Balancing corporate culture: Grid-groupand Austrian economics

Anthony J. Evans

Published online: 17 July 2013# Springer Science+Business Media New York 2013

Abstract The aim of this paper is twofold: firstly to discuss the foundations of Grid-Group “Cultural Theory” and highlight the compatibility with Austrian economics,and secondly to apply this framework to the context of organisational culture. Myclaim is that “Corporate Cultural Theory” provides a rigorous and grounded socialanthropological framework to take Austrian economics beyond its traditional usesand improve upon competing explanations of corporate culture.

Keywords Corporate culture . Cultural theory . Institutions

JEL Codes B53 . L22 . M14 . Z13

1 Introduction

Despite the significance and impact of corporate culture upon organisational performance(Peters and Waterman 1982; Denison 1984; Kotter and Heskett 1992), rigorous ethno-graphic techniques are relatively absent in the management literature. This won’t do—culture is too important to be left undefined and unrefined, and analysts need a deeperawareness of the anthropological and sociological frameworks that can clarify culturalanalysis. There are many cultural factors that would appear to influence the functioningof a corporation, such as having common goals, employee loyalty and commitment,clearly defined roles, strong leadership, individual and joint accountability, innovation,effective incentive mechanisms, or tolerance toward alternative cultures. This articleintends to outline the grid-group framework (which has subsequently become knownas “Cultural Theory”) from the perspective of corporations, to demonstrate not only why

Rev Austrian Econ (2013) 26:297–309DOI 10.1007/s11138-013-0233-9

Previous versions of this paper have been presented at the “Conference on Austrian Market-basedApproaches to the Theory and Operation of a Business Firm”, George Mason Law School (May 2007);and the “Workshop on Cultural Theory and Management: A Conference held in memory of Prof. DameMary Douglas”, ESCP-EAP London (July 2007). The usual disclaimer applies.

A. J. Evans (*)ESCP Europe Business School, 527, Finchley Road, London NW3 7BG, UKe-mail: anthonyjevans@gmail.com

culture matters, but also how it can be analysed. It will demonstrate the relationshipbetween the cultural factors listed, to show how they complement and conflict with eachother.

Grid-group is a typology of social environments created by anthropologist MaryDouglas in the 1970s (Douglas 1996), and has been adapted, modified and appliedover the subsequent years to develop into a subject of it’s own.1 The basic premise isthat cultural relativism can be transcended through the application of a universallyapplicable framework. Competing moral systems, worldviews and ideologies arebrought into the realm of comparative analysis by imposing a typology of socialenvironments. According to Douglas, “The book was an attempt to developDurkheim’s programme for a comparative sociology of religion so that it could applyas well to Australian totemism as to modern industrial society” (Douglas 1996).Although the framework has born much fruit when applied to modern industrialsociety, it has given less attention to the study of modern industry, and thereforeremains a relatively unknown principle amongst organisational and managementscholars. According to Maesschalck (2004) it has been mostly applied to publicadministration and public policy debates, “and much less for in-depth case studiesof real-life organizations” (p.377). This article focuses on the theoretical and meth-odological foundations of Grid-Group so that it is more conducive to a contemporary,empirical agenda.

It is fair to say that the grid-group framework has evolved over the last 30 years.This evolution has been a consequence of Mary Douglas’ own restatements of thetypology, as well as the interpretations made by others.2 Although this evolution is agood sign, it poses a challenge to those who wish to use it, for it is simply untenableto “apply” grid-group with neutrality—since any utilisation must now choose be-tween alternative (and conflicting) interpretations. One is forced into either adopting aspecific version of grid-group (and rejecting the alternatives), or to generate a distinctand fresh position. In this article I intend to apply grid-group to a particular form ofsocial life—the commercial organisation—and take a methodological position—fromthe Austrian school of economics—that differs from all other uses of the framework. Iwill refer to this new account of grid-group, as “Corporate Cultural Theory”. It buildsdirectly upon Douglas (1996) and utilises subsequent advances (especially Thompsonet al. 1990), but ultimately stands on its own terms.3

