Leadership and Organizational Culture: What’s the Connection?


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If “culture is everything,” then one of the primary responsibilities of leaders is to shape an organization’s culture. As Lou Gerstner demonstrated at IBM, the strengths and weaknesses of a leader soon become reflected in an organization’s values and beliefs.

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Leadership and Organizational Culture: What’s the Connection?

  1. 1. Volume 4, Issue 2, 2010 researchnotes Leadership and Organizational Culture: What’s the Connection? than that and a direct link between the behaviors of top management and an organization’s culture may be hard “The thing I have learned at IBM is to discern. A CEO may have just started or is located that culture is everything.” on another continent, for example, and it takes time to develop a connection between leadership behaviors ~Lou Gerstner and the culture of an organization. The history of the organization and industry conditions can also play a role along with a host of other factors. However, those in a If “culture is everything,” then one of the primary leadership position exhibit an effect on the culture of an responsibilities of leaders is to shape an organization’s organization more often than not. culture. As Lou Gerstner demonstrated at IBM, the strengths and weaknesses of a leader soon become In the cases where a leader has served a reasonable reflected in an organization’s values and beliefs. It’s easy amount of time—and his or her influence has diffused to see then, why executives with legal backgrounds throughout the organization through behaviors, norms foster organizations where people argue with each other to discover truth, and businesses founded by Figure 1: CEO Leadership Profile 2008 engineers see the value in experimenting during free time. The values and assumptions that leaders bring to an organization have a direct effect on the organization’s culture, especially in an organization’s formative stages. So what are the values and assumptions that a leader should foster in an organization to make it successful? While there are many answers to that question, the Denison Culture Model describes four traits that promote organizational effectiveness and performance that can help organizations and leaders succeed. These include a culture that emphasizes empowerment and capability development (Involvement); a proclivity to adapt and stay close to the customer (Adaptability); a clearly articulated vision and strategic direction (Mission), and stable systems and interpersonal processes (Consistency). If a leader is recognized as someone who empowers people, builds effective teams, and develops employees The CEO of this organization took the DLDS in 2008. (Involvement), the organizational culture is likely to reflect He was rated above the 90th percentile on 11 out of 12 these strengths. Common sense also demonstrates that indexes. The strength of the leader and the corresponding if a leader is highly-rated in creating a shared vision, it is high scores on the DOCS (Figure 2) show the dramatic more than likely that employees will agree that a shared impact that a leader can have on an organization. vision exists. The world, of course, is more complicated All content © copyright 2005-2009 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 1
  2. 2. and systems—we see a direct relationship between onboarding process and career path for employees. a leader’s strengths and an organization’s culture. All of these changes led to a dramatic shift in the For example, at a large, franchised-based restaurant organization’s culture and by 2006, they had risen business, a new CEO joined in 1999 and instituted above the the 75th percentile on 11 out of 12 indices extensive changes from the start. In his 20-year tenure at of the Denison Organizational Culture Survey (DOCS) his previous job, he was most proud of the organization (see Figure 2). From 2001 to 2006, they improved 41 being named as one of Fortune’s “Best Places to Work,” percentile points on average across indexes, including and he sought to do the same in his new position. 58 points on Coordination and Integration and 48 points He came in with the mantra “change is good,” and in Empowerment. Employee turnover dropped by 66 per people who defended the status quo left or were let cent and the company was a finalist for the “Best Places go. He shifted the focus from only meeting the needs to Work” award. Assessing his leadership in 2008 with of shareholders to meeting the needs of customers the Denison Leadership Development Survey (DLDS), the and employees. This CEO didn’t accept the high CEO was rated above the 90th percentile on nearly every turnover rate that had prevailed and developed a defined index by his direct reports (Figure 1). This shows that Figure 2: Culture Change in a Large Franchise-Based Restaurant Organization from 2001 to 2006 2001 2003 This organization took the survey four times from 2001 to 2006 showing steady improvement over the course of the five years. By 2006, they had risen to the fourth quartile in 11 out of 12 indexes. Their improvement averaged 41 percentile points per index, including a 58 percentile point increase in 2004 2006 Coordination & Integration and a 48 point increase in Empowerment. During this same time employee turnover dropped by 66% and the company became a finalist for the “Best Places to Work” award. All content © copyright 2005-2009 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 2
