159the three legged system of organisational integrity

159
the three legged system
of organisational integrity
Gyula PuLAya,*
a) Miskolc University, Hungary and State Audit Office of
Hungary
Please cite this article as: Article History:
Pulay, G., 2017. The three legged system of organisational
integrity. Review of Economic Studies and Research Virgil
Madgearu, 10(2), pp.159-175.
doi: 10.24193/RvM.2017.10.14.
Received: 30 August 2017
Accepted: 30 October 2017
Abstract: Public organisation with mature integrity systems are
resistant to the
misconduct of their own employees, such as corruption and
other misuses of public
property. This article argues that legality, legitimacy and legacy
are the three legs
of a solid system of organisational integrity. Legality since
compliance with the
legal rules is the precondition of integrity. Organisations
moving from legality to
legitimacy build their inner regulations on the values and basic
principle of the laws
and not on their specific provisions only. Organisations with

integrity try to leave
legacy to their successors, valuable fortune to the future
generation, they try to fulfil
their mission and help their employees to realize their vocation.
The endeavour to
go beyond legality to legitimacy and create legacy helps
organisations to exceed
the level of compliance and reach the level of integrity.
Key words: management control; corruption prevention;
integrity
JEL Classification: H830; K4; K420
© 2017 Alma Mater Publishing House. All rights reserved.
* Corresponding author. E-mail address: [email protected]
160
Review of Economic Studies and Research Virgil Madgearu,
2017, 10(2)
Corruption is a serious problem in each of the Central and
Eastern European
countries. Therefore these countries have to find effective tools
for fighting against
corruption. The traditional way for doing so is the
reinforcement of the authorities
responsible for the fight. It covers several measures, e.g.
capacity building of
the police departments and prosecutor offices, tightening the
punishment of
corruption offences and increasing the penalties of corruption
related crimes.
One of the outstanding example of this approach was the

establishment of the
National Anticorruption Prosecutor’s Office in Romania in
2001.
Another approach tries to prevent corruption by encouraging
integrity at all
level of the society. This approach was followed by the State
Audit Office of Hungary
(SAO) when it launched its Integrity Project in 2009. ‘Mapping
Corruption Risks
– Promotion of an Integrity-Based Culture of Public
Administration’ was the
title of the project.
The aim of the article is to describe the theoretical background
of a sound
integrity management system which is an effective tool of
corruption prevention.
The first chapter of the article compares the traditional and the
integrity-
oriented approach of the fight against corruption, highlighting
the advantages
of the integrity approach. The second chapter briefly expounds
Ouchi’s famous
theory on the three types of controls, arguing that clan-control
is the antecedent
of the integrity-oriented control. The third chapter explicate the
mechanism by
which organisational culture influences the behaviour of the
members of the
organisation. The fourth chapter explains the relationship
between the culture
of compliance and the culture of integrity. The fifth chapter
argues that a sound
integrity management system should be based on three basic
principles: on

legality, legitimacy and legacy.
1. organisational integrity
as a tool of preventing corruption
The word ‘integrity’ originates from the Latin expression in-
tangere, which
means “intact” or “untouched”. In other words, the term
designates someone or
something unblemished, inviolate and beyond reproach; in
addition, it alludes to
virtue, incorruptibility and the condition of purity. According to
another view the
root of integrity is the Latin “integer” adjective, which means
“whole” or “entire”.
The concept of integrity is used to describe both people and
organisations.
The term “integrity” as a basic characteristic of an ethical
personality has
been used by the human sciences for ages. Integrity usually
refers to a quality
of a person’s character, and any person said to be acting with
integrity is usually
being honest and trustworthy. Individuals with strong integrity
do what they think
is right regardless of the consequences attached to their
decisions or is perhaps
making a personal sacrifice for the greater good. Integrity is the
opposite of lying,
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Pulay, The Three Legged System of Organisational Integrity

deceiving others for personal gain. Integrity means doing the
right thing at all
times and in all circumstances, whether or not anyone is
watching. It takes having
the courage to do the right thing, no matter what the
consequences will be.
Organisational integrity means that the operation of an
organisation is in
adherence to the rules applicable to it and to the values and
principles defined
by or for it. In the sense of organisational management,
integrity means that
an organisation has a positive, sound set of values that are in
line with social
expectations and it works in accordance with these values. The
latter presupposes
that the employees also identify themselves with the
organisation’s values and
act accordingly. In this sense integrity is a synonym for correct
(compliant,
ethical) employee behaviour. Consequently, integrity is the
exact opposite of
incorrect employee behaviour, like fraud, corruption and any
kind of abuse of
official power.
This is the point where integrity and the fight against corruption
come
together since the higher level of integrity an organisation has,
the more resistant
it is to corruption. Consequently, the strengthening of an
organisation’s integrity
is an important tool for preventing and mitigating risks of
corruption.

Table 1 summarises the differences between the traditional
approach to the
fight against corruption – which is aimed at detecting specific
cases of corruption
by the reinforcement of the authorities – and the approach that
focuses on
organisational integrity.
The first important difference – reflected by the first two rows
of Table 1 –
is that the integrity-oriented approach is aimed at the detection
of corruption
risks and not the corruption itself, and tries to prevent
corruption by the efficient
management of the identified corruption risks.
The second important difference is reflected by the third and
fourth rows
of Table 1. They reveal a new theatre of the war against
corruption, it is the
organisation. The fight against corruption is shifted from the
national level to the
level of individual public organisations. This can improve the
effectiveness of the
fight significantly, since it is not only a single authority that
combats a multitude
of unknown perpetrators but thousands of public institutions
take up the fight
against corruption. In this approach, the leaders of the many
thousands of public
institutions are expected to develop a sound system of integrity
controls in order
to strengthen the organisations’ resilience to corruption.
Reflected by the fifth row of Table 1 the integrity oriented

approach has its own
weapons for fighting against corruption. They are different from
the weaponry
of the traditional approach. Its armour contains the integrity
controls. They are
means of managing integrity risks, including policies,
procedures, guidelines,
practices or organizational structures, which can be of an
administrative,
technical, management, or legal nature.
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2017, 10(2)
Table 1. Main features of the traditional and the integrity-
oriented
approach to the fight against corruption
Features Traditional approach
Integrity-oriented
approach
Subject of the fight Corruption itself Risk of corruption
Purpose of the fight Disclosure of corruption Prevention of
corruption
Scene of the fight The entire country The organisation
Main warriors of the fight Public authorities Leaders of the
organisation

Armor of the fight
Legislation, investigation,
retaliation
Integrity controls
Results of the fight
Disclosure of corruption,
sanctions
Strengthening the
organisation’s ability to resist
corruption
Source: Own representation after Pulay, 2014, p. 140.
The last row of Table 1 makes clear why integrity can be an
effective
safeguard against corruption. The traditional approach deals
with indi-
vidual cases and ties to disclosure corruption related crimes one
by one.
The integrity oriented approach tries to make the whole
organisation
resistant against many risks of corruption at all levels of the
organisation.
This article describes the ways and means by organisational
integrity effectively
defend the organisation against the threats of corruption.
2. From clan-control to the culture of integrity
The term clan-control was introduced by William G. Ouchi in
his famous
article “Markets, Bureaucracies and Clans” (Ouchi, 1980).
Market, bureaucracy

and clan are the three modes of controls distinguished by Ouchi.
He argued
that the market control – which is the basic control mechanisms
in a market
economy – often fails, due to the fact that the market
transactions are too
complex. They involve long-term obligations. Theoretically
contingent claim
contracts can deal with future obligations, but when future is
either complex
or uncertain or both then it is impossible to specify a contract
which takes into
consideration the future options completely. This failure of the
market control
cries for bureaucratic solutions when contractual solutions are
replaced by rules.
Ouchi underlines two principal advantages of the bureautic
control compared
to the market control.
First, bureautic control is applied between the employer and the
employees.
In the employment relationship employees in exchange of
receiving wages
163
accept the employer’s right to direct their daily activities
(within the frame of
the employment contract), and closely monitor it. In the
employment contract

