America’s businesses are comprised of diverse individuals. However, these employees share most of the same basic cultural and societal influences. These influences strongly determine the qualities and type of leadership found within these organizations. This also includes a cultural acceptance, or resistance toward risk-taking and boldness. I will discuss and show some of the reasons that America’s businesses increasingly find themselves incapable of embracing major change.
Historically, American corporate structure has reflected western values and a conservative approach to authority and decision-making. Its traditional mold and structure has been a strictly hierarchical approach. The roots for our present organization of work developed along family, craft or agricultural lines that remained basically unchanged for approximately 5,000 years, until the beginnings of mechanization and industrialization in the 18th century. Machines could justify their high cost only if a heavy and continuous demand existed maximizing their output. The presence of mechanization led to a “division of labor” between the entrepreneur who owned the machines and his employees. The owner supervised his workers, forcing them to work at the pace of the machine. This established a strong hierarchical and autocratic work ethic in both Britain and the United States. The system of manufacturing and producing many identical parts and their assembly into finished products even came to be called the “American System”, because it achieved its fullest maturity in the United States. The entrepreneur or business owner who assumed most of the risk exercised a dominant influence in the business culture.
Today, a few individuals or a strategic leadership team still often dominate this influence. How does this occur? This influence will occur primarily through a combination of socialization tactics, myths, stories, rites, ceremonies, norms, values and organizational rewards. It is the organization’s top managers that primarily establish a lasting impression on the organization’s culture. As Charles Hill and Gareth Jones purport in their book Strategic Management, one major influence in the early formation of an organization is the strategic leadership provided by its founder and top managers. The founder and upper-level management “imprints” their management style and values on the organizational culture. If this influence is conservative and fears the consequences of error, it will inhibit risk-taking. Perhaps this is to be expected since most newer upstart companies are fragile and a major strategic error may prove to be fatal. However, this influence will permeate the organization long after the founders’ departure.
The way corporate level managers design the organizational structure through delegation and task division can also impact the organization’s culture toward more or less risk orientation. Traditionally American companies have been very conservative and have what are called ”inert” cultures. Decision-making has been a formal process determined through a centralized hierarchical process. Often times the managers at all levels are required to follow established procedures for approval of major decisions and projects. The norms and values of most companies emphasize consensus and compliance, which in turn provides a sense of security for the organizations managers. These managers have traditionally been rewarded and promoted for enthusiastically supporting the existing organizational structure and corporate hierarchy. To not do so, one would be considered disloyal and a “loose cannon” rather than a team player. This structure has tended to demand conformity and to punish risk-taking. Again, the traditional American company is an “inert” culture. This internal culture is very slow to accept change or adapt to sudden situations.
When an organization has an “inert culture”, it is conservative, cautious and risk adverse. This culture tends to limit or impede the organization’s ability to change or to meet a sudden competitive threat. In contrast, an organization that has an “adaptive culture” can more effectively allow change in the company’s strategy to survive in a shifting environment. In an adaptive cultureinitiative is rewarded and innovation is encouraged among middle and lower level managers. Employees are encouraged to be innovative and reasonable risk-taking is considered acceptable.
Even when individual corporate leaders have the skills and personal characteristics to accept risk, they often find a strategic process that resists and hampers their serious efforts. For example, the strategic reward system of an organization will greatly affect how often managers are willing to take risks. Hill and Jones comment that most companies “attempt to control employee’s behavior by linking reward systems to their control systems”. When strategic reward systems award conformity and the traditional aversion toward risk taking, few managers will have the incentive to take risks.
American businesses will continue to resist change as long as their corporate culture and structure punishes risk, and rewards conventionality. Author Gary Yukl reminds us that it is more difficult for managers to “make changes in strategy that are incompatible with the existing culture than it is to make changes that build on its existing values and assumptions”.
