Hallucinogenic colors are all I can see. I almost hit a wall – no not the exhaustion kind during a long run. It’s an actual wall, a huge one in a shabby-looking warehouse. The washed out gray base color is almost completely covered by corporate posters – sorry no nudes here. This is the 2020s. And these posters are screaming at me with their messages in phrases – whatever happened to full sentences? Are they the new forgotten art in writing? And I’m an auditor today. Trying to make sense of it all.

“ZERO DEFECTS”

“FIRST TIME RIGHT”

“PEOPLE FIRST”

“UNSAFE? SPEAK UP”

“WORK SMARTER, NOT HARDER”

My first thought: please, stop shouting at me! Immediately my child brain tries to find connections between them, then to the different departments of the company: Which one was put up by Operations, which by Finance and which by Quality? But honestly I am not sure. Finally I realize these refer to the different change initiatives of the company. They should know better, but what can you do if some fancy consultant/PR/design mix-up firm assures you, that’s what you need first and foremost. Shouting at employees is an old trick.

The Board Room Version: Change management fails because it confuses culture with communication. Kahneman explains that when confronted with change people don’t hear what they can gain but what they lose. And Hannan & Freeman show us that organisations are systemically built to resist change. Schein shows that culture happens on three levels — artifacts, espoused values and basic assumptions. Posters and slogans only reach the first two. But what really needs to change are basic assumptions and they can only be experienced. Organizational Culture cannot be changed from the top. It needs to grow from within. But this requires leaders who first abandon their own basic assumptions.

I guess they read Kotter’s “Leading Change”. It’s a workable approach for small stuff, 8-steps, I use them myself whenever I do DMAIC initiatives. And it is widely known, relatively easy to use.

Create urgency, basically scream, the house is on fire – or just show endless PowerPoint slides with red numbers and scare them with negative trend lines. 

Build a guiding coalition — find the people open to change. Your followers, your early adopters, your sponsors.

Form your vision. Communicate it. That’s two steps, apparently. The idea of whatever you want to change and then — shout it out.

Now you are almost done. You just need to remove obstacles, generate short term wins, sustain acceleration (keep the foot on the gas) and institutionalize the change, meaning make it part of the culture of the organization. Easy, right. 

Well, if the change is something small and also very rationally sound, then it is. Changing how to submit ideas to senior management, yes. Having a new expense report system, sure. Wearing safety equipment, maybe also ok. If you go into more complex structures and processes you will hit a wall. Kotter himself had doubts about using it in complex situations. I would say most companies are very complex situations. The problem is that the model only scratches the surface of what organizations are at their core.

Edgar Schein was a Swiss-born American – we don’t hold that against him – business theorist and, more importantly, psychologist who studied change in organizations extensively. Schein argued that an organization doesn’t just have a culture — it is one. We will hear more of him and his work later. I could have also brought up Peter Drucker’s quote “Culture eats strategy for breakfast” but it would be wrong because he actually never wrote that. It just sounds cool and everybody reproduces it, but come on, Peter Drucker would never say something Gen X style like that, he is far too sophisticated. Not that I have anything against Gen X, of which I am a proud member.

So if we are talking about organizational culture, we are playing a different ball game and Kotter’s 8-step model cannot be applied. And the problem starts at step one — because for Kotter, creating urgency is purely a communication task. But it isn’t — it’s a psychological one. Remember Daniel Kahneman, the man who explained decision making to us. He brings in the concept of loss aversion. OK, we tell people to change and as a result all numbers and performance and quality and revenue will become pink and fluffy. But according to Kahneman what employees will hear is that you are taking away something, their old routines, their accumulated expertise, social or actual standing in a company. In that case, you just need to offer the same value to them in positive change to compensate the negative impact, right? Two problems with that. Firstly you would need to offer twice as much positive outcome to compensate for the negative impact. 

There is an easy and fun experiment to prove that. I tried it myself with numerous people because I didn’t believe it. I ask you to play a game of coin flipping with me. If you win you get 100 CHF from me, if I win I get 100 CHF from you. Do you want to play? On average you will say no. If I asked you to play the game and I give you 200 and you can only lose 100, then on average you will say yes. That’s what is called Loss Aversion. 