the duties of the employees and the rights of the employer are
regulated
incompletely, giving room for the employer to regulate the
employees’ activities
according to circumstances raised after signing the contract.
Thus the problem
of dealing with future uncertainties is more or less solved.
The second principal advantage is even more important from the
viewpoint
of this article. Organisations can create trust among their
members more easily
than market can between the parties of a market transaction.
Employees of an
organisation assume some commonality of purpose, because
they learn that their
rewards are somehow depending on the performance of the
organisation: in long-the
long run good performance of the organisation yields for them
also. In bureaucratic
organisation technical expertise is an important element of the
commonality.
Bureaucracies appreciate professional standards and behaviour,
and professionals
meeting these standards are rewarded and promoted by the
bureautic organisations.
High levels of professionalism becomes a value shared by the
members of the
organisation and the organisation itself and creates a drive for
excellence.
In spite of the advantages of the bureautic control compared to
market control,
it has its own boundaries. Bureautic control uses rules, but rules
are relatively
weak devices. Any specific problem needs a specific rule. The

bureautic control
of complex organisation or processes needs enormous number of
rules without
covering all possible contingencies. Therefore in a quickly
changing environment
bureautic control fails to respond properly to the changes.
The failure of both the market and the bureautic controls turned
Ouchi’s
attention to a third mode of control. In the 1970s he noticed
modern industrial
organisations applying social mechanisms which reduced the
differences
between organisational and individual goals and created a
strong sense of
community. These organisations were operating typically in
technologically
advanced industries, where teamwork was common,
technologies changed often
and therefore individual performance was highly difficult to
measure. These
were the typical circumstances where both market and bureautic
control fail.
The social mechanism to these modern industrial organisations
reminded Ouchi
to the control mechanism of the preindustrial craft organisations
where the
members of the organisation previously served an
apprenticeship during which
they were socialized into accepting the objectives of the craft
organisation. Based
on this experience Ouchi discerned a third mode of control and
called it clan-
control. This name originates form Durkheim who referred a
clan as the case
of organic solidarity contrasted to the contractual relations (on

which market
and bureautic control are based). The solidarity steams from the
necessary
dependents upon one another which resulted in common goals
and cooperation.
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2017, 10(2)
The feeling of community is the basis of informal organisations
but essential to
the smooth operation of every formal organisation as well.
Common goals and
the feeling of community are effective elements of any control
mechanism aimed
at meeting of organisational goals and avoiding behaviour
destructing them.
Ouchi argued that clan-control could be effective in an
environment where
market control and bureautic control fail. Clan control relies
upon creating
goal congruence therefore it can work among complex
circumstances where
performance is excessively ambiguous.
Ouchi summarized two main characteristics of the three control
modes in a
table (see Table 2).
Normative requirements refer to the basic social agreements
that all members

of the transaction network must share in order to the efficient
functioning of the
network. Reciprocity is a normative requirement for all the
three control modes.
It reflects the mutual interest of the parties of the transaction
which is the basic
precondition of voluntary transactions. Legitimate authority is
critical both
for bureautic and clan-control. In the case of bureautic control
it permits the
employer to specify the work assignments of the employees and
closely monitor
their performance. In the case of clan-control legitimate
authority is usually part
of the tradition, and obedience to the leaders of the clan is
strongly encouraged
by the tradition.
Table 2. An organisational failures framework
Mode of control Normative requirements Informational
requirements
Market Reciprocity Prices
Bureaucracy
Reciprocity
Legitimate authority
Rules
Clan
Reciprocity
Legitimate authority
Common values and beliefs

Traditions
Source: Ouchi, 1980, p.137.
For market control price-information is needed. Ouchi
underlines that very
difficult to arrive at correct prices. Rules are relatively crude
information devices.
There are standards behind the rules but they indicate the value
of an output
approximately only. Employees perceive them as equitable only
as long as they
believe that they contain a reasonable amount of performance
information. The
compliance with rules does not reflect the value of the
performance when tasks
become unique, integrated or ambiguous for other reasons.
From the performance evaluation perspective tradition is the
least precise
information prerequisite, since they are formulated in a general
way. On the other
165
hand, the set of traditions in a formal organisation may produce
a unified, although
implicit philosophy how that organisation should work. This
philosophy is learnt
by the employees of the organisation through a long learning
(socialisation)
process after which they can deduct from it a rule which

compasses their
appropriate decision-making in any specific cases. It means that
long socialisation
is a precondition of the efficiency of the clan-control.
Taking into consideration the many hindrances of meeting the
informational
requirements of the proper functioning of the three control
modes, it is not
surprising that Ouchi was pessimistic about the efficiency of the
future control
modes. He stated that the “degree of uncertainty and
opportunism that
characterize American society may be such that no mechanism
of control ever
function very well” (Ouchi, 1980, p.140). Since the publication
of his article three
and a half decades have past, during which management
sciences developed a lot.
They responded the challenges of creating more efficient
control mechanisms.
Multi-dimension performance management systems were
introduced to control
the performance of complex organisations as a further
development of the
market control relying on price-information only. Compliance
systems were
introduced as new and comprehensive forms of the bureaucratic
control. The
conscious building of organisational culture tried to replace the
traditions
prerequisites of the clan-control and creating a control system
which is based on
the feeling of community and the prevailing values shared by
the leaders and the
employees of the organisation. Each of the three developments

are interesting
and instructive. This article focuses on the third one and tries to
present the
development process leading from clan-control to a control
system based on the
culture of organisational integrity.
3. From clan-control to organisational culture
Traditions can be inherited only by organisations being operated
for a
long time. The number of organisations characterised by long
tradition is
limited. Does it mean that the relevance of the clan-control is
limited also? Not
necessarily. According to Ouchi the essence of clan-control is a
unified, although
implicit philosophy how that organisation should work, and
after a long learning
process employees can deduct from it a rule which compasses
their appropriate
decision-making in any specific cases. Ouchi emphasizes the
importance of the
long socialisation process during which employees understand
traditions and
collect experience on its usefulness. We have to raise the
questions whether
tradition is the only means for creating a unified organisational
philosophy
and socialisation is the only way for learning. Management
science answered
to these questions by definite “no”. It argued that top managers
can develop
an order of values and principles which may become prevailing
rules through

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2017, 10(2)
the process of internalisation. It starts with learning what the
norms are, and
then understanding why they are of value or why they make
sense, until finally
they accept the norm as their own viewpoint. Internalised norms
are said to be
part of an individual’s personality and may be exhibited by
one’s moral actions.
Internalisation could be the result of socialisation but it could
be speeded up by
formal training and explicit education and the involvement of
employees in the
creation of organisation’s value order and the related documents
(e.g. mission
statement, code of ethics).
The conscious creation of the organisational philosophy does
not need
organic relationship among the members of the organisation
characteristic to the
clan-control since the members of the organisation are formed
into a community
by the goals, values and principles shared by all of them.
Therefore clan-control
is replaced by something else, namely by organisational culture.
What is an
organisational culture?
Answering to this question we can start with the phenomenon

that behaviour
of the employees of an organisation is influenced by the
organisation itself. Not the
formal rules applied by the organisation effect employees’
behaviour only, but the
atmosphere, the relationship among the employees, the
prevailing management
style and many other informal elements of organisational life
have an impact
on employees’ daily decision making. Sciences try to grasp this
phenomenon
by the notion of organisational culture. It is an abstract concept,
and there are
several definitions of it. We follow the concept of Edgar
Schein. According to
his definition organisational culture “is a pattern of basic
assumptions that a
given group has invented, or developed in learning to cope with
the problems of
external adaptation and internal integration, and that have
worked well enough
to be considered valid, and therefore to be taught to new
members as the correct
way to perceive, think and feel in relation to those problems”
(Schein, 1984, p.3).
Schein divided organizational culture into three different levels:
y artefacts and creations (symbols),
y (espoused) values,
y basic (underlying) assumptions.
(In brackets you can see the supplements to the original terms
added by the
author in his later publications.)
Artefacts and symbols mark the surface of the organization.

