THE SHADOW ORGANIZATION IN LOGISTICS: The Real World of Culture Change and Supply Chain Efficiency
Jo Ellen Gabel Ph.D. and Saul Pilnick Ph.D.
Supply chain and logistics managers at the forefront of innovation are crafting new levels of business integration, which, in turn, require new levels of culture and transculture integration.
The Culture Trap At a recent seminar facilitated by the authors, every hand was raised in an audience of over 300 supply chain logistics professionals when they were asked if they were involved in a major organizational change effort. The audience was then asked if they were satisfied with the results achieved by their change efforts. Not one hand was raised. This stunning disavowal of confidence in the ability to manage change revealed a common frustration held by many supply chain and logistics professionals.
The Research Strategies Committee (RSC) of the Council of Logistics Management commissioned a project of great importance to the logistics community. The project, titled The Shadow Organization in Logistics: The Real World of Culture Change and Supply Chain Efficiency, sought to examine the phenomenon of corporate culture and how this powerful force penetrates all aspects of organizational life, promoting or hindering change at every level of supply chain management.
Permitting the audience a few minutes to vent, many recounted their frustrations and disappointments: “Dispatchers would not give up their old ways of routing.” “Conflict between IT and Operations overwhelmed project goals.” “Purchasing rebelled against new Activity Based Costing.” “SAP became the enemy once Manufacturing realized they were losing power.” “The workforce resented change as an underhanded way to get them to work harder for less.” “Workers believed if it was good for the company, it couldn’t be good for them.”
The challenge for the researchers of this project was to determine the levers for change that logistics professionals could employ in order to lead culture change. Eminently qualified to conduct this project, the coauthors, Dr. Jo Ellen Gabel and Dr. Saul Pilnick of Human Systems, Inc., have devoted over 25 years to the development of a culture-based change management technology that accelerates business and culture change in supply chain organizations.
What soon became apparent to all was that the 300 supply chain professionals championing 300 different change efforts in diverse companies were stopped in their change tracks by the same phenomenon—culture resistance. Taking it a step further, the audience of 300 professionals could be considered a microcosm of a larger body of worldwide professionals who routinely ignore culture, thus setting the stage for culture resistance to block their change efforts.
The RSC envisioned that a final research product would include: a definition of culture within an organization (including the components, qualities, and dimensions of culture); the relevance of culture to real-life challenges in the logistics profession; a discussion of how culture must be adapted to address changing environments, and a synthesis of strategies and techniques to help logistics professionals deliver real change to their organizations. The Shadow Organization in Logistics: The Real World of Culture Change and Supply Chain Efficiency presents a new management process that will revolutionize the way logistics professionals think and how they act to change culture in supply chain organizations. Mary-Lou Quinto CLM Research Development Chairperson Head, Existing Product Sourcing GlaxoSmithKline
How is it possible that the same mistake is made throughout the corporate world? The answer lies with culture. Business savvy managers are acculturated to ignore culture simply because “that’s the way it is around here.” They know culture exists but, to them, culture is an invisible force. Like the air we breathe or the water fish live in, culture is so ubiquitous that its material presence is taken for granted and, therefore, easily ignored. Culture has a unique now-you-see-it, now-you-don’t quality. During periods of stability, the culture tends to fade from view. Traditional managers are easily lulled into a false sense of security, believing that what they can’t see can’t hurt them. However, during periods of change, the culture comes out of hiding like a ghostly force and wreaks havoc on change efforts. Managers can see the trail of debris left behind by the culture, but the culture uncannily remains invisible—a shadow organization operating out of management’s line of sight. Lurking beneath the business is the sleeping culture giant. Management often learns the hard way that the invisible and intangible culture can defeat supply chain innovation, proving that what you can’t see can hurt you. Consider the following example: The betting pool in an auto parts distribution center was oversubscribed, with the prize going to the person who most closely predicted when the latest supply chain initiative would fail. Supervisors and workers, having attended a well-designed formal training session, met afterwards in the parking lot
