Digital Transformation

A Classic on Organizational Culture

A Classic on Organizational Culture

I’ve been working on an upcoming deck on the role of organizational culture in digital transformation. I thought of Edgar Schein’s class book Organizational Culture and Leadership, and it reminded me of this review I wrote some years ago. Schein’s book is timeless, and well worth reading. Here’s some food for thought:

In Organizational Culture and Leadership, Edgar H. Schein sets out to explore the very abstract concept of culture – to define it; to analyze its impact; to understand how it emerges and evolves; and ultimately, to gain insight into the creation, management, and (where necessary) even the deliberate destruction of culture.  In their quest to create and manage effective organizations, leaders must be capable of seeing beyond the deep‑seated beliefs and assumptions that drive human behavior in their organizations and understanding the impact of those beliefs and assumptions in the context of a world that is constantly changing.  In Schein’s view, this ability to step outside of one’s own culture and view it as culture per se is one of the defining characteristics of leadership.

Leadership Defined

Schein draws a clear connection between culture and leadership, observing that the creation and management of culture comprise the essence of leadership:

Leadership has been studied in far greater detail than organizational culture, leading to a frustrating diffusion of concepts and ideas of what leadership is really all about, whether one is born or made a leader, whether one can train people to be leaders, and what characteristics successful leaders possess.  I will not review this literature, focusing instead on what I consider to be uniquely associated with leadership – the creation and management of culture.[i]

These comments echo observations by Rost[ii], Gemmill & Oakley[iii], Kouzes & Posner[iv] and others who point out that there is no meaningful consensus as to what leadership is, how one can become an effective leader, or what the characteristics of a leader are.  Indeed, the prevailing leadership mythos imbues leaders with an almost supernatural degree of power over the people and organizations that they lead.  In the popular mindset, leaders are uniquely qualified to establish vision and drive organizations, implying that the vast majority of people lack the creativity, intelligence, and initiative to achieve progress independently. 

Schein disposes of this rather ethereal concept of leadership and offers a far more meaningful definition: leadership is “the ability to step outside the culture that created the leader and to start evolutionary change processes that are more adaptive.  This ability to perceive the limitations of one’s own culture and to evolve the culture adaptively is the essence and ultimate challenge of leadership.”[v] A few pages later, Schein reiterates that leadership is about the creation and management of culture, and points out that “it is the ultimate act of leadership to destroy culture when it is viewed as dysfunctional.”[vi]

Culture Defined

Schein describes culture and leadership as “two sides of the same coin”.  He defines culture as “a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has 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.”[vii]  Culture manifests itself at three different levels:

  1. Artifacts, which comprise “all the phenomena that one sees, hears, and feels” in relation to a group, including, for example, its physical surroundings, its products, and its language. 
  2. Espoused Beliefs and Values – that is, the beliefs and values that can be stated consciously, regardless of whether or not the group’s actions are actually consistent with those beliefs and values.
  3. Basic Underlying Assumptions, which the group holds as “non‑confrontable and non‑debatable” truth. 

The third category – basic underlying assumptions – comprises the substantive core of organizational culture.  This is the glue that holds organizations together (for better or worse) and creates a stable social structure within which members of a group can operate.   Because these basic underlying assumptions are not open to debate or discussion, they can be remarkably difficult to change.

The basic underlying assumptions that define a group’s culture pertain to the group’s mission and goals, appropriate means of achieving those goals, means of measuring performance, remedial strategies, distribution of influence and power, norms for friendship and intimacy, and rules for distribution of rewards and punishment.  Culture is also made up of deeply-held assumptions about reality and truth, including assumptions about human nature, time and space, and the relationship between individuals and groups.  Schein discusses each of these subjects in considerable detail.  While it would be inappropriate to re‑iterate that detail here, it is worth commenting that most of these subjects are rarely discussed within the context of the daily life of any organization – which reinforces Schein’s point that established beliefs about such subjects are generally taken for granted.