The paper will progress with three sections. Firstly, I will clarify the foundations ofthe way in which I propose to use Cultural Theory, and outline four key propositions:that the given social environment is diverse, that social wholes should be analysedwith recourse to the interaction of individuals; that the boundary of the organisation isambiguous; and that scarcity applies to cultural phenomena (and therefore trade offshave to be made). In section 3 I look at each of the two axes that underpin Cultural

1 A shortlist of what I consider to be seminal contributions would include Douglas 1978; Mars 1982;Douglas and Wildavsky 1983; Thompson et al. 1990; Thompson and Schwartz 1990; Adams 1995; Hood1998; Verweij and Thompson 20062 Hendry (1999) sees a clear distinction between the version of grid-group presented by Mary Douglas inthe first and second edition of Natural Symbols (Douglas 1970; 1973/1996), and the version that appearedin Douglas (1978, 1982) and was subsequently built upon by other scholars.3 Although this paper intends to be compatible with previous treatments, and does not contradict previoususes, the natural ambiguity over terms means that it is a modified version of the theory.

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Theory: grid (the extent of imposed regulation) and group (the extent of sharedconstraints). I re-label them as conformity and allegiance, and demonstrate how theformer demonstrates a balance between novelty vs. procedures; whilst the latterinvolves a balance between accountability vs. solidarity. Finally, section 4 looks atthe methodological issues raised by this framework, showing that the study ofcorporate culture requires interpretation, and I conclude with the position that highperformance should be pursued through constitutional efforts to create harmonybetween competing cultures.

2 The premises of cultural human action

Any cultural framework is only as strong as its foundations, so I intend to articulateclearly four propositions that underpin Corporate Cultural Theory. The first makesthe case for subjectivism and the second individualism because I maintain that it is“only by protecting the individualist-subjectivist point of reference [can] the socialanalyst be able to offer meaningful explanation for social phenomena” (Boettke1998:55). The third premise relates to the theory of the firm being utilised, and thefourth acknowledges pervasive trade-offs.

2.1 The social world is diverse

Too many studies of corporate culture pre-suppose that a prevailing culture exists.Notice that the common definition of “the way things get done around here” (Bower1966; Deal and Kennedy 1982) treats culture as a distinction between strong andweak forms of alignment. But culture means shared values and common meanings,and does not entail camaraderie or even similarity. A culture of anarchy is a culturenonetheless. In this article I take cultural diversity as a starting point and assume anon-ergodic landscape characterised by Knightian uncertainty (North 2005). This tiesinto the relative success that Cultural Theory has had when directly applied to thestudy of risk and risk perception, where attention to uncertainty is given prevalence(Adams 1995): “Many risks may be seen as products of the imagination—perceptionsof uncertainty—rather than as either directly perceived or else perceived throughaccepted science” (Frosdick 2006)

2.2 Only individuals choose

In this article I will retain a distinction between individual choice and social envi-ronments, whilst firmly accepting that there is reciprocal influence. After all,”Mind isas much the product of the social environment in which it has grown up and which ithas not made as something that has in turn acted upon and altered these institutions”(Hayek 1973). However the institutions that create a social environment must ulti-mately be traceable to individual mindsets, because all social phenomena are theconsequence of individual action and plans (Mises 1998). I will deliberately utilisethe premise of “institutional individualism”, which asserts that: only individuals arecapable of choice; institutions affect our choices; and institutions evolve throughhuman action (Agassi 1975; Evans 2010).

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This is not merely a semantic point—it is a major limitation for studies to presupposecultural unity by focusing on social wholes without recourse to individuals. Consider themanagement emphasis on formulating a clear strategic vision (Kotter and Heskett 1992;Cummings and Worley 2005). Whilst it is true that vision must precede action, thisapproach confounds the strategic vision of management with the strategic vision of thecorporation itself. Therefore our main challenge is to uncover the dominant socialinteractions that members of a particular corporation face, as opposed to simply treatinga corporation as a living organism, and then label its cultural form.