where they organized their response to change—betting on inevitable failure. No matter how beneficial and logical the change might be, people felt threatened. Rather than struggle to arrive at a true understanding of the change, they rejected it outright. Unaware of the betting pool and other signs of ingrained culture resistance, but fully aware of their own frustration in not being able to get people to buy in, management conceded defeat in their attempts to introduce their latest change program. What Is Culture? All organizations have a culture, a written and unwritten “code of conduct” that regulates and guides the behavior of the organization’s human system. An organization’s culture is ubiquitous, extending into every nook and cranny, from the plant floor to the executive suite, from the supplier’s loading dock to the end customer’s checkout stand. Each organization develops its own unique “ Cultureware™”—human system software that programs how everyone is to behave, from the smallest details of dress code to the largest issues of supply chain management. No one individual rules the culture; the culture rules individuals. It is the job of the culture to define and determine the behavior that is acceptable or unacceptable in relation to the planning,
sourcing, making, and delivering of goods and services. The Culture Web The architecture of the culture is unlike that of the formal, hierarchical, pyramid structure found on the business side of the organization. Existing in parallel, the culture generates an informal weblike structure connecting larger and smaller work units into a distributed network of subgroups and subcultures. Each subculture models the behavior characteristic of the larger core culture. A comparison of the larger culture and its smaller subcultures reveals that each is a macroscopic and microscopic version of the other. The web’s maze of subcultures crisscrosses the organization, providing the infrastructure necessary for individual and work group interactions and transactions to take place. Each subculture unit is linked to multiple subculture units at higher and lower levels, both upstream and downstream in the organization. The free-form cultural web system provides an infinite variety of connections that allow behavior to be uploaded and downloaded between the larger core culture and its subcultures. When Individual A in Department A needs to do business with Individual B in Department B, they don’t pull out the organizational chart to figure out how to get it done.
The Universal Culture Structure The Web
They rely on the culture web’s informal channels to make things happen. This is what is meant when insiders say, “You have to know how to work the system.” Culture Blind While most logistics professionals recognize the existence of corporate culture, they are blind to its inner workings and its powerful role in regulating change. For most professionals, culture is too elusive to grasp, let alone control. For traditional managers, the cure for culture blindness begins with an understanding of a new principle of organizational growth. The Universal Principle of Organizational Growth states that the organizational whole is formed through the interaction of two powerful forces—business and culture. These forces are not separate and independent. Rather, they coexist in an interdependent “you caused it/it caused you” mutual effect relationship.
New System/One-World Organization
Business/Culture Formal/Informal
The New Business/Culture Change Model Successful change management requires that both business and culture be managed in a simultaneous and synergistic change process. For every step taken in one arena, an equal or greater step must be taken in the other arena, maintaining a constant state of business/culture alignment that supports achievement of change goals. Organizational Anatomy The anatomy of an organization reveals two rule-making systems. Business building sets the formal rules, “What we say we do,” while culture building sets the informal rules, “What we really do.” Business and culture are inexorably intertwined,
The Greater Effect Or Defect The goal of business/culture leaders is to align and synthesize business and culture to create a Greater Effect (1+1=3) whereby the whole is greater than the sum of its parts. When the business and the culture synthesize, they produce unmatched strategic excellence, flawless execution, and superior systemic performance. When business/culture work at cross-purposes, organizations produce Greater Defects. Using a business/culture alignment and intervention grid, managers can determine whether they are perpetuating Greater Effects or Defects.
unmanaged culture. While bold business growth may be anticipated, the culture acts as a drag, holding back needed change. Culture blind organizations are unaware of the need to integrate business and culture.