Concrete Examples

Throughout the book Schein illustrates his observations using as examples two companies with which he worked extensively: Ciba‑Geigy and Digital Equipment Corporation.

Ciba‑Geigy was a Swiss chemical company which eventually merged with one of its chief competitors (Sandoz) to become Novartis.  Ciba‑Geigy’s culture was highly formal and placed a strong emphasis on rank, education, and protocol.  A paternalistic hierarchy existed at Ciba‑Geigy which implied a family‑like bond (in which members take care of each other), but which also demanded a high degree of filial obedience.  Truth and wisdom were held to be products of education, experience, and rigorous scientific research.  Individual and organizational “turf” was highly respected, such that it was considered inappropriate for managers to provide unsolicited advice to managers of other divisions.

As a group, Ciba‑Geigy held that its mission was to make the world a better place through the application of science.  Truth was highly revered, but truth was considered to be the product of diligent scientific research – not of open debate.  At Ciba‑Geigy, staff did not engage in open debate because it would have been regarded as a disrespectful challenge to the professional expertise and autonomy of one’s colleagues.

In many respects, Digital occupied the opposite end of the cultural spectrum.  Digital Equipment Corporation was a highly successful and well-known computer technology company which fell into rapid decline in the 1990’s s and was eventually acquired by Compaq.  Digital’s culture was highly individualistic and non-hierarchical, placing a strong emphasis on the discovery of truth through rigorous debate.  This was based on the assumption that no individual person is intelligent enough to evaluate his own ideas, and that only ideas that are subjected to the “crucible of debate” are truly worthy of pursuit.  At Digital, employees were encouraged and even expected to challenge ideas, even to the point of insubordination.  Above all, Digital was an engineering organization, and believed that technological innovation should be fun, exciting, and engaging.

Schein cites examples that illustrate the underlying assumptions of both organizations.  At Ciba‑Geigy, for example, Schein was initially puzzled by the fact that his memos, which were intended for distribution to business unit managers, were never sent out to those managers by his primary contact at Ciba‑Geigy.  In other words, there was strong agreement that Schein could provide useful advice and information, but no attempt was made to disseminate that information to the people who could make the best use of it.  Only later did Schein come to the realization that the free flow of such information was inhibited by Ciba‑Geigy’s underlying assumptions about standards of professional respect and tacit prohibitions against infringing on the private “turf” of one’s colleagues.

At Digital, Schein noticed high levels of friction during management meetings.  He observed that members of the management team habitually interrupted each other, were highly emotional and confrontational, were often frustrated in wanting to get their points across, and seemed utterly determined to win every argument.  Schein initially viewed this behavior as dysfunctional, but he eventually came to realize that this pattern fit squarely with Digital’s underlying assumptions about discovering truth through rigorous debate.  The emotional arguments were all part of the process of discovering the truth.  When a debate ended, the intense emotions of the conference room were set aside and a strong familial spirit prevailed.

Adapt or Die: A Question of Organizational Survival

In both cases, cultures emerged within these organizations based what had worked in the past.  If success begets success, then culture is the tacit institutionalization of a group’s formula for success.  Therein lies a problem: the mechanisms that have worked in the past are not necessarily the ones that will work best in the present or the future. As cultures mature, they tend to calcify, increasing their resistance to change.  Organizations lose the ability to adapt to changes in the world around them.  If they cannot break out of this trap, they risk extinction.

From this perspective, Ciba‑Geigy and Digital again present a stark contrast. Digital Equipment Corporation provides a glaring example of a company that was unable or unwilling to change.  As the computer industry became increasingly commoditized, Digital was faced with a dilemma; they needed to shift their focus away from technological innovation in favor of stronger marketing and efficiency in manufacturing and distribution. To do so, however, would violate one of the fundamental tenets of their corporate culture – that technological innovation should be fun and exciting.  Digital was unable or unwilling to make that change, ran into major financial difficulties in the 1990’s, and was eventually acquired by Compaq in 1998.