They are the
visible elements such as logos, architecture, structure, processes
or even corporate
clothing. They carry important, but sometimes not decipherable
messages to the
employees and to external parties also.
The second level concerns standards, values and rules of
conduct, the way by
which the organization express strategies, objectives and
philosophies and made
them public. Problems could arise when values publicized by
the organisation
167
are not shared by the managers and employees of the
organisation. Therefore
Schein put the indicative “espoused” in front of the noun
“value”. It that case
values represent a greater level of awareness. They are apt to
reasoning – in
verbal explanation – the behaviour, but usually are not strong
enough to really
govern the specific decision making of the members of the
organisation.
In order to really understand how culture does work we have to
delve into
the underlying assumptions level – emphasizes Schein – since
they determine
how group members perceive, think and feel. The mechanism of

action is the
following. Employees try to solve problems by acting in line
with the espoused
values of the organisation. If actions begin to solve the problem
and success
is repeated several times then the value is gradually transformed
into an
underlying assumption that problems could be solved by
following the value. As
the assumption is taken for granted they become powerful
means for controlling
behaviour, hence they are less debatable and confrontable than
espoused values.
Schein argues that as certain motivational and cognitive
processes are repeated
and continue to work, they become unconscious. Therefore the
basic underlying
assumptions are deeply embedded in the organizational culture
and are
experienced as self-evident and unconscious behaviour.
Assumptions become
patterned into “cultural paradigms”, which tie together the basic
assumptions.
The cultural paradigm is a set of interrelated assumptions that
form a relatively
coherent pattern. This pattern is the core of organisational
culture which has
a decisive role in shaping the behaviour of the employees of the
organisation,
therefore culture fulfils many control functions.
Table 3 summarizes the basic similarities and differences
between clan-
control and control exercised by creation and reinforcement of
organisational
culture.

Table 3. Comparison between clan-control and control exercised
by
organisational culture
Mode of control
Normative
requirements
Informational
requirements
Personal
requirements
Clan
Reciprocity,
Legitimate authority,
Common values and
beliefs
Traditions
Employees, who
went through a long
socialisation process
Organisational
culture
Reciprocity,
Legitimate authority,
Espoused values
and underlying
assumptions

Cultural paradigm
Employees, who
went through an
internalisation process
Source: Own representation.
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2017, 10(2)
Clan-control and the control exercised by organisational culture
are
very similar to each other as it is reflected by Table 3. However
there are two
important differences as well. First, contrary to the traditions
which are
developed by natural processes, cultural paradigm can be
created artificially
also. Second, personal requirements of the clan control could be
met by a long
process of socialisation whilst internalisation is expected to be
a shorter process.
There are plenty of management manuals on how to create an
organisational
culture containing good advices for shortening of the
internalisation process by
formal training and many other means. This article does not
want to challenge
the suggested methods but would like to underline that the
creation of culture
needs a lot of time.

4. The culture of integrity
The reinvention of organisational culture has led to the
development of
different kinds of cultures. We can speak about the culture of
quality, the culture
of excellence, the culture of diversity and the culture of
integrity. The distinctive
sign of the different cultures are the prevailing values of the
cultures: each culture
is named after the value with the highest priority in the
organisational culture. In
the organisational culture of integrity the central value is
integrity. It means that
integrity is a decisive aspect of the character of the organisation
and organisation
behaves ethically even when this would not be in its own (short
term) interest.
An organisation can act through its members only, therefore
each of the leaders
and the employees of the organisation have to follow the ethical
values of the
organisation in their own decision making. Meeting of this
requirement is a
great challenge. There are two approaches to get members of the
organisation
act according to ethical values of the organisation. The first is
the compliance
approach, the second is integrity.
The compliance approach relies on rules. It uses formal and
detailed rules
and procedures, which try to regulate in every situation how to
behave ethically.
Typical instruments of this approach include legislation, strict
behavioural codes,

extensive control mechanisms and control institutions with
extensive powers.
They are the so called hard controls, applied for directly
influence employees’
behaviour.
The integrity approach relies on self-control exercised by each
individual.
Self-control mechanism consists of two components: moral
judgment capacity
and moral character. Moral judgment capacity can be
strengthened by learning
and understanding the values, and developing the skills in
ethical decision making
needed to apply those values in the daily practice. Ethical
decisions making skills
can be improved by ambitious code of ethics, workshops on
ethical dilemmas,
interactive trainings and several other means. Moral character is
the instinctive
169
motivation of the person to act upon ethical values, and
aptitude, fortitude
and hardihood to act upon them resisting to tempting offers.
Organisations
pursuing integrity try to select employees with solid morality.
Because of its
instinctive nature moral character is very difficult but not
impossible to change.
Organisational culture might have a very important role in

strengthening its
members’ moral character. Organisations creating a feeling of
community,
empowering and respecting their employees motivate them to
voluntarily adopt
organisation’s values as their own. values would be followed by
the employees
because they belong to a community which enhances their self-
esteem. The
respect increases self-respect. If you are respected by the
community and by
your leader for being competent, true, trustworthy and honest,
then you try to be
competent, true, trustworthy and honest. The special control
devices for integrity
management are the so called soft controls, aimed at influencing
employees’
motivation, loyalty, integrity, inspiration, standards and val ues.
They influence
employees’ behaviour indirectly through their convictions and
attitudes, as you
can see in Figure 1.
Figure 1. The effect of hard and soft controls on employees’
behaviour
1
Hard controls Employees’
Behaviour
Values
Attitudes

Aspirations
Endeavours
Soft controls
There are many reasons why one might behave ethically. For
example, there
might be a threat of punishment, or a promise of a reward, to
keep one in line. But
following one’s self-interest in this way, even if it results in
ethical behaviour, is
not integrity. Integrity is an aspect of character that leads the
person to develop
deeply-held ethical commitments and to act on them
consistently. People with
integrity will, therefore, tend to behave ethically not only when
it is in their own
interest, narrowly construed, to do so, but also when it is not.
Empirical studies
(Tyler et al., 2008) show that an organizational culture that
encourages ethical
conduct usually not emphasizing the fear for punishment but
rather a focus
on fairness. It is the commitment to values which is the key to
explaining and
influencing employees’ behaviour and which motivate them to
voluntarily adopt
organisation’s values as their own.
170

2017, 10(2)
5. Legality, legitimacy and legacy
Compliance approach and integrity approach do not constitute a
simple
dichotomy. They are not only opposite to but supplements of
each other. Ethical
values are appreciated by the compliance approach as well as
rules are important
tools for reaching integrity. The compliance with the basic rules
is a precondition
of integrity. But too many and detailed rules may destroy trust.
Meticulous
regulations might be considered by employees as the sign of
mistrust and the
lack of respect which may decrease their enthusiasm for
following the values
their employer. The challenge is to create an integrity
management system which
secures compliance with the basic rules but does not undermine
the culture of
integrity. The article tries to describe one of the possible
solutions for creating an
integrity management system meeting both requirements.
The basic idea of the solution comes from Peter verhezen’s
study (verhezen,
2010). He wrote in this study that organisations “do not need to
move from the
culture of compliance (to culture of integrity), but to transcend,
to move beyond,
to incorporate compliance into a higher dialectic level of
understanding where
there does not necessarily need to be conflict between
compliance and integrity.

The tension between them can be healthy and can force
deliberate thinking and
better decision making. Limitations should not be felt as
negative constrains,
reducing freedom, but rather as an increased possibility for
freedom and leaving
behind some legacy that is engrained in the legitimacy of their
excellence”
(verhezen, 2010. p.21).
Figure 2. Mode of action of legality
1
Laws
Hard controls
Behaviour of the employees
171
The main concern of the compliance approach is legality, which
is the state
of being in accordance with the obligations imposed by the law.
Organisations
pursuing compliance approach try to reach and sustain the state

of legality by
the introduction of hard controls as it is described in Figure 2.
If hard controls work well employees of the organisation act in
line with the
laws in every situation regulated by hard controls, but
compliance with the laws are
not insured when there isn’t any hard control to be applied in
the given situation.
In these situations compliance depends on the employee’s
decisions made without
specific controls. It makes clear that there is a need for soft
controls in order to
influence employees’ behaviour in situations not covered by
hard controls.
Soft controls have to be based on values. Therefore
organisations must be
shifted from the concept of legality to legitimacy. Legitimacy is
the conformity
to the law, the quality of being legal. This definition is very
similar to the notion
of legality. But legitimacy has another meaning as well, it is the
quality of being
reasonable and acceptable. Legitimacy means that a law is
followed because
its rules are reasonable and acceptable and not because of its
enforcement
mechanism only. Why are they acceptable? Because the
intentions and values
on which the law is based are in line with the basic expectations
of the society.
Organisations moving from legality to legitimacy build their
inner regulations
on the values and basic principles of the laws and not on their
specific provisions