Business/Culture Intervention Grid Business Negative
+ +
- +
Plus - Plus
Minus - Plus
Optimization Strategy
Business Building Strategy
+ -
- -
Plus - Minus
Minus - Minus
Culture-Building Strategy
Turnaround Strategy
Business Positive
Business Negative
Developing Intervention Strategies The Business/Culture Intervention Grid serves as a diagnostic tool and as a framework for setting intervention strategies. Each of the grid positions has implications for developing one of four intervention change strategies. Optimization Strategy An Optimization Strategy recognizes that business/culture are aligned in a Plus/Plus relationship. However, even the great Plus/Plus organizations fall into success ruts. To keep the organization at peak performance, an Optimization Strategy identifies business/culture opportunities to stretch high performance to even higher levels of excellence. Culture Building Strategy A Culture Building Strategy is used to remedy the out-of-balance condition in a Business Plus/Culture Minus organization. A Plus/Minus organization is, perhaps, the most common organizational condition. The frequent problem in this type of organization is an
Culture Positive
Culture Positive
Business Positive
Culture Negative
Culture blind managers allow a misalignment between the business and the culture. The unintended split between the two rule-making systems builds an organization in which formal business is managed, but informal culture is unmanaged. Instead of formal and informal rules working in concert, they work at odds. Instead of having one organization, there are two parallel worlds—the formal, which is stated, codified, and operating in full view, and the informal, which is unwritten, unstated, and operating as a shadow organization organization. Caught in the middle between the visible formal business and the invisible shadow culture is supply chain and logistics change.
There are four possible business/ culture conditions depicted on the Business/Culture Intervention Grid. Organizations can identify their position by determining if their business and culture are in or out of alignment.
Culture Negative
and are two sides of the same rulemaking coin. Traditional managers following the dictates of a commandand-control philosophy of scientific management are trained to see the business and are accustomed to formal system rule making. They issue formal behavior commands as written and stated policies, procedures, and business processes. However, blind to the culture, traditional managers do not manage informal system rule making. Instead, using a pressure and process management model, peer groups spontaneously bundle informal culture behavior into a system-wide culture code of accepted, expected, and demanded behavior that sometimes supports, and other times undermines, formal business rules.
Business Building Strategy A Business Building Strategy is used to remedy the out-of-balance condition in a Business Minus/Culture Plus organization. Usually occurring in start-up situations or in mature organizations that have allowed their business model to become outdated, the presenting problem in a Minus/Plus organization is that business effectiveness has declined. The culture is motivated to change, but needs new business direction. Turnaround Strategy A Turnaround Strategy is applied in Business Minus/Culture Minus organizations that are in dire circumstances. Turnaround strategies require a quick and accurate assessment of the flaws in the business model and the deficiencies in the culture. Business/ culture triage must be applied immediately to stem losses and reestablish basics. Once stabilized, a business/ culture reinvention begins.
The “How to” of Business/Culture Change To bring the business/culture change process into focus for the supply chain professional, an 8-Step Business/ Culture Change Process is presented, using a comprehensive case study to illustrate concepts and real-world experience. The case study organization is contrived from numerous client organizations that the authors have worked with in the past. Warring Cultures The target organization is Superior Discount Stores (Superior). Located in several southeastern states, it operates 35 high-volume combo stores—a mixture of mass merchandise and food. The company, a price leader in its market place, does over $1 billion in sales, and is highly profitable. Current business plans call for 10-12 new store openings per year and an anticipated doubling of sales over the next three years. Historically, other than a small warehouse that handled promotional buys, wholesalers supplied Superior. As the company considered its business strategy, it decided to in-source distribution and logistics. Therefore, in a significant and bold strategic move designed to sustain its aggressive growth strategy, Superior acquired its food wholesaler, complete with buying organization, distribution facilities, and transportation fleet. Though warehouse profit margins initially benefited from the acquisition, the organizational marriage did not go smoothly. The acquisition produced unintended consequences and caused considerable internal disorganization. In time, Superior became a two-entity organization—one retail, the other wholesale. These two organizational entities functioned as parallel worlds, clashing on many fronts. Their different strategic orientations, management styles, formal system approaches, and informal system responses kept them divided. As the organizational divide between retail and wholesale grew, it began to obstruct growth.