Ciba‑Geigy faced similar challenges, but faced reality head‑on. As patents on some of their flagship products began to expire, Ciba‑Geigy was faced with increased competition from smaller, more agile companies.  At the same time, the chemical industry as a whole suffered from overcapacity, driving margins down.  Finally, it was getting more and more difficult to develop breakthrough products.   Like Digital, Ciba‑Geigy needed to de‑emphasize research and shift its focus toward marketing and manufacturing efficiencies.  Unlike Digital, Ciba‑Geigy was able to make the transition successfully because it confronted the new realities in which it operated, it understood the conflicts between those realities and its existing cultural paradigm, and it successfully adapted to the changing demands of the outside world.

Cultural change is inherently disruptive and uncomfortable.  It requires that groups confront and debate their “non‑confrontable and non‑debatable” beliefs and assumptions.  Schein outlines the process in which cultural change occurs:

  1. “Unfreezing” or “disconfirmation” involves acknowledging the conflict between an organization’s existing cultural paradigm and external realities – in other words, admitting to the reality that the organization must change or it will suffer consequences that threaten its very existence.
  2. Creating “psychological safety” is a necessary step to resolving survival anxiety and creating a more optimistic environment in which group members see positive change as possible or even probable.
  3. Cognitive Restructuring involves exploring, discovering, and agreeing upon new paradigms.
  4. Refreezing is the process in which new paradigms are reinforced.

If we are to accept Schein’s definition of leadership as the ability to create and manage culture, then a successful transition through this path of cultural change process is the ultimate test of leadership. 

Implications for Leaders

What does all this mean for leaders and leadership?  Two of the latter chapters in Schein’s book stand out as prescriptive guides for those who would seek to master the creation and management of culture. 

In chapter 17, Schein outlines “a ten‑step intervention” aimed at identifying the shared assumptions that comprise the core elements of an organization’s culture and understanding the extent to which those assumptions help or hinder the overall effectiveness of the organization.  The process includes group interviews in which members of the organization are provided with guidelines on how to think about culture, and then work together to identify shared assumptions.  Group members analyze the impact of those assumptions on the organization’s mission and goals.  Schein provides a clear practical framework for applying his insights on culture to organizations in the real world.

In chapter 19, Schein offers a prescription for creating a “learning culture” that can be both stable (predictable and meaningful) and adaptive (agile enough to survive and succeed in a changing environment).  Schein recommends:  1) a bias for proactivity, 2) a commitment to “learning to learn”, 3) an assumption that human nature is essentially good, 4) a “can do” attitude that assumes that people and organizations have control over their environments, 5) a commitment to truth through inquiry and pragmatism, 6) future‑orientation, 7) a commitment to open communication, 8) a commitment to diversity, 9) a commitment to systematic thinking, and 10) a commitment to cultural analysis for understanding and improving the world.[viii]

The implication of Schein’s work is that above all, leaders must be culturally literate – that is, they must have the intellectual perspective to see culture for what it is, rather than being steeped in the apparent “truth” of their cultural paradigms.  In other words, they must be mindful of the paradigm within which they operate.  They must also have the emotional fortitude to initiate cultural change, which is almost always disruptive and likely to generate waves of anxiety throughout an organization.  Finally, they must be able to create and communicate a compelling vision to the members of their organizations.

Critical Analysis

Organizational Culture and Leadership is one of those rare books that is well worth reading two or three times or more.  Schein brings a rich perspective to subject that is generally difficult to discuss coherently because of its rather abstract nature.  Through extensive use of examples (including Ciba‑Geigy and Digital, which are revisited over and over again throughout the book), Schein brings his insights down to earth and reinforces the reality of cultural paradigms within organizations.