Although grid-group stems from Durkheim, it is not a theory of social wholes andis perfectly compatible with a focus on individual action and interaction. As Hendry(1999) says, the two categories of grid and group “were applied not to a society per sebut to the social context of an individual”, they “refer to the socio-cognitive context inwhich the individual finds herself” (Hendry 1999:559 [emphasis in original]) and“begins unambiguously…with the individual” (Hendry 1999:562). “Despite heremphasis on the social construction of knowledge, Douglas appears to be a rational-ist, for whom individuals start out as self-interested rational beings, constructing theirsocieties through rational discourse” (Hendry 1999:562-3). Grid-group is perfectlyconsistent with sophisticated forms of rational choice (providing institutions are givena significant role in the analysis), “It is not rejecting the theory of rational choice butis providing a theory of rationality-conferring contexts.” (Mitleton-Kelly 2004:313).

2.3 Organisational boundaries are not clear

It is also important to consider whether a corporation is an appropriate boundary for theapplication of cultural analysis. Most studies of corporate culture take the boundary asgiven, and this provides a neat unit of analysis—the firm. But as we’ve seen, using thefirm as the unit of analysis is both methodologically unsound (since firms are incapableof action and thus do not participate in cultural relationships) and theoretically invalid(since it presupposes the form of the phenomenon we’re attempting to uncover).Consequently we’re forced into taking a more ambiguous definition of the firm basedupon (i) networks of individuals; (ii) that are engaged in the same business venture. Thismight seem to support a nexus-of-contracts approach, which views the firm merely as aset of repeated contractual relationships (Cheung 1983). However it should be clear thatthis approach explains firm activity as merely being responses to relative price move-ments, without any cultural or social influence upon production patterns. However inmany cases an external contractor will spend more time interacting with the work habitsand communal values of their immediate colleagues than their legal employer, and thuscultural analysis must deem working relationships to be of more importance than legalstatus. An appropriate way to provide a theory of the firm is to treat the transaction costand capability literature as being complements, but non-exhaustive. By supplementingthis with an entrepreneurial theory (Cowen and Parker 1997; Sautet 2000), that utilisesconcepts such as epistemetics, capital structure, and spontaneous order (Foss 1994), wecan have a more coherent theory of the firm, and thus be better placed to discuss theboundaries of the firm.

The study of corporate culture often overlooks the interaction that a company haswith the local community, and the degree to which employees values and activitiesare shaped by external factors. Appeals to “national” culture or macroeconomic

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conditions spectacularly fail to address this issue, because they still assume a rigidfirm boundary and engage in methodological holism (viewing the holistic propertiesof the firm as being the prime explanatory device, rather than the purposes and plansof the constituent individuals). Consequently, Corporate Cultural Theory is built uponan entrepreneurial theory of the firm (that provides a theoretical account of firmboundaries), supplemented with a methodological individualism that allows us toextend our analysis beyond that boundary. The benefit of this is that we are not forcedinto assuming that work provides the main cultural identity of employees, and we canalso explicitly allow for the intra-cultural dynamics that create cultural conflict.

The problem created by the application of Cultural Theory to a specific form ofsocial group is that it potentially curtails the scope of a comparative study. Accordingto Frosdick (2006) “The use of Cultural Theory as organisation theory in this booktakes place within an overall cultural context of organisational hierarchy” (Frosdick2006:xx)

2.4 Pervasive trade offs means that conflict is inevitable

Consider a fictitious company with the following motto:

A STRONG HERITAGE, A NEW HORIZON

There is nothing wrong with individuals making bold and public statements as aneffort to credibly commit to a behavioural transformation, and of course they can doso through corporate slogans. But as a matter of logical accuracy there is a problemwith claiming to be simultaneously concerned with the past and the future. It is myclaim that management is unable to pursue a number of cultural strategies for twomain reasons. Firstly, their time is scarce and therefore there’s an upper limit on theamount cultural modification being attempted. Priorities have to be set, and thisinvolves a choice amongst competing cultural visions. Secondly, cultural traits donot lie in a range between “absent” and “strong”. Any application of a cultural trait(such as an emphasis on hard skills) has a corresponding culture that it is implicitlyrejecting (such as an emphasis on soft skills). Even if a company simply promotes aculture of “human resources”, it is rejecting a culture of “non-human resources”—butthe broader the category, the weaker the relevance. In the real world there’s no suchthing as a free lunch, and if management pursue a particular cultural goal they mustabandon its antithesis. Cultural development is inherently a matter of trade offs, anddue to cultural diversity it is hard to objectively determine whether it is unambigu-ously “good”. Organisational culture scholars assume too easy a task when theyestablish an objective to pursue. In our case each objective has an opportunity cost,and that cost might be significant.