The second problem with bargaining for change is that we are operating on completely different levels. I propose a change that brings quality, performance, money — you are afraid of losing status and familiar routines. Two different accounting systems, business and emotion. Very hard to reach a good deal when two people do not speak the same language. 

Kahneman has one more observation worth noting. In uncertain situations, people systematically favor non-action. I’m not sure, I’m not going to do anything. That feels like the safest way. This might be heuristically reasonable in a lot of cases. But when organizations do this, it is often their end.

This is what the study of organizational inertia is about. Organizations that do nothing? Kind of, but more like in physics (Newton’s First law of Motion to be exact) when an object stays still unless you push it hard enough. Exactly that, applied to organizations. Oh, this has to be Sociology, only these people come up with nifty ideas about people stuff and can prove it with formulas. I will spare you the math but I have to take you for a quick mental rollercoaster ride for this one. Hold on to your synapses!  

The people who came up with that model are Michael Hannan and John Freeman, who looked at organizations as populations meaning companies are like all the humans on earth. Their model goes like this: So what drives change in organizations? It is selection – fit companies live, unfit ones die off. Darwin just on another level. Now in selection reliability and accountability are preferred – stakeholders reward consistent and good performance. Reliability and accountability require reproducibility – standardized, repeatable processes. Shout out to the ISO people! Reproducibility produces strong inertia – standardization makes change harder. So logical deduction is that selection favors strong inertia. Wait, I’m not finished: Reproducibility increases with age – older companies can and will standardize more. Size also increases inertia – more complex structure means more interdependency leads to harder change. Reorganization – or cultural change in companies increase their death rate because stakeholders depend on reliability. In a nutshell: the market builds organizations that cannot change, rewards them for not changing and occasionally kills them when conditions shift and the organization needs to change. Sounds strange, but Hannan & Freeman have the math to prove it, but you can also think of examples. All these big companies failures that were caused because of changing customer demand and different environments. Some tried to react and failed, others did not or not fast enough and failed. IBM is an almost case (change from transistor to microchip technology only worked with many losses), Blackberry (not getting the 2C market for smartphones), Kodak (had the technology but failed organizationally), Nokia, Blockbuster, Pan Am. All are change victims.

So I can do something and the probability of failure is high and I can do nothing and the probability is high?! But it gets even worse. You know who the stakeholders in this model are. It is usually big companies and organizations – like banks, regulators, large customers – that are also suffering from high inertia. So the whole double death loop is even self-reinforcing. 

There is the startup counter argument. Startups get financed by venture capital which is geared towards taking a risk and going for agile companies. And it is true, as long as the companies are startups. Once they become grown up companies they will need regular funding, operate under normal regulation and need more standards and accountability. Yes and then they are in the death trap, too.

Besides being absurdly and morbidly funny, this shows one more thing: Change is not just hard. Change is supposed to be hard. Resistance to change is not just an upsy, it is the system. A feature, not a bug.

I could just leave you here with all of that and turn off all the lights. But let’s dig a bit deeper into change and culture in organizations to understand what exactly is so hard to change. The best analysis comes from Schein in his book “Organizational Culture and Leadership”. When management tries to change something they mostly use Kotter’s 8-Step and do a lot of communication of urgency and vision and then you just need to remove some obstacles. That would work if organizations were a straight road with obstacles to remove. They are not.

Now Schein actually found that organizations have three different levels where culture happens. First, the Artifacts — the stuff we can easily see: Offices, dress code, meetings, language. Although easy to see, it is hard to interpret correctly. If I see silk ties and Oxford shirts, does that mean that this is a conservative company or are they into fashion and luxury? The second level helps here — it’s what the organization says it believes. The Espoused Values. The visions, the mission statement, the strategy. “We are a Robin Hood anti-capitalist record company. We steal from the rich. Therefore we stole all the ties and shirts from the bankers around the corner.” Ah, very cool idea. But is that really true? Because culture is always true (for good or bad). That’s where the third level comes into play: The Basic assumptions. This is the operating system, what is never said out loud but practiced on a daily basis. Often unconscious, it can only be surfaced through careful analysis — yet everyone inside the organization experiences it daily.