Hanging in the balance as the two sides battled was the growth plan to open multiple store units and a $75 million multiyear project plan to build multiple distribution centers. 8-Step Business/Culture Change Process Step 1. Conduct Business/Culture Analysis (BCA) To formulate the intervention strategy for a new business/culture system installation, an in-depth analysis must be conducted to assess the current state of the organization’s business/culture. Step 2. Design Business/Culture Intervention Strategy Determine which type of intervention strategy is appropriate for the organization to move from its current state, through a transformation state, to the desired end-state of a Business Plus/Culture Plus organization. Step 3. Establish Scope and Timetable for Change Stages Scope and timetable establish what must change and in what time period. Set business and culture milestones for each of the three change stages. Step 4. Develop Mission Statement, Values, Beliefs, and Norms The commitment to business/culture change needs to be stated as a mission statement, incorporating the key nonnegotiable values, beliefs, and norms needed to drive change. Step 5. Select Target Populations and Change Cells Select the target general populations that will host the change processes. Step 6. Identify and Optimize Change Platforms Change platforms are vehicles for managing human interaction and change processes. Utilize existing platforms and engineer new platforms. Step 7. Select Culture-Based Intervention Tools Standard management tools applied with a culture twist become powerful instruments of business/culture change. Step 8. Begin the Transformation Process Apply business/culture change to transform old, fragmented supply
chain systems into new, integrated customer-centric value chains and logistics networks. Business Savvy and Culture Smart For supply chain and logistics professionals, the implications of the new Business/Culture Change Model are far-reaching. Notwithstanding the complexities of the business, the weak link in supply chain integration is on the culture side. A post-mortem of most failed efforts reveals unmet culture needs caused the demise of the change process. No supply chain management initiative can succeed without supply chain leaders becoming ambidextrous in managing both the supply chain business and the culture. By applying the Universal Principle of Organizational Growth and its change management rules, leaders can become business savvy and culture smart.
Paradoxically, the first thing that needs to change is change management.
Table of Contents
Chapter Five Informal System Rule—What We Really Do
The Culture Defect The Business Defect
Preface Acknowledgements About the Authors
The Group Experiment
Business/Culture Early Detection
Pressure and Process
Developing Intervention Strategies
The Street Culture—Pure Pressure and Process
Optimization Strategy—Business Plus/Culture Plus Intervention
Chapter One Street Cultures
Peer Pressure and Conformity
Culture Building Strategy—Business Plus/Culture Minus Intervention
Business and Culture The Human System Change Model Aligning Business and Culture Business Savvy and Culture Smart Chapter Two Culture Resistance— The Invisible Barrier The Program Syndrome
Group Process Sets the Rules High and Low Status
Business Building Strategy—Business Minus/Culture Plus Intervention
Corporate Culture—Beating the System
Turnaround Strategy—Business Minus/Culture Minus Intervention
The Language of the Informal System
Closing the Business/Culture Gap
Informal System Power
Culture Violations
The Tyranny of Informal System Rule
A Track Record of Disappointments
Untapped and Underestimated
Chapter Three Culture Building The Culture Web
Chapter Six Old Systems— Parallel Worlds Collide
The Human Behavior Factory
The Clash of the Titans
Culture Formation—Spontaneous Culture Combustion
Surviving in Old-System Parallel Worlds
The Gorilla Experiment
Message Making
Culture Transmission—Spontaneous Knowledge Transfer
Reality Building
Managed Business/Unmanaged Culture
Real Change
Chapter Four Formal Systems Rule—What We Say We Do The Group Experiment
Real and Pseudo Power
Chapter Seven New System— One World Organization The Leap Forward The Group Experiment