  3. 3. while it takes time, a leader can have a dramatic impact four traits on the Denison Organizational Culture Model on culture, and often an organizational culture profile will (Involvement, Adaptability, Mission, and Consistency) come to match the leadership profile of the CEO. with the identical traits of the Leadership Model. Completing this four-by-four correlation matrix for each While a CEO may eventually shape the culture of separate rater group, we found the highest correlation his or her organization (for better or worse), what between a department’s culture and a leader’s traits relationship exists between leaders and the departments was from the direct report perspective (see Figure 4). In and functions they oversee? To further explore the other words, if the organizational culture scores were relationship between organizational culture and high, direct reports are likely to rate the leader positively. leadership, we examined the Denison survey results Conversely, if the organizational culture scores were in a large US government agency. Leaders across low, direct reports are likely to rate the leader poorly. the organization (N=262) participated in a leadership This supports what common sense would predict, that development process including taking the Denison direct reports are more likely to feel the influence of a Leadership Development Survey. Each of the 68 department’s leader. departments they belonged to also completed the Denison Organizational Culture Survey. In contrast, a peer’s assessment of a leader was found to have little correlation with the department’s We divided the departments into the top 10 scoring units organizational culture trait scores. In this organization, on the DOCS and the bottom 10 scoring units. We then peers have less direct involvement with the leader identified the leaders of these high performing and low and they are unlikely to know the culture of his/her performing groups and created a leadership profile of department, making the low correlation understandable. their “Combined Other” scores (bosses, direct reports, Finally, similar to direct reports, boss ratings show and peers). We found the top scoring cultures had sensitivity between culture and leadership, suggesting dramatically higher scoring leaders. On average, leaders they have a more acute sense of the culture and in the top 10 cultures were 33 percentile points higher leadership dynamics in the department than peers. than those in the Bottom 10 (see Figure 3). Organizational culture and leadership are thought to be highly related aspects of organizational life because To further examine this relationship, we correlated the they serve similar functions (e.g., provide meaning) Figure 3: Combined Other Profiles of Leaders In a large US Bottom 10 Cultures Top 10 Cultures Government agency, Leadership Composite Leadership Composite we looked at the impact leaders had on their department or functional area. Dividing the departments into top 10 and bottom 10 scoring units on the DOCS we found that the top cultures also had dramatically higher scoring leaders based on “Combined Other” scores - an average of 33 points higher. All content © copyright 2005-2009 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 3
  4. 4. and have reciprocal influences on each other (Schein, about important organizational processes, especially 2004). Moreover, leaders, especially those in the upper in the demanding world of business change. The echelons of the organization, tend to heavily influence process of change can be challenging, but with a tight the creation and development of organizational connection between leadership and culture (especially culture (Schein, 2004). Indeed, our analyses confirm a among direct reports), organizations can develop leaders relationship between leadership behaviors and culture as a way to influence culture. This inside-out approach traits. is a more tractable way to transform the systems and norms of the organization. As leaders from all levels Specifically, these findings demonstrate the complex of the organization emphasize the traits measured in connections between leadership and organizational the Denison Model, the stronger these traits become culture. It is assumed that there is a relationship, but embedded in the organization. And if “Culture is demonstrating that relationship is no easy feat. Once everything,” then so is the leadership that creates it. a relationship is established, however, it can inform us Figure 4: Correlation between Culture Traits and Leadership Traits by Rater Group This figure shows the average correlation between culture traits and leadership traits by rater groups in the Denison Model. According to this research, Direct Reports and Bosses are the best predictors of a leader’s influence on their organizational culture. That is, if organizational culture results are positive, Direct Reports and Bosses are also likely to rate the Leader positively and vice versa. The Peer’s assessment of a leader was found to have little correlation with culture. Related Resources Denison Consulting. (2009) Research Notes: Executive Gerstner, Jr., L. V. (2002). Who says elephants can’t Coaching: Does Leader Behavior Change With Feedback dance?: Leading a great enterprise through dramatic and Coaching?. Ann Arbor, MI: Author change. New York: HarperCollins. Denison Consulting. (2009) Research Notes: Top-Down Schein, E. H. (2004). Organizational Culture and & Bottom-Up: Leadership & Culture Transformation at Leadership (3rd ed.). San Francisco, CA: Jossey-Bass. SERS. Ann Arbor, MI: Author Contact Information Copyright Information Denison Consulting, LLC Copyright 2005-2010 Denison Consulting, LLC 121 West Washington, Suite 201 All Rights Reserved. Ann Arbor, Michigan 48104 Unauthorized reproduction, in any manner, is prohibited. Phone: (734) 302-4002 The Denison model, circumplex and survey are trade- Fax: (734) 302-4023 marks of Denison Consulting, LLC. Email: TalkToUs@denisonconsulting.com Version 1.0, June 2010 All content © copyright 2005-2009 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 4