only. It is described in Figure 3.
Figure 3. Mode of action of legitimacy
1
Laws
Hard controls
Behaviour of the employees
Values, basic principles of the laws
Soft controls
172
2017, 10(2)
One can see from Figure 3 that tools serving legitimacy embrace
devices
ensuring legality but they contain new elements as well. On the
one hand there are
additional hard controls since pursuing the values and principles
of the law might
require additional inner rules. On the other hand legitimacy
gives opportunity
for creating soft controls based on the values and principles of

the specific laws.
For example, a law might emphasize the importance of
transparency. Then an
organisation going to be legitimate should introduce both hard
and soft controls
in order to strengthen the transparency of their operations.
By introducing soft controls organisations took the first step
into the direction
of integrity. This step is rather small hence these soft controls
are based on the
values of the laws and not on the own value order of the
organisation. Integrity
has to come from inside and not from outside. Organisations
should set up their
own value order as a next step to integrity. The value order of
an organisation
is not independent from the environment of the organisations. It
is especially
true for the public organisations established to serve public
interest on given
fields and in specific ways. For profit and non-governmental
organisations have
to take into consideration stakeholder’s expectations and legal
requirements
also. Certain values and principles are deeply embedded in
traditions which
have significant effects on the development of the value order.
The professional
bodies and other employee groups should have a say in this
process as well. The
multidirectional process is drawn is Figure 4.
Figure 4. Integrity management system based on legality,
legitimacy
and legacy

1
Own values, principles
of the organisation
Soft controls
Laws
Hard controls
Integrity management system Soft controls
Values, principles of the laws
Behaviour
173
In order to give life to value order organisations should
introduce soft
controls to strengthen their employees’ commitments to the
organisational
values. Hard controls may play a role also in ensuring that basic
principles are

respected at all levels of the organisation. The hard and soft
controls together
constitute the integrity management system of the organisation,
as it is shown
in Figure 4. Integrity management system influences employees’
behaviour in a
more effective and better targeted way than a bunch of hard
controls or a set of
hard and soft controls might influence it.
The setting up of the value order is a sophisticated process
resulted in
several documents, such as vision and mission statements,
strategies defining
the prevalent values of the organisation, ethical principles and
code of conducts.
Certain symbols and artefacts are designed also in order to
visualize basic values
and aspirations. By these documents leaders and employees of
the organisation
endeavour to answer the questions:” Who we are and what are
we for?” In other
words: “What is the legacy inherited from predecessors, and
what is the legacy
to be left to successors or in a broader sense to our
stakeholders, to the future
generations, to the society as a whole?”
Figure 5. The three legged stool of sound organisational
integrity
Clan-control is based on traditions. Integrity is based on legacy.
There is
difference between tradition and legacy. It is important to know

where we have
been, and honour where we have come from, but legacy is more
important than
tradition. Where we are going is more important that where we
have been.
174
2017, 10(2)
Tradition is tied to the past; based on the way things used to be.
Legacy is tied
to the future. Legacy is building upon the way things could be,
while building
for those that have yet to be reached. Legacy says that our best
days are ahead.
Tradition is a foundation. Legacy is a house. Ancient
organisations could build
on their traditions and use clan-control. New organisation have
to build on the
new foundation of their newly developed organisational culture.
Organisations
without inheriting tradition can build houses also and leave
them behind as a
legacy for future generations. Legacy is the main motivator of
creating the culture
of integrity. Legality, legitimacy and legacy are the three legs
of an integrity
system sound as a three legged stool (see Figure 5).
The three legged integrity stool (legality, legitimacy and
legacy) is not a
wordplay with the first three letters of the three phrases. They

are indispensable
and complimentary elements of integrity. The three legged stool
is very stable.
you can stand at each point of the stool without losing balance.
Continuing the
metaphor we may conclude that several mixtures of legality,
legitimacy and
legacy may lead to solid organisational integrity. Every
organisation should find
the best mixture serving its integrity in the optimal way.
6. Conclusions
The results of the article can be utilised by every public
organisation since
they must fight against corruption and other misuses of public
property. One of
the most important scene of corruption prevention is the
(public) organisation
where corruption may take place.
Public organisations can enhance their resistance against
corruption
by creating the culture of integrity, hence organisational culture
effectively
influences the decision of the member of the organisation.
Commitment to
values is the key to explaining employees’ behaviour and which
motivate them
to voluntarily adopt organisation’s values as their own.
Legality, which is compliance with the basic rules is a
precondition of
integrity. But organisations searching for integrity must be
shifted from the
concept of legality to legitimacy, and build their inner

regulations on the values
of the laws and not on their specific provisions only.
As a next step organisations should set up their own value order
based on
the legacy inherited from predecessors, and on the legacy to be
left to successors
or in a broader sense to the stakeholders of the organisation, to
the future
generations, to the society as a whole. Legacy is the main
motivator of creating
the culture of integrity.
Public organisations can develop a sound integrity management
system by
building it on the principles of legality, legitimacy and legacy.
175
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Reproduced with permission of copyright owner. Further
reproduction prohibited without permission.
What leaders need to know about
organizational culture
D. D. Warrick
Graduate School of Business, University of Colorado, Colorado
Springs, 1420 Austin Bluffs Parkway,
Colorado Springs, CO 80918, U.S.A.
Business Horizons (2017) 60, 395—404
Available online at www.sciencedirect.com
ScienceDirect
www.elsevier.com/locate/bushor
KEYWORDS
Organizational culture;
Culture building;
Organizational
leadership;

Organizational values;
Leadership influence
Abstract A major factor in the success of an organization is its
culture. Organiza-
tional culture can significantly influence the performance and
effectiveness of a
company; the morale and productivity of its employees; and its
ability to attract,
motivate, and retain talented people. Unfortunately, many
leaders are either
unaware of the significant impact culture can have, are aware
but overwhelmed
by the extensive and sometimes conflicting information
available on culture, or are
not well informed about how to build and sustain cultures
effectively. This article
integrates the most consistent findings that leaders need to
know about culture and
what they can do to build strong, successful cultures that bring
out the best in people.
Developing organizational culture requires far more than talk
about culture and
emphasis on its importance. In order to achieve the best results,
culture develop-
ment requires leaders who see it as one of their key tasks and
who understand the
importance of aligning organization strategies and decision
making with cultural
ideals.
# 2017 Kelley School of Business, Indiana University.
Published by Elsevier Inc. All
rights reserved.
1. Culture matters
Culture has been the long-time focus of anthropol-

ogists as they seek to understand different groups
around the globe. However, it has been only recent-
ly that organizational researchers have begun to
discover the close links between culture, the per-
formance of organizations, and the behavior and
attitudes of people in organizations. Culture is
E-mail address: [email protected]
0007-6813/$ — see front matter # 2017 Kelley School of
Business, I
http://dx.doi.org/10.1016/j.bushor.2017.01.011
recognized as such a significant factor in the success
of organizations that Fortune’s annual 100 Best
Companies To Work For report is based primarily
on information employees anonymously report
about their workplace culture (Levering, 2016).
Culture is increasingly becoming a concern of
skilled leaders. Tony Hsieh, the CEO of Zappos,
has said, “At Zappos, our belief is that if you get
the culture right, most of the other stuff–—like great
customer service, or building a great long-term
brand, or passionate employees and customers–—will
happen naturally on its own” (Hsieh, 2010, p. 152).
ndiana University. Published by Elsevier Inc. All rights
reserved.
http://crossmark.crossref.org/dialog/?doi=10.1016/j.bushor.2017
.01.011&domain=pdf
http://www.sciencedirect.com/science/journal/00076813
mailto:[email protected]
396 D.D. Warrick
Lou Gerstner, the former chairman of IBM said,