3 An introduction to grid-group

Despite having its origin in social anthropology, the system is essentially deductive andrests on two axes. The first, “group”, is similar to the distinction between individualismand collectivism that exists within Hofstede (1980) and underpins much political

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science. It is intended to show the role of group pressure upon a person’s ego, stemmingmainly from moral compulsion and the degree of group integration. By transposinganother axis on top of group pressure, (creating two individualistic and two communi-tarian cultures4) provides the innovation behind the Grid/Group framework, and dem-onstrates it’s value-added over simple dualism. “Grid”, the second axis, refers to theconstraints created by an ordered structure, or the regulation that is imposed upon thegroup members. It exists when explicit rules and orders determine social opportunities,and their relative ranking within the group defines their status. Therefore the more that amember of a group feels bound by a collective decision, the higher they are on the“Group” dimension. The greater the degree to which the member follows imposed rules,the higher they are on the “Grid” distinction. This blend of “Group” vs. “Grid”, ofintegration vs. regulation, of solidarity vs. constraint, provides the framework uponwhich a comparative Cultural Theory can be created. Previous scholars have referred tothe unfortunately “arcane” and “exotic” connotations of “Grid” and “Group” (Ellis andThompson 1997:2). By replacing them with “conformity” and “allegiance” I hope tomake the model more accessible to the business community.

3.1 Group: accountability vs. solidarity

The root definition of the group axis is “the experience of a bounded social unit”(Douglas 1970:viii). We have already assumed that the individual is within someform of social structure, and “group” is the extent to which that social structure is asource of moral compulsion, the degree to which it elicits group commitment, and thestrength of the external boundary. “High group” means that the ego is heavilyinfluenced by other people’s pressure, whilst “low group” means that it is largelyindependent.5 As Douglas herself points out, the key term is “allegiance”, “we decideto start with the possibility of owning or not owning allegiance to a group” (Douglas1982:3). “The greater the incorporation, the more individual choice is subject togroup determination, the tighter the control over admission into the group and thehigher the boundaries separating members from non-members” (Mitleton-Kelly2004:297)

We shall define solidarity is “allegiance to the group”, or the level of unity within agiven community. Whilst accountability is “allegiance to the self”, demonstrating alack of unity. The choice of the term “accountability” might seem strange so itwarrants detailed exposition. Under the premise of institutional individualism onlyindividuals can have preferences or action, and similarly only individuals can bearresponsibility. It is therefore impossible to impose sanctions on collectives, indepen-dent of imposing them on individuals. To the extent that “collective responsibility” isin contrast to personal liability, it is incompatible with accountability.

4 For the purposes of this article I ignore the four cultural types that are the logical outcome of having a 2x2matrix, to focus on the underlying axes.5 In Douglas’ initial presentation of grid-group positive group means the self is dominated by groupcontrol, whilst negative group means the individual exerts pressure over the group. In this article I followthe later versions of the theory, where strong group means strong allegiance, and weak group means weakallegiance. The midpoint remains. Hendry (1999) outlines the ambiguity with how Cultural Theory hasbeen expressed diagrammatically. Pp.561–562

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The fact that accountability is synonymous with low group is supported by twopoints: Firstly, if agents do not feel allegiance to the group, they will free ride resulting inthe collective action problems associated with the “Tragedy of the Commons”. Hencethe possibility that group allegiance results in a lack of accountability. Having said this, ahigh level of solidarity is not incompatible with effective incentives, since both aredependent on the underlying mindset. But if an organisation requires accountability,group bonds have to be broken and individual liability pursued.

The two concepts—accountability and solidarity—are opposites in the sense thatthey cannot coexist: the greater the solidarity of a group, the weaker the personalliability of any member within it. This spectrum suggests a conflict between groupstrength and the accountability that results from personal liability. A sense of cama-raderie must forgo the threat of liability.