Despite his statement that leadership and culture are “two sides of the same coin”, Schein’s book is not a comprehensive treatment of leadership per se.  Rather, it represents a distinct perspective on leadership.  There is a popular story which tells of six blind men, each of whom is prompted to approach an elephant, to touch it, and to describe the creature.[ix]  One felt its side and said that it was like a wall, another felt its trunk and said that it was like a snake, and so on.  In the same vein, Schein’s treatment of leadership is derived from a point of view that revolves entirely around culture.  He writes:

If one wishes to distinguish leadership from management or administration, one can argue that leadership creates and changes cultures, while management and administration act within a culture.  By defining leadership in this manner, I am not implying that culture is easy to create or change, or that formal leaders are the only determiners of culture.  On the contrary, as we will see, culture refers to those elements of a group or organization that are most stable and least malleable.[x]

This view of leadership is decidedly focused on cultural awareness as the single defining characteristic of leadership.  This is the key weakness of Schein’s book insofar as it appears to invalidate other theories of leadership.  In the process, it falls into the same trap as many other leadership paradigms: it implies that leadership is reserved for a small elite group.

Schein’s treatment of leadership is a strength, however, insofar as it offers a clear and focused perspective that is both useful and meaningful.  Ultimately, Schein’s analysis remains valid, even if it is not the only truth about leadership.  By offering actionable prescriptions for creating and managing culture, Schein provides very real practical value to his readers.


[i] Schein, Edgar H. (1985, 1992, 2004).  Organizational Culture and Leadership. San Francisco: Jossey-Bass, pp. 1-2.

[ii] Joseph C. Rost, Journal of Leadership Studies, Vol. 1, Issue 1. 1993.

[iii] Gemmill, Gary, & Oakley, Judith. Human Relations.  Vol. 45, No. 2. 1992.

[iv] Kouzes, J.M., & Posner, B.Z. (1987). The Leadership Challenge.  San Francisco: Jossey Bass.

[v] Schein, p. 2.

[vi] Schein, p. 11.

[vii] Schein, p. 17.

[viii] Schein, pp. 394-402.

[ix]  The Story of the Six Blind Men and the Elephant, adapted from a poem by John Godfrey Saxe (1816 – 1887).

[x] Schein, p. 11.

NEW REPORT: Agility Beats Planning

NEW REPORT: Agility Beats Planning

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The events of 2020 have prompted an increased focus on business agility. The capacity to assess situations quickly and respond intelligently is no longer merely important. In the so-called “new normal”, agility has become an essential ingredient to business success.

In the world of supply chain management, agility requires a shift in focus. While planning remains important, execution is where agility manifests itself most saliently, with major consequences to the bottom line. This signifies a fundamental change in the competitive landscape, wherein companies that excel in supply chain execution will increasingly find themselves at an advantage.

Businesses that neglect this fundamental shift, or who arrive late to the game, risk being marginalized by supply-chain innovators who will increasingly deliver better fill rates, lower costs, and higher margins as a result of innovative supply chain execution.

DX4 Research recommends that business leaders aggressively adopt supply-chain agility as a strategic priority; leveraging real-time monitoring, artificial intelligence & machine learning (AI/ML), and robotic process automation (RPA) to drive excellence in supply chain execution.

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Digital Transformation: Substance vs. Hype

In the late 1990s I worked for an ERP services company that made an all-out strategic shift toward hosting business applications. The founder believed that someday (presumably in the not-too-distant future), software would be deployed in the cloud and delivered on a pay-as-you-go utility model.

Unfortunately, he arrived at that conclusion about a decade too early.

The technology hype-cycle can be tricky. It’s tempting to adopt a cynical view of these things, especially when the hype curve starts to look like the slope of Mount Everest. In most cases, though, there is at least some substance behind all the hype.  With each new tech trend, there’s almost always an upside somewhere along the way.

The question is: When and where is that upside to be found? What’s the pragmatic approach? How aggressively should companies invest, and how early should they take the leap into new technologies?

