked,

“Transformation of an enterprise begins with a sense of crisis or urgency. No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive.”

Lou Gerstner

Overwhelming coercive pressure (the existential crisis) combined with powerful normative pressures (an outsider CEO with a board mandate, and no personal stake in IBM’s existing culture) is what it took to make a change, even when faced with certain collapse.

Helping culture get over itself

Step 1: Consider doing… nothing. Many brands are timeless. Some values or vibes like simplicity, salt-of-the-earth, rebellion, human connection, can always find an audience because they have a place in the human experience that cannot be contained in any one era. But that doesn’t mean that markets will reward organizations for stagnation. If your organization’s output has fallen out of step with what the customer values now, or the internal experience of an organization is misaligned with the expectations and aspirations of the labor market of today, then a shift of some sort becomes necessary.

Step 2: Avoid relying on a framework, a leadership change, or any singular effort to carry the whole initiative: this would be the Kodak/Fisher pattern. Look across coercive, mimetic, and normative channels and combine at least two, but ideally all three: a real external threat, a credible model, and people (new hires, coaches, internal advocates) who embody the new values, and have no choice but to live them.

Step 3: Remove, redesign, or restructure the organization’s filters. Give change a mandate from the highest levels, give outside forces the authority to do new things, but more importantly, reframe the power structures that justify or reinforce stagnation. Limit who has the authority to act on outside pressures.

Step 4: Define the urgency, and use it. All change is risk. A genuine threat or crisis is what makes the risk of staying the same, greater than the risks of change. It takes a lot for us to be willing to abandon familiar structures. Introduce new models and new people once urgency has been clarified. Then architect the change into the structure itself (new incentives, new hiring criteria).

Step 5: Dismantle the structures protecting the old guard. Systems and networks support and reinforce the systems and the networks. Without changing this, the new thing (no matter what that might be) will be starved of resources by the old thing. Change requires removing or reducing the power of the old structures.

Step 6: Continuously evaluate and maintain alignment. Adaptation, and evolution don’t have an end state or an end date. Build in a habit of checking that external and internal outcomes still match the people they serve.

Pitfalls to avoid

Putting a new label on old behaviors. Watch for initiatives that change vocabulary faster than they change behaviors.

Leaving change agents to fend for themselves in your wilderness. Anyone brought in specifically because they’re misaligned with the current culture will be treated by that culture as a threat to existing equilibrium. Only real, visible authority can help level the playing field. More than a matter of being outnumbered, it’s a matter of being unarmed, outclassed, and unprepared, in unfamiliar terrain with an entrenched opponent that has won every battle before the conflict even starts.

Confusing one alignment for the other. Changing the experience of the internal customer without addressing whether the output still matches the external customer’s evolving needs, just attracts new people to a system that produces a product they are not aligned with. Repositioning your relationship with the external customer while the internal experience is structured around forgotten values, has exactly the same outcome.

Waiting too long. Structural inertia deepens with age and size. The features that make an organization durable, also make its structure durable. The Kodak pattern took decades to become fatal; the dismantling required at that point was far more radical than what would have been needed twenty years earlier.

Attempting change from too many uncoordinated angles at once. Multiple forms of change can offer synergy and comprehensiveness, but only if they’re coordinated, and complementary. Several disconnected initiatives firing simultaneously without coherence produces confusion, fatigue, and even resentment, but seldom realignment.

Abandoning your customer base trying to appear as something you aren’t. Organizations endure when they are perceived as genuine and display a sense of integrity.