3.2 Grid: novelty vs. procedures

The root definition of the grid axis is “rules that relate one person to others on an ego-centred basis” (Douglas 1970:viii), and is chiefly concerned with whether the rulesthat an individual subscribes to are open to individual negotiation or externallyimposed. These “rules”, or “classifications” are now typically referred to as “regula-tions”: “the possibilities should run from maximum regulation to maximum freedom,the military regiment with its prescribed behaviour and rigid timetabling, contrastedat the other end with the free life, uncommitted, unregulated.” (Douglas 1982:3)“High grid” organisations impose social categories on its members, and your positionwithin that system is determined largely by factors outside your direct control—yourfamily, your class, your history. By contrast in “low grid” organisations individualsnegotiate their relationships freely.

It is also important to realise that grid manifests itself at an epistemic level as wellas through regulations. It isn’t simply about the extent to which we control our owntime and space. It isn’t just the degree to which your action is governed by imposedconstraints. Grid also encompasses the classification system that structures one’sworldview, and influences the capacity for independent thought. A high grid socialenvironment is one in which you are not supposed to think for yourself, and insteaduse tradition, authority, and other institutions to think for you (Douglas 1987). Bycontrast, weak grid means “the dominance of an increasingly strong and coherentprivate systems of classification, the realm of creative thought” (Hendry 1999:559).Due to the unintuitive nature of the term grid, I propose to replace it with the termconformity, which simply means the extent to which other members of a groupinfluence ones beliefs or behaviour.

We can define a procedure as “an established way of doing something”. Novelty is“a new way of doing something”. The “something” might be a method, practice,conduct, activity etc., and simply refers to the extent to which two separate peopleasked to complete a task will do so in the same manner. If a procedural cultureprevails, actions will be conducted in a predictable, certain manner. If a novel culturalprevails, tasks will be undertaken in alternative, creative ways.

Consider Edgar Schein’s definition of culture, “A pattern of shared basic assump-tions that the group learned as it solves its problems of external adaptation andinternal integration, that has worked well enough to be considered valid, and,

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therefore, to be taught to new members as the correct way to perceive, think, and feelin relation to those problems” (Schein 1992:12). This is an example of high confor-mity, and thus presupposes a “strong” culture. The value-added of the grid-groupframework is to show that the degree of conformity isn’t simply a matter of strong orweak form, since a weak degree of conformity implies a strong culture of novelty. Inshort, Schein’s definition is incomplete.

The culture of conformity determines the ability of individuals to adapt, evolve,and renew their organisation. The tendency for innovation to stem from small,decentralised companies demonstrate the conflict between invention and routines.Genuine discovery possesses a serendipitous characteristic that cannot be replicatedwith formality and convention: the novelty of experimentation is in fundamentalconflict with the procedural preservation of the status quo. On the other hand,procedures provide codification, structure and order to human relationships withinan organisation. They are required to create defined job roles, responsibilities, andgenerate the positive connotations of leadership.

Figure 1 conceptualises the previous theoretical analysis, showing the two axes ofconformity and allegiance, and the corresponding polar cultural characteristics. Thedegree to which the organisation values solidarity above accountability shows howinclusive it is, and how much commitment is required to participate within it. Anemployee’s allegiance to the company (compared to their allegiance to themselves)will demonstrate the relative balance. A strong corporate culture of conformity(procedures) creates committees, regulation and rigid control of time and space. Bycontrast, emphasis on novelty will generate greater freedom, resulting in experimen-tation and discovery. The more that employees control their working conditions, thegreater that novelty is valued over processes. On initial glance the conformity andallegiance axes are similar to alternative theories of corporate culture, such as Goffeeand Jones (1998), who outline The Character of a Corporation with a framework of“sociability” and “solidarity”. These axes are intuitive and reasonable but lack therigour of Cultural Theory. By failing to define the root definitions of each axis it isdifficult to engage in detailed comparison, save to conclude that abstract conceptsrequire a detailed, deductive, derivation. Although this article trails Goffee and Jones

Fig. 1 Grid-Group.