“Culture isn’t just one aspect of the game–—it is
the game. In the end, an organization is no more
than the collective capacity of its people to create
value” (Gerstner, 2002, p. 182). Former CEO of Wells
Fargo, John Stumpf, made a similar point about the
importance of culture when he said, “It’s about the
culture. I could leave our strategy on an aeroplane
seat and have a competitor read it and it would not
make any difference” (Guerrera, 2008). Later in
this article, we will see how even in cases like Wells
Fargo (where culture is highly valued), leadership
decisions that are not carefully considered in
terms of the cultural implications can override the
intended culture.
Even if leaders recognize the importance of cul-
ture, they are unlikely to be aware of the research
indicating the significant role culture can play in an
organization’s success or failure, or they do not
have the training or knowledge of what it takes
to build successful cultures. Because of this, the
close relationship between leading and managing an
organization well and achieving a winning culture
escapes many leaders. It is the purpose of this
article to help leaders develop a better understand-
ing of culture, the advantages of having healthy
cultures, the costs of having unhealthy cultures,
and what is involved in building and sustaining
strong cultures.
2. Understanding organizational
culture
Many definitions are available to describe cul-
ture. Formally, culture can be defined as “the
[predominant] beliefs, values, attitudes, behaviors,

and practices that are characteristic of a group of
people” (Warrick, 2015, p. 4). In defining culture,
Edgar Schein, a leading authority in the study of
organizational culture, uses the word group to de-
scribe social units of all sizes (Schein, 1992). In
other words, the term group could pertain to a
whole organization or any group of people of any
size such as a country, sports team, symphony, or
family. The point is that groups of people, regard-
less of group size, are likely to form specific cul -
tures. Organization researchers typically use the
term organizational culture in a broad sense to refer
to the culture of a whole organization or any unit of
people working together within the organization.
In practical terms, organizational culture de-
scribes the environment in which people work and
the influence it has on how they think, act, and
experience work (Warrick, Milliman, & Ferguson,
2016). Cultures can differ significantly within and
between organizations. They can bring out the best
in people and create excellent environments for
people to work in or they can bring out the worst
in people and create dysfunctional environments
filled with stress and tension.
3. The impact of organizational
culture on performance and other
factors
Especially in the late 1980s and thereafter, studies
on organizational culture began to provide convinc-
ing evidence that culture can have a significant
influence on performance, morale, job satisfaction,
employee engagement and loyalty, employee atti-
tudes and motivation, turnover, commitment to

the organization, and efforts to attract and retain
talented employees (e.g., Denison, 1990; Fisher,
2000; Marcoulides & Heck, 1993; Rollins & Roberts,
1998; Weiner, 1988).
One study in particular began to catch the atten-
tion of leaders. John Kotter and James Heskett
(1992) published an 11-year evaluation of company
cultures. They found that over an 11-year period,
companies with healthy cultures had a 682% average
increase in sales versus 166% for comparable com-
panies without such healthy cultures. Similarly,
Kotter and Heskett found that these companies with
healthy cultures saw stock increases of 901% versus
74% for comparable companies. Since then, other
studies have identified the characteristics of high
and low performance cultures (see Daft, 2015;
Kilmann, Saxton, & Serpa, 1985; Lussier & Achua,
2016; Rosenthal & Masarech, 2003; Weiss, 2011). A
summary of common themes from these studies is
shown in Table 1. What becomes evident in studying
the themes is that, to a large degree, healthy
cultures are the result of effective leadership and
management whereas unhealthy cultures are the
result of ineffective leadership and management.
4. Is culture primarily the cause or
result of organization practices?
Some culture experts believe that culture is the
cure for many organizational problems. In this view,
the main remedy for problems at General Motors,
the Veterans Administration, the government, and
many other organizations is to fix the culture.
Others believe that culture is the result of organi-
zational practices and an outcome rather than

a cause. Among these are Lorsch and McTague
(2016, p. 98), who proposed that “cultural change
is what you get after you’ve put new processes or
Table 1. Characteristics of high and low performance cultures
High Performance Cultures Low Performance Cultures
Leaders are skilled, admired, and build organizations
that excel at results and at taking excellent care of their
people and their customers
Leaders provide minimal leadership, are not trusted and
admired, and do little to engage and involve their people
Clear and compelling vision, mission, goals, and strategy
Vision, mission, goals, and strategy are unclear, not
compelling, not used, or do not exist
Core values drive the culture and are used in decision
making
Core values are unclear, not compelling, not used, or do
not exist
Committed to excellence, ethics, and doing things right Lack of
commitment to excellence, questionable ethics,
and a reputation for doing what is expedient rather than
what is right
Clear roles, responsibilities, and success criteria, and
strong commitment to engaging, empowering, and
developing people

Unclear roles and responsibilities and little interest in
fully utilizing and developing the capabilities and
potential of people
Positive, can-do work environment Negative, tense, stressful,
and/or resistant work
environment
Open, candid, straightforward, and transparent
communication
Guarded communication, reluctance to be open and
straightforward, and consequences for saying things
leaders do not want to hear
Teamwork, collaboration, and involvement are the norm Top-
down decision making with minimal teamwork,
collaboration, and involvement
Emphasis on constant improvement and state-of-the-art
knowledge and practices
Slow to make needed improvements and behind times in
knowledge and practices
Willingness to change, adapt, learn from successes and
mistakes, take reasonable risk, and try new things
Poorly planned change, resistance to change, minimal
learning from successes and mistakes, and either risk
averse or risk foolish
Source: Adapted from Warrick (2016)
What leaders need to know about organizational culture 397
structures in place to tackle tough business

challenges like reworking an outdated strategy or
business model. The culture evolves as you do that
important work.”
Each stance presented above possesses an ele-
ment of truth, in both that culture significantly
affects how an organization is run and organization
practices significantly affect organizational cul-
ture. In other words, both are important, both
affect the other, and both need attention to achieve
the best results. Strong cultures cannot be achieved
without running an organization well and running
an organization well requires efforts on the part
of leaders in building and sustaining culture.
5. Insights about culture of which
leaders need to be aware
For leaders to sort through and make sense of the
many culture articles and books could be a daunt-
ing, complex, and at times confusing process.
Therefore, an effort is made here to summarize
some of the consistent findings about organizational
culture of which leaders need to be aware. The
point of making leaders aware of the many factors
that can influence culture is not to preoccupy them
with concerns about culture but rather to make
them better informed and discerning about key
factors and decisions that can either build and
sustain culture or adversely affect it.
5.1. The influence of leaders in shaping
culture
Although many factors influence culture, organiza-
tional cultures primarily reflect their leaders. Lead-

ers influence culture through their strategies,
practices, values, leadership style, and example
(Steers & Shim, 2013). The impact of leaders on
culture is particularly influential at the top level.
Tony Hsieh was the primary architect of the Zappos
culture (Warrick et al., 2016). Jeff Immelt was able
to make significant changes in the culture of IBM
(Brady, 2005). Tim Cook has reinforced the positive
aspects of the Apple culture and has made changes
that have improved the Apple culture (Tyrangiel,
2012). Although culture is often thought to be
resistant to change, Alan Mulally was able to change
the culture of a struggling Ford Motor Company and
398 D.D. Warrick
transform the performance of Ford in a relatively
short time span (Hoffman, 2012).
The examples mentioned above are positive
examples of a leader’s influence on culture.
However, it should be pointed out that leaders
can also create unhealthy cultures. An ineffective
leader, a leader who is not a good fit for a desired
culture, or even a good leader who makes bad
decisions that impact an organization’s culture
can tear down or damage a culture that took decades
to build.
5.2. Dominant cultures and subcultures
When using the term organization to describe the
whole of a company or institution, it is important to
recognize that while organizations are likely to
have an overriding dominant culture that defines

them, they are also likely to have a number of
subcultures in various parts of the organization
that stray from the dominant culture (Martin
& Meyerson, 1988). The dominant culture at
Southwest Airlines encourages employees to coop-
erate with one another, take great care of custom-
ers, and have fun. However, within Southwest
Airlines there are likely to be some departments
or teams where the culture differs from the
dominant culture. Fortunately, even in unhealthy
dominant cultures, there may be pockets of excel-
lence where there are healthy cultures.
5.3. Visible and invisible factors that
define culture
Culture can be viewed on two levels (Schein, 1992).
There is a visible level that can be observed by
artifacts such as dress, office layout, office design,
and emphasis on technology. Artifacts could also
include leadership style, the nature of the work
environment, how people are treated, and how
decisions are made and get implemented. There
is also an invisible level characterized by expressed
values, underlying assumptions, and deep beliefs.
Expressed values are consciously held convictions,
clearly stated or practiced, that influence the
behavior of group members. For example, the
expressed values of the U.S. Army are loyalty, duty,
and selfless service (Crandall, 2007). These values
influence the behavior of soldiers at all levels.
Another example may be the expressed value:
“It is important to take great care of our people
and our customers.” This sentiment will create a
different culture than that of an organization with
the dominant value: “What we really care about is