That question is on a lot of people’s minds right now, as the COVID-19 pandemic has shifted business agility from being a “nice to have“ to being an outright necessity. With that, the case for digital transformation has become stronger than ever.  What are the practical implications for today’s business leaders?

Throw a bunch of new technologies into a big pot and stir.  These are ideal growing conditions for innovation.  Now it is up to innovators around the world to do something with all that goodness.

In our view, digital transformation has fully arrived, and companies that fail to develop and execute on a digital strategy are at risk of losing competitive advantage.  Hype and reality are tracking fairly closely right now, and while optimism should always be tempered by common sense; those who hesitate for too long risk being left behind.

How Is Digital Transformation Different?

How does digital transformation differ from the technology hype-cycles of the past? In a nutshell, digital transformation isn’t about just one thing. It’s about a handful of emerging technologies reaching a critical stage of maturity, all at the same time. It isn’t about just one new possibility; it’s about a whole world of new possibilities opening up. 

For business leaders, this is an opportunity to establish a foundation upon which innovation can happen frequently, quickly, and relatively cheaply.

Let’s consider the difference between specific innovations versus innovation in general:

In the late 1990s, hosted applications were a new idea.  That concept has evolved over the past few decades. Connectivity became faster, more ubiquitous, and more reliable.  A new generation entered the workforce, having grown up with the Internet. Security practices have improved dramatically.  In 1999, the world simply wasn’t ready for software-as-a-service. Today, it is.

None of that changes the fact that SaaS is, broadly speaking, a single innovation.

Digital transformation, on the other hand, is what happens when a bunch of nascent technologies all become viable at the same time.

Ride-sharing services like Uber and Lyft would not have been possible without a variety of relatively new technologies: GPS and mapping software, mobile phones, secure payments, and push notifications, all held together with fast & secure cloud connectivity. Someone saw an opportunity to combine those technologies in a way that had never happened before. 

Now add drones, blockchain, IoT, AI & machine learning, high-performance analytics, location intelligence, plummeting storage costs, improved integration… and a few more that I probably missed.

Digital transformation has fully arrived, and companies that fail to develop and execute on a digital strategy are at risk of losing competitive advantage. 

It’s not that these technologies didn’t exist before; it’s that they have reached a threshold of maturity, affordability, and viability that has opened the door to widespread adoption.

Throw a bunch of new technologies into a big pot and stir.  These are ideal growing conditions for innovation.  Now it is up to innovators around the world to do something with all that goodness.

Widespread deployment of 5G networks will add a nitrous-shot to all of that.

Bringing it Down to Earth

None of this is to say that you have to be the next Uber, Lyft, or Airbnb.  More often, digital transformation technologies can be applied to distinct business processes, creating efficiencies and driving competitive advantage.

We see insurance companies using fine-grained geolocation data to change the way they evaluate risk. In the past, risk of property loss might may have been based simply on a street address. By combining detailed geo-coding with machine learning algorithms and big-data analytics, insurers can look at the specific location of a building on a plot of land, its distance from lakes or ponds, proximity to combustible materials, and other factors that affect risk. Better accuracy equals higher profits.

In supply chain execution, we see AI and machine learning being used in combination with IoT sensors, weather data, and a host of other inputs to make earlier and more accurate predictions that impact value in the supply chain. That translates to increased fill rates, improved margins, and higher customer satisfaction. In other words, higher profits.

Drones are being used to monitor the condition of crops and livestock, to map and survey land, and to apply fertilizers and pesticides more efficiently.  Efficiency translates to lower costs and reduced environmental impact.

Digital transformation doesn’t necessarily result in wholesale changes to entire industries. More often, it is driving meaningful improvements in efficiency, accuracy, and customer service across individual business processes. All of those changes add up to something bigger. Companies that make a strategic commitment to digital transformation stand to gain a long-term competitive advantage. Those that do are late to the game will find themselves struggling to catch up.