The last few decades have seen the establishment of many new organizations that embrace risk taking and boldness. One obvious example is Microsoft. Its founder has attempted to keep his company as decentralized and as flat as possible. Authority has been given to various teams that have decentralized control of all the resources they need to complete any project. Managers are encouraged to experiment and take risks. Few would question the astounding success of Microsoft. In spite of this example and others, why do America’s businesses find themselves increasingly incapable of embracing major change? Our rapidly evolving technological environment is changing far more quickly than American business culture. Our digital technology is “ahead of the curve” as our existingchange-adverse culture lags behind placing us at risk! As Don Tapscott comments about today’s business environment, “time is collapsed, facts are quickly checked, the loss of credibility can be instantaneous, second chances are rare and harder to effect, grandstand plays had better be perfect, and the playing of one audience against another is far easier to detect”. The time needed to react and make effective bold decisions is shorter today than in the past. At the same time, aside from technological advances American business and its traditional culture are changing at a glacial pace in comparison.
I would like to offer a few suggestions to change the traditional American aversion toward risk taking. When the organization’s culture has been resistant toward risk-taking due to a conservative orientation, a new management team may be able to effectively change the deeply held culture. They can do this by setting a new and positive approach to innovation and encouraging others to do so. Another approach is to alter the strategic rewards system to reward risk-taking and minimize the fear of making mistakes. Recent studies have confirmed the importance of adaptive cultures, which allow for innovation and reward initiative for lower and middle-level managers. This can result in a greater ability to exploit new opportunities. The leader or management team can reshape the company’s culture by linking reward systems to encourage employee behavior toward risk. Remember, an organization’s incentive system motivates and reinforces desired behaviors.
As an individual, a leader can encourage a culture that accepts risk taking by “deliberately cultivating values” that tell subordinates they should perform their jobs in creative and innovative ways. An individual leader can have a powerful personal impact in reshaping an organization’s culture. Transformational leadership can also help to reshape the corporate structure. Robert Taylor and William Rosenbach gallantly state that overcoming fear and boldly stepping beyond the existing boundaries of one’s culture is a “special need for a leader”.
Another approach is to establish “collective problem-solving” in team-based groups. This will typically also encourage greater risk-taking and bold solutions. Groups tend to take more risks because of the input and confidence of the collective group members. A group may also feel that individual accountability is muted because of the entire group’s participation in the decision making process. Groups tend to devise riskier solutions to problems than do individuals acting alone.
In summary, America’s businesses were developed and influenced by the beginnings of mechanization and industrialization in the 18th century. Business became simply the reflection of a class-conscious society, and thus became strictly hierarchical in structure. The owner, entrepreneur or upper managers were authoritative and responsible for all decision-making. The owners’ influence dominated the company’s structure, values, culture and reward system. Decision-making was conservative and risk was considered a threat to sound business practices. Ambiguity was considered to be an undesirable and negative environment. The organization often excelled with a rigid structure controlled by a few decision-makers. But, the last half of the Twentieth century witnessed a dramatic change in competition due to rapidly changing technologies, global markets and changing societal values. American businesses have been changing, but not rapidly enough to keep in pace with swiftly evolving competitive and societal pressures. The greatest natural resource in any organization is its people! This resource will remain untapped if we don’t use their skills and experience in the decision-making process! As a leader, you can drive a change in your organizations culture, create a more productive organization and tap into this great natural resource.
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About the Author:
Frederick Weiss has over 20 years of management experience including 14 years at an executive level. Mr. Weiss is the Vice President of Finance & Administration at Vita-Mix Corporation, a privately owned manufacturing company. He has been a driving force in changing the culture of Vita-Mix from a small-family-leadership style to a professionally managed company during its growth from $5 million to over $60 million.
Hill, C. & Jones, G. (1998). Strategic Management. (4th Ed.) Boston: Houghton Mifflin.
Taylor, R. & Rosenbach, W. (1994). Military Leadership. (3rd Ed.) Boulder, CO: Westview Press.
Tapscott, D. (1995) The Digital Economy. New York: McGraw-Hill.
Yukl, G. (1998) Leadership in Organizations. Upper Saddle River, NJ: Prentice Hall.