maximizing bottom line results, no matter what it
takes to get there.”
5.4. The impact of traditions and group
dynamics
Leaders need to know the past and present history
of the groups they lead. Group histories will provide
insight into the traditions and dynamics that should
be sustained and those that need to change. Tradi-
tions are practices that have become common to a
group over a period of time. A group, for example,
may have a history of great teamwork, group in-
volvement in the decision making process, high-
level performance, and strong group loyalty. On
the other hand, a group might have a history of
minimal teamwork, leader-driven decision making
with little team involvement, and satisfaction with
good but not great performance. The dynamics of a
group describe its interactions and practices in
terms of how people relate and get things done.
Groups may be very cohesive and work well togeth-
er to get tasks done effectively and efficiently.
However, they may also be characterized by a
number of dysfunctional or ineffective dynamics.
5.5. Key internal and external
circumstances that may influence culture
There are a number of internal and external circum-
stances that can affect culture. Internal circum-
stances could include such things as organizational
structures, processes, systems, budgets, and lead-
ership styles; as well as changes in leadership, team
members, budgets, or other key internal decisions.
External circumstances could include situations
such as an economic recession, government regu-

lations, major lawsuits that damage the reputation
or resources of a group, acquisition by another
company, or an unexpected catastrophe.
5.6. Valued and devalued behaviors
The types of behaviors that are valued and devalued
influence the shaping of an organizational culture
significantly. People respond to behaviors, good or
bad, that are valued and rewarded, while they avoid
behaviors that are not valued or rewarded or are
devalued. Understanding this makes it important
for leaders to be discerning about the desired be-
haviors and the behaviors they are actually moti-
vating in their subordinates. For some leaders, a
careful examination of the reward system may
reveal that rewarded behaviors encourage self-
serving actions and discourage teamwork or that
going the extra mile goes unnoticed or unrewarded.
An example of how leadership decisions can have
a significant impact on culture involves the high-
profile Wells Fargo case. CEO John Stumpf allowed
the company to become overly sales oriented, and a
focus on incentives resulted in aggressive tactics to
meet sales targets. Over a 5-year period, 2+ million
accounts were opened without customer authoriza-
tion by employees who were willing to practice
unethical behavior to benefit from the sales incen-
tives. Once the practices were uncovered, Stumpf
announced a number of actions and remedies
to address the issues; however the consequences
have been far reaching. Wells Fargo was fined

$185 million by the Consumer Financial Protection
Bureau (CFPB) and Stumpf forfeited over $41 million
in unvested equity awards and resigned. Clearly, it
is important for leaders to evaluate the perfor-
mance management and reward systems as well
as their own decisions to ensure that these are
aligned with the desired culture.
5.7. Influential members
One or more influential group members can have a
significant positive or negative influence on the
culture of a group. There are group members who
bring out the best in others and contribute to a
positive work environment and there are those who
impact groups in negative ways. At the wound
center of a major medical center that I am familiar
with, Fridays are called “Valentino days” by the
staff. This is because on Fridays, Dr. Valentino is
there and he is known for treating all of the nurses
and staff like valued team members and for being
caring and uplifting. Wouldn’t we all like to be
known for creating Valentino days? Understanding
the impact that influential people can have on
culture makes it important for leaders to carefully
select the right people who are a fit with the desired
culture and to correct or deal with behaviors that
undermine the culture of groups.
5.8. Strong cultures and weak cultures
The term strong culture describes cultures that
have a significant influence on the behaviors and
practices of employees. In strong cultures, there is
a clear understanding of what the cultural values
and norms are. The term weak culture is used to

describe cultures where the norms and practices
are not well known or are confusing, inconsistent,
or not reinforced. Weak cultures are difficult
to work in because expectations are unclear and
there is little consistency in practices throughout
the organization. Strong cultures are generally
associated with much higher performance than
weak cultures (Jin, Drozdenko, & DeLoughy, 2013;
Mushtaq, Ahmad, & Tanveer, 2013). An exception to
this occurs when the culture is strong but unhealthy.
In addition to observing the strength of the culture,
leaders need to be observant of the types of
behaviors and attitudes a culture is driving and
whether they are desirable or undesirable.
5.9. Understanding international cultural
differences
With the existence of myriad multinational orga-
nizations, so many leaders involved in international
business, and virtual teams with members from
around the world, taking into account international
cultural differences is becoming increasingly impor-
tant for the success of organizations. Imposing one’s
own cultural values and practices may not be suc-
cessful in cultures that have a history of doing things
differently. Euro Disney experienced substantial
losses in its first 2 years of operation at least
partially due to a lack of understanding of cultural
differences in Europe. To begin with, the name Euro
Disney turned out to be a hindrance, as Europeans
associated “Euro” with the continental money unit
rather than a coverall term for European. As a
result, the amusement park’s name essentially
translated as “Dollar Disney.” Disney also ignored
the necessity to provide kennels in a culture where

people often travel with dogs, creating problems for
potential guests. Another issue arose in cultural
dining differences, as Disney’s plastic utensils failed
to impress guests who take great pride in the
culinary experience.
The key for leaders, just as would be the case in
understanding different domestic cultures, is to
take the time to learn as much as possible about
the cultures they are dealing with and to involve
those who have a good understanding of the culture
in making decisions where culture could be an
issue. McDonald’s restaurants operate in more than
100 countries. While McDonald’s headquarters is
U.S.-based, the company entrusts local operations
to managers from the countries in which they
operate.
5.10. The vulnerability of culture
Cultures are like precious and prized treasures
when they are strong, healthy, and driving the right
behaviors. They are among the greatest assets an
organization can have. However, they are vulnera-
ble assets that can be damaged or lost if leaders are
not aware of their value and are not keeping watch
over possible culture-changing practices, attitudes,
threats, or events.
There are many variables that can impact culture
and may need to be dealt with and managed to
avoid possible cultural damage. For example,
Table 2. Guidelines for building and sustaining

cultures
1. Make strategy and culture important leadership
priorities
2. Develop a clear understanding of the present
culture
3. Identify, communicate, educate, and engage
employees in the cultural ideals
4. Role model desired behaviors
5. Recruit and develop for culture
6. Align for consistency between strategy and
culture
7. Recognize and reward desired behaviors and
practices
8. Use symbols, ceremonies, socialization, and
stories to reinforce culture
9. Appoint a culture team
10. Monitor and manage the culture
400 D.D. Warrick
changes in culture can occur because of budget
cuts, rapid market changes, economic downturns,
natural disasters, compromises in adhering to core
values, and especially changes in ownership, lead-
ership, or leadership practices. It will be interesting
to see if changes will occur in the well-documented
and acclaimed culture of Zappos now that the
primary architect of the culture, Tony Hsieh, has
introduced Holacracy (a self-management organi-
zational system marketed by HolacracyOne). Holac-

racy is essentially a boss-less, self-managed form
of organization design. The Wall Street Journal
(Silverman, 2015) reported that since the introduc-
tion of Holacracy, Zappos said that about 14% of its
roughly 1,500 employees decided to leave because
the new organizational system was not for them.
Previously, Zappos had been known for exception-
ally low turnover.
5.11. Successes and Challenges
In general, success is likely to unite and instill pride
in a group and make a culture stronger. Therefore,
celebrating and communicating successes can build
culture. While success typically strengthens cul-
ture, leaders need to be sensitive to the impact
of success as it could also lead to complacency,
overconfidence, and possible erosion of positive
cultural norms. Marginal or declining results tend
to undermine positive cultural norms. During chal-
lenging times, it is important for leaders to make
efforts to maintain strong cultural norms and to turn
difficulties into opportunities. For observant lead-
ers, difficulties, setbacks, and challenges can be
used to unite and build culture as people rally and
bond together to face the challenges.
6. Guidelines for building and
sustaining organizational cultures
Culture can be built by design or default. In other
words, culture can either be built in a purposeful
way or left to chance. Leaders play a key role in
building and sustaining cultures. To build culture by
design takes intelligent and focused work. CEOs
such as Bill Gates of Microsoft, Herb Kelleher (for-