Chapter Nine The Demise of Human Power The Human Power Model The Evolution of Powerlessness The Young Unmanaged Culture— The Heyday of Individual Power The Mid-Life Unmanaged Culture—Group Power Builds Silos The Old Unmanaged Culture— System Lock-In Perpetuating What Is The Power Morass Chapter Ten The Rise of Human Power The 5Cs of Human Power Turning Pseudo Power into Real Power
The New-System Revolution
Responsibility Breeds Pseudo Power
Good Formal Control
Processing the Tuesday Management Meeting
Accountability Is Real Power
Business Process Control
Control vs. Process Thinking
Functional Process Control
Planned Spontaneity
Information Process Control
The New-System Intervention
Management Process Control
The System Tug of War
Poor Formal Control
The New System Wins the Tug of War
The Rise of Scientific Management Good Formal Command
Excessive Command Silos—The Ultimate Excess The False Idol of Control Resistance to Change The Future of Formal System Rule
Nothing Is Really New Under the Sun Chapter Eight Creating the Greater Business/Culture Effect
The Accountability Chain Choose Sides The Power to Change Chapter Eleven Individual Power—The Power of One Unmanaged Individual Power Managed Individual Power Change Starters Change Role Models The Fallacy of Neutrality
The Greater Effect Principle
The Change Connector
The Greater Defect
The Individual Power Plan
Chapter Twelve The Power of the Few—Group Power Unmanaged Group Power The 5Cs of Unmanaged Group Power Managed Group Power The 5Cs of Managed Team Power Converting Group Power into Team Power
Step 6. Identify and Optimize Change Platforms Step 7. Select Culture-Based Intervention Tools Step 8. Begin the Transformation Process Chapter Fifteen Business/ Culture Analysis Organizational Background
Lessons from the Delinquent Street Culture
The Presenting Problem—A Failing Acquisition
Essexfields—A Business and a Culture
Strategic Analysis—Business/Culture Alignment
Street Culture Techniques in the Corporate World
The Retail Organization
Chapter Thirteen System Power— The Power of Many
The Wholesale Organization Systemic Analysis—Formal and Informal Systems
Unmanaged System Change
The Retail Organization
Managed New-System Change
The Wholesale Organization
Embedding Technology
Informal System—The Retail Organization
Design Principles Embedding Stages Business Stages Stage 1—Installation-Implant Change Cells Stage 2—Achieve New-System Critical Mass Stage 3—Tip the Scale Business/Culture Renewal Chapter Fourteen Ready. Aim. Change.—Designing a New-System Installation Windows for Change The 8-Step New-System Installation Plan Step 1. Conduct Business/Culture Analysis (BCA) Step 2. Design Business/Culture Intervention Strategy Step 3. Establish Scope and Set Embedding Stage Milestones Step 4. Develop Mission Statement, Values, Beliefs and Norms Step 5. Select Target Populations and Change Cells
Chapter Seventeen Transorganizational Marriages Outsourcing—Be Careful Who You Marry Corporate Marriages Are Not Made in Heaven Merging Military and Civilian Cultures Media—Giants Merge Banking—Who’s in Charge Around Here? Computers—Biting Off More Than You Can Chew Autos—A Cross-Border Nightmare Basic Rules for Transorganizational Marriages Chapter Eighteen The Shadow Organization—A Summary Culture Blind The Human Systems Change Model
Informal System—The Wholesale Organization
The Greater Effect
The ProCulture Survey™
Business/Culture Early Detection
Superior’s Growth Strategy
Developing Intervention Strategies
Chapter Sixteen Superior Discount—The Business/ Culture Fix Superior Discount—Windows for Change Step 1. Conduct Business/Culture Analysis (BCA) Step 2. Design Business/Culture Intervention Strategy Step 3. Establish Scope and Set Embedding Stage Milestones Step 4. Develop Mission Statement, Values, Beliefs and Norms Step 5. Select Target Populations and Change Cells Step 6. Identify and Optimize Change Platforms Step 7. Select Culture-Based Intervention Tools Step 8. Implementation of the Change Strategy
The Greater Defect
New-System Installation Human Power Embedding New-System Change Cells Eight-Step Approach to Installing a New System Business Savvy and Culture Smart Glossary