This can be in line with artifacts and espoused values. When the head of the record company steals a Porsche each week and hands it to one of their staff. Then everything is really groovy. But what if the head rewards the best financial results from their direct reports each month and fires the worst performer. Then we have a dangerous contradiction between edgy anti-capitalism communicated values – that they may absolutely believe – and the real basic assumptions. Basic assumptions are foundational — that is the level on which culture actually forms. Schein describes it as a shared experience of solving problems together. If you constantly do anarchistic, cool stuff to solve your problems, that will become your basic assumption. If you solve every hurdle with firing people, that will also become your basic assumption and the foundation of your organization’s culture. So culture is not given by somebody, it is learned. 

Therefore change initiatives which work with communication – speeches, posters and social media posts – don’t work because they are purely on the artifacts and espoused value level. What employees do experience is the important part. That is what the management does. Schein actually has a list of what leaders do that actually shapes culture – what they pay attention to, what they control, how they react in certain situations, how they allocate resources, how they allocate status, how they recruit.

Since we are on the topic of posters and slogans, I have to mention my favorite management thinker W. Edwards Deming. He had these 14 action points for good management and number 10 was: Eliminate slogans – and exhortations and targets. Slogans, he says, tell people they are doing something wrong, that they don’t work hard enough. That creates resentment because people know that real problems in companies are systemic in nature and they cannot change them. The slogan is the espoused value and the systemic failure is the basic assumption. The gap is a killer for trust in management. 

(One caveat – basic assumptions are not necessarily the truth, the “my precious” of an organization. They are what people learned from experience, and Deming said we can learn wrongly. Learning without a theoretical frame leads to conclusions from misunderstood data or experience, a distortion. But distorted culture is still culture, just one that makes it even harder to change.)

Let’s follow Schein down the rabbit hole a bit further. It is actually quite brutal. He describes two competing forces: Survival anxiety – we need to change to survive and Learning anxiety – change is uncomfortable and unsafe. You can make the learning more comfortable, make it a safe experience with lots of training, involvement and honest conversation. But in my experience that is too much work and time and cost for most companies. Or you can change an organization by making the status quo so painful that it is greater than the expected pain of change. So management basically needs to threaten people in the organization. One way of doing this would be to threaten to fire people who don’t want to change. That works in the short term but will not change the basic assumptions unless it is done over a very long time period. Elimination is another way culture change can happen. Management picks the employees they see as carriers of culture and removes them. Those can be long-time employees or very prominent, outspoken employees. The problem there is that while it might remove some basic assumptions, management would have to build new basic assumptions with success at the same time. Try doing that in a period of restructuring, good luck. 

With this model of coercion which is used more often than you think, you cannot create real cultural change easily. You will also create a culture of resentment in an organization. Employees have experienced that management has achieved what they want with coercion. That becomes the new basic assumption. This IS the new culture. What a wonderful place to work at?! 

So all dark and gloomy? Are all the posters and slogans and management efforts really for nothing? Is there no way to lead change? Certainly not with posters. But if leaders are willing to take a more uncomfortable road there is one. We said that company culture forms by shared learning of employees. They are the agents of the system we call a company. So change can only happen from the agents within that system. Change cannot be installed into people. It has to grow from within them, through new shared experiences that teach new assumptions. Not with them, not through them, not via — but from them. 

The best management can do is to show what the organization needs to do to be successful. If employees believe the goal, management can help them learn how to achieve it. Management cannot do the learning. The people have to do it. But that requires very humble leaders who are willing to examine and give up their own basic assumptions first. These are leaders willing to give up what got them to where they are. The hardest culture change is not getting employees to let go of old assumptions. It is getting leaders to let go of the assumptions that made them successful. So they have to overcome their own sources of resistance – organizational inertia, loss aversion, and status protection. This is all they themselves have been taught by experience, therefore going against what they are, what history has made them. And that is almost impossible.

Back in the warehouse I keep staring at the last poster in this death row of absurd phrases. I kind of like the sound of that one, though. Something still looks wrong. Better: “MANAGE SMARTER, NOT LOUDER”. But that would be just another poster, right? I guess there is more to explore.

How many of those posters are on your walls? Share and discuss — LinkedIn

Don’t just take it from me, here is some good stuff to read:

Daniel Kahneman, Thinking, Fast and Slow, 2011

John P. Kotter, Leading Change, 1996

Edgar H. Schein, Organizational Culture and Leadership, 1985

Michael T. Hannan & John Freeman, Structural Inertia and Organizational Change, American Sociological Review, 1984

J.R.R. Tolkien, The Hobbit, 1937