merly) of Southwest Airlines, and Jeff Bezos of
Amazon have all been known for their emphasis
on culture and willingness to take specific
culture-building actions. Often, other leaders
mistakenly think that by talking a lot about culture,
posting cultural values on walls, passing out books
on culture, and placing cultural values on coffee
mugs, the desired culture will happen.
There are also leaders who pay little attention to
culture and may do so at a high cost. While there are
many payoffs and advantages to having a healthy,
high-performance culture, there are also many
potential costs to neglecting culture or having a
less than desirable culture. It is estimated that 60%
of all mergers fail to achieve their anticipated goals
or fail altogether because of cultural differences
that were not dealt with (Hellriegel & Slocum,
2011). Unhealthy cultures are also likely to have
a negative impact on many other factors such as
performance, morale, motivation, teamwork, cus-
tomer relations, service, and loyalty. In some cases,
unhealthy cultures have been a significant contrib-
utor to the failure of organizations. Table 2 summa-
rizes 10 guidelines leaders can use in building and
sustaining organizational cultures.
6.1. Make strategy and culture important
leadership priorities
Leaders throughout an organization need to under-
stand the importance of strategy and culture in
building a successful organization and to make both
a top priority in their decision making and practices.
It is especially important for the top level leader to
set the example for making strategy and culture
important. The vision, mission, core values, design,

plans, systems, and processes of an organization,
along with the practices and decisions of leaders,
begin to shape the culture. The more leaders are
able to create strategies that achieve the desired
results while also creating a great place to work and
conduct business, the more likely that a healthy
culture will be the result. A poorly run organization
will not result in a healthy and vibrant culture no
matter how much the leaders may talk about the
importance of culture and spend time trying to build
a healthy culture.
It is also important for leaders to identify the
type of culture that is likely to achieve the best
results and to ensure that the strategy and desired
culture are aligned to reinforce and strengthen one
another. Culture can be defined by core values or
by identifying cultural ideals. Zappos defined the
desired culture through its core values (Hsieh, 2010,
p. 154), which are:
1. Deliver Wow Through Service
2. Embrace and Drive Change
3. Create Fun and a Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships

7. Build a Positive Team and Family Spirit
8. Do More with Less
9. Be Passionate and Determined
10. Be Humble
Zappos recruits people with these values in mind,
trains all employees on the values, and uses the
values in decision making. Culture can also be
defined by identifying cultural ideals such as: de-
veloping knowledgeable and empowered employ-
ees at all levels; decentralizing decision making;
emphasizing collaboration, cooperation, and team-
work in getting things done; striving for simplicity in
how things get done; and encouraging open, candid,
two-way communication.
Walt Disney was a master at creating a winning
strategy and making the Disney culture a high pri-
ority. The wholesome family values that he es-
poused and even the job titles that he used,
renaming engineers “imagineers,” helped shape
the Disney culture that, along with a winning strat-
egy, has made the Disney organization so successful
(Dumaine, 1990).
6.2. Develop a clear understanding of the
present culture
In building culture, leaders need to understand the
present culture so the strengths can be reinforced
and any weaknesses, inconsistencies, and gaps be-
tween the desired culture and the present culture

can be identified and addressed. There are many
ways to develop an understanding of the present
culture. Certainly observing and experiencing
the culture can provide insights. There may also
be available information regarding the present or
desired culture. Another option can be to use stan-
dardized culture questionnaires, create question-
naires to fit the cultural ideals, or interview a cross-
section of people or focus groups regarding how
they view the culture or culture changes. There are
many questionnaires available for evaluating cul-
ture. One of the best researched questionnaires is
the Denison Organizational Culture Survey (Denison
& Neale, 1996). In groups such as companies with
numerous departments, it may be helpful to evalu-
ate the overall dominant culture of the company as
well as the culture of each department.
6.3. Identify, communicate, educate, and
engage employees in the cultural ideals
To build a strong culture purposely, the desired
cultural values need to be identified and made
known. As mentioned previously, such values are
typically identified through the core values of an
organization or by identifying specific cultural
ideals. Once identified, it is best to avoid flashy
campaigns and programs to promote cultural val-
ues, which can be gimmicky and may create unrea-
sonable expectations. It is, however, helpful to
educate group members on the cultural ideals, find
ways to communicate and reinforce the importance
of building a strong culture, and to involve employ-
ees in making needed changes to operate more
consistently with the cultural ideals.

In efforts to make changes in an existing culture,
one of the most effective ways is to use important
initiatives such as a significant change in strategy,
reorganizations, mergers, or the accomplishment of
a major objective as an opportunity to emphasize
important cultural values. For example, successful-
ly accomplishing an initiative may create an oppor-
tunity to build a stronger emphasis on the cultural
values of teamwork and collaboration.
6.4. Role model desired behaviors
The example of leaders is one of the strongest
shapers of culture. How leaders behave and get
things done, the actions that they take, the values
and beliefs that they hold, and the changes they are
personally willing to make all set the example for
others to follow (Gehman, Treviño, & Garud, 2013).
For leaders to model the desired behaviors, walk
and talk must be consistent (Kottke & Pelletier,
402 D.D. Warrick
2013). For example, a leader who emphasizes good
stewardship while taking an exorbitant salary will
have little credibility.
6.5. Recruit and develop for culture
Recruiting and training for culture at all levels of an
organization is essential to sustaining the desired
culture. Culture fit should be as important in the
hiring process as skills and experience. Hiring
for culture requires well-designed recruitment, se-
lection, orientation programs, and training and

development opportunities to hone the desired
cultural behaviors and practices in new and current
employees.
6.6. Align for consistency between
strategy and culture
When leaders pay attention to both strategy and
culture in their planning and decision making, mak-
ing sure that both are aligned to support one anoth-
er, they are in a position to develop culture by
design and not leave it to chance. Evaluating the
implications of decisions for an organization’s strat-
egy and culture should become a natural part of a
leader’s decision-making process. Decisions, for
example, that may save on cost while undermining
cultural values that emphasize quality and excel-
lence are likely to have the effect of weakening the
desired culture.
6.7. Recognize and reward desired
behaviors and practices
Another way to build culture is to value, recognize,
and reward behaviors that support the desired cul-
ture. Leaders can make all kinds of statements
about the type of culture they desire, but ultimate-
ly employees will respond to the behaviors that they
see valued, recognized, and rewarded. As men-
tioned previously, this requires leaders to be aware
of the behaviors they are actually reinforcing. Some
scholars attribute the crash of the NASA space
shuttle Columbia and the explosion in space of
the Challenger to a change in NASA’s culture from
rewarding space safety and technical brilliance to a
reward system that valued efficiency and the reuse

of space shuttles. NASA’s motto of “faster, better,
and cheaper” emphasized meeting schedules and
avoiding cost overruns (Mason, 2004).
6.8. Use symbols, ceremonies,
socialization, and stories to reinforce
culture
Symbols, ceremonies, socialization, and stories are
all terms used to communicate the idea that leaders
should look for opportunities to reinforce the de-
sired culture (Deal & Kennedy, 1982).
6.8.1. Symbols
Symbols can be actions, objects, or events that
communicate meaning. For example, a new CEO
was asked to choose the vehicle that he wanted to
drive. Knowing that the other executives common-
ly drove luxury cars, he chose a mid-size Chevro-
let. Although he never said a word about why he
chose a much more modest car, he sent a strong
message about desiring a culture in which leaders
were good stewards and did not try to set them-
selves apart from the rest of the employees.
6.8.2. Ceremonies
Ceremonies are planned activities that are mean-
ingful to employees. Examples include award
and promotion ceremonies and celebrations for
achieving goals. Ceremonies reinforce specific be-
haviors and values. Mary Kay Cosmetics Company
holds elaborate awards ceremonies that include
rewards from gold and diamond pins to pink
Cadillacs that reinforce specific behaviors and
values.

6.8.3. Socialization
Socialization is another important part of building
culture. Socialization includes socializing people
into the culture by making clear the kinds of be-
haviors and attitudes that will help them succeed
and providing opportunities for people to socialize,
bond, and become more cohesive as a group (Feld-
man, 1981). The more people interact and get to
know one another, the more likely the cultural
values will be shared and strengthened.
6.8.4. Stories
Stories are narratives that reinforce the cultural
values. There is a widely told story about Nordstrom
in which an associate listened to a customer com-
plain about the performance of his automobile tires
and gave him a refund on the tires even though
Nordstrom does not sell tires. The story reinforces
the company’s zeal for customer service and a no-
questions-asked return policy.
6.9. Appoint a culture team
Given the important role culture plays in the suc-
cess and future of an organization, it can be helpful
to appoint a cross-functional and cross-level culture
team (Warrick, 2002). The team should include at
least one member of the senior leadership team so
there will be an advocate for culture at the top.
Possible tasks for the culture team could be:
� Monitor the culture throughout the organization
and keep the senior leadership team informed

about the culture and any significant changes.
� Advise the senior leadership team on ways to
build, reinforce, and make changes to the cul-
ture.
� Become students of information on organization-
al culture and help leaders implement ways to
strengthen the culture.
Like all ongoing committees, it is important to give
the culture team a meaningful role and to not turn a
good thing into busywork with too many meetings
and activities.
6.10. Monitor and manage the culture
It would be wise for organizations to assess their
culture at least on an annual basis. Leaders need to
know if the culture is moving in the right or wrong
direction and if potentially influential events are
affecting the culture negatively so they can respond
proactively. Organizational cultures are reasonably
stable and can be difficult to change. However, as
discussed previously, they can also be vulnerable to
events such as downsizing, natural disasters, or
changes in leadership. As pointed out above, assess-
ing the culture can be an important function of a
culture team.
7. Summary of key insights about
organizational culture
To reinforce how important it is that leaders under-
stand and build culture purposefully, several key
insights of which leaders should be aware are sum-

marized here:
� Culture matters. Culture can have a significant
influence on what goes on in organizations, how
things are done, how the organization is experi-
enced by employees and customers, and the
competitive advantage or disadvantage of orga-
nizations. It is important for leaders to under-
stand that there is a significant body of research
indicating that it pays to build strong cultures and
that there can be many tangible and intangible
costs to leaving cultural development to chance
or to having weak or toxic cultures.
� Building and managing culture is an important
role of leaders. Leaders have many goals.
Certainly at the top of the list is achieving the
desired results. However, in their efforts to
achieve results, leaders sometimes become pre-
occupied with numbers, improving revenue, cut-
ting costs, and trying to manage their way to
success. In doing so, they may overlook the im-
portance of building healthy organizations with
strong cultures as an important ingredient in
achieving the best results. Leaders need to see
the importance of understanding, building, and
sustaining strong cultures to their leadership
roles.
� Culture is built by design or default. In whole
organizations or groups within organizations, as
time goes on culture begins to evolve whether it
is developed purposely or left to chance. Leaving
culture to chance is a risky gamble and at best is
likely to result in organizational underperform-
ance. Building culture by design requires a sound

strategy for running a healthy, high performance
organization, being clear on the type of culture
that best fits the strategy, aligning all parts of the
strategy and culture to reinforce one another,
considering strategy and culture in the decision-
making process, and making needed changes in
both while assuring that they stay aligned.
� Hire for culture starting at the top. Organiza-
tions need to make hiring, training, and promot-
ing for culture fit a top priority. This is
particularly important when it comes to top level
leaders. The highest level leader will have a
significant influence in shaping culture, as will
others in top level positions. Even only one hire of
a top level leader who is not a fit with the desired
culture or who does not understand what it takes
to build a strong culture can damage or destroy a
culture that took years to build.
8. Conclusion
It is important that leaders consider understand-
ing, building, and sustaining culture as part of
their leadership roles and that they be better
trained in how to build healthy cultures and align
culture and strategy. An abundance of research
makes it clear that building strong cultures can
play a significant role in the success of organiza-
tions and that, conversely, neglecting cultures can
have many costs to organizations and their em-
ployees, customers, and stakeholders. Making cul-
tural training and effective culture management a
high priority for leaders can be a high payoff
investment and can have a significant influence
on the success and competitive advantage of an

organization.
404 D.D. Warrick
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http://refhub.elsevier.com/S0007-6813(17)30011-
3/sbref0190What leaders need to know about organization
culture1 Culture matters2 Understanding organizational culture3
The impact of organizational culture on performance and other
factors4 Is culture primarily the cause or result of organization
practices?5 Insights about culture of which leaders need to be
aware5.1 The influence of leaders in shaping culture5.2
Dominant cultures and subcultures5.3 Visible and invisible
factors that define culture5.4 The impact of traditions and group
dynamics5.5 Key internal and external circumstances that may
influence culture5.6 Valued and devalued behaviors5.7
Influential members5.8 Strong cultures and weak cultures5.9
Understanding international cultural differences5.10 The
vulnerability of culture5.11 Results6 Guidelines for building
and sustaining organizational cultures6.1 Make strategy and
culture important leadership priorities6.2 Develop a clear
understanding of the present culture6.3 Identify, communicate,
educate, and engage employees in the cultural ideals6.4 Role
model desired behaviors6.5 Recruit and develop for culture6.6

Align for consistency between strategy and culture6.7
Recognize and reward desired behaviors and practices6.8 Use
symbols, ceremonies, socialization, and stories to reinforce
culture6.8.1 Symbols6.8.2 Ceremonies6.8.3 Socialization6.8.4
Stories6.9 Appoint a culture team6.10 Monitor and manage the
culture7 Summary of key insights about organizational culture8
ConclusionReferences
28 Management Services Spring 2015
Culture change
In this edition of Management Services, Cliff Moyce talks about
the risks and
rewards of attempting culture change in an organisation.
29Management Services Spring 2015
C
ulture change is arguably the most powerful tool for
transforming businesses, but it is also one of the least
well understood. Without it, many well documented
company turnarounds would not have happened (eg the
transformation of Marks & Spencer under Stuart Rose). Of
all the varieties of business change, it is culture change that
delivers the most important outcomes. However, it can be
the riskiest and most demanding type of change, and if done
badly it can make things worse.
Despite the fluffy name, culture change has been described
as a ‘brutal’ process (Burnes, 2009). Brutal, because if you
accept that culture is embodied in the values, beliefs and

behaviours of the individuals in an organisation, then you
also accept that not everyone will fit into the new culture.
Culture change almost always results in some members of
staff leaving and being replaced by people who are believed
to better embody the new culture. Of course, it would be
better if all the current personnel were to adopt the new
culture, but it happens rarely. And this is for a good reason –
culture is people.
There are many definitions of organisational culture. Some
are more useful than others. Simple and accurate is ‘how
things are done around here’ (Drennan, 1992). Another
is ‘... a pattern of beliefs and expectations shared by the
organisation’s members. These beliefs and expectations
produce norms and powerfully shape the behaviour of
individuals and groups in the organisation.’ (Schwartz and
Davis, 1981). It is the way culture shapes behaviours that is
the most important factor for those of us trying to improve
performance in organisations. Productivity improvement isn’t
just about method improvement and work design, it’s about
people as well.
Some writers argue that many companies lack a cohesive
culture that binds them together, and it is this lack of
cohesion that causes them problems. Similarly, the success of
Japanese companies in the 1970s and 1980s was attributed
in large part to them having strong and cohesive cultures.
Even though the production management and productivity
improvement techniques being used in Japan were imported
from the USA, it was the ability of Japanese companies to
embed those approaches into the culture, that separated
them from western competitors.
So what types of culture exist? Charles Handy (1986; as
cited in Burnes, 2009) suggested power culture (one or more
powerful figures at the top wielding control); role culture

(bureaucratic, mechanistic and rigid with people sticking to
their job descriptions); task culture (a focus on getting the
job done in which individual contributions are valued more
than job titles); and, a person culture (minimal structure with
everyone focused on keeping one senior person happy). These
archetypes do a good job of suggesting how it might feel
to work in those cultures, but they don’t give as good a feel
for customer experience (with the exception of role culture
– we all know what it is like dealing with a bureaucracy). But
before deciding what culture best describes your organisation,
bear in mind that differences often exist between claimed
and actual cultures; and, between different parts of the same
Culture is difficult to change
because it is based on deeply
held beliefs and values; is well-
practised through previously-
successful behaviours;
and is shaped by powerful
organisational norms.
organisation (eg the famous head office v local office divide).
Unless you live in a country where industries are owned by
the state, employee behaviours towards customers will be
a major factor in the success your organisation. There is no
point claiming in your advertising that you put customers first
when you are not answering phone calls; not consulting on
planned changes to services and products; and not offering
eye contact in face-to-face dealings. Such an organisation will
not score highly on customer satisfaction. Talking of which,
customer satisfaction surveys are a great way of determining
your true culture.
Identifying a problem
So how do you know if you have a cultural problem in
the workplace? Most of us can spot behaviours that are

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