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(1998), I have shown that it is built upon an anthropological theory from the 1970s.The fact that Goffee and Jones (1998) fail to distinguish their position from eithergrid-group/Cultural Theory is an error on their part.

Focusing attention on procedures, solidarity, novelty and accountability capturesthe key insights of grid-group and can be used to begin an empirical agenda. They areuseful proxies for the underlying organisational types.

4 The interpretive turn: measurement vs. meaning

But to what extent is grid-group suitable for empirical studies of organisationalculture? Bloor and Bloor (1982) and Gross and Rayner (1985) provide empiricalavenues to apply these principles to real cases. In contrast to a survey approach Mars(1982) utilises a “retrospective ethnography” technique. Perhaps the most obviousmethod is a case study (Maesschalck 2004). Multiple methods should be seen ascomplements, and represent important advances in the application of Cultural Theory.However the ontological position outlined in section 2 is sufficiently novel to warranta more detailed view of the methodological requirements. In particular, I wish to tiethe framework into the methodological debates of the contemporary Austrian schoolof economics, and in doing so propose Corporate Cultural Theory as a distinctlyAustrian framework for the study of organisational culture.

The limitations of naïve measurement have been shown by Schein (1992), whomakes a distinction between the manifestation of culture (such as espoused values), andthe underlying shared assumptions that are its essence. We can also make a distinctionbetween formal and informal institutions, where institutions are defined as the formaland informal rules that individuals face in a decision-making context (North 1990). Thisutilises a distinction that Hayek (1973) made between nomos (spontaneously evolvingrules of just conduct; the law of “liberty”), and thesis (consciously designedorganisational rules; the law of “legislation”). Informal institutions are the emergentoutcome of specific cultural ties, whilst formal institutions are those that are codified andenforced by an external agency.6 As outlined in Evans (2007a, b) this institutionalapproach is compatible with the grid and group axes of Cultural Theory. What Scheinhighlights is the temptation to concentrate only on the formal institutions, and gloss overthe informal. The key point is that to properly understand organisational culture re-searchers must look beyond symbolic manifestations, and incorporate the embeddedvalues that provide context and subjective meaning.

Schein famously provides three layers of cultural phenomena, and the traditionalvisualisation is a pyramid. The first layer (the tip) contains “artefacts”. These are “visibleorganizational structures and processes” that are “hard to decipher”. The second layer(the middle) are “espoused valued”, which include “strategies, goals, philosophies”. Thethird layer (the base) is “basic underlying assumptions”, which are “unconscious, taken-for-granted beliefs, perceptions, thoughts, and feelings” (Schein 1992:17). Organisationalculture is thus a complex and emergent phenomena and this has an implication regardingthe research methods used to study it. In short, quantitative techniques built upon a

6 Typically this external agency is the state. To the extent that the issue of contractual consent is relevant,we are effectively viewing the corporation as the central contracting authority (see Agassi 1960:265).

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foundation of epistemic positivism will fail to capture the deep, subjective nature ofculture. The problem is that when methodology from the natural sciences is used in thesocial sciences it misses the subject matter—the subjective beliefs of individuals. Wecannot use positivist tools to study culture because it fails to incorporate the veryphenomenon that requires understanding.78

“Typologies, as Douglas herself has always insisted, are not theories but merely“analytical schemes” or “heuristic devices.” (Ellis and Thompson 1997:4) IndeedMamadouh (1999) makes a distinction between two separate “breads” of Cultural Theory,a “heuristic device” or a “full explanatory theory”. Note that it is the latter that haspredominantly faced criticism, as researchers either struggle to find concrete empiricalvalidation (Coughlin and Lockhart 1998; Caulkins 1999), or challenge the application of auniversal framework to alternative contexts (Moore 1998). My claim is that Douglasalways intended grid/group to be a straightforward, universally usable framework (Doug-las 2005), and therefore shouldn’t be judged according to positivist criteria of testablehypotheses.9 Although the typology created by the four combinations of conformity andallegiance appear tautological, “since the scientific goal in interpretative sociology… isVerstehen, not prediction and falsifiability, broadening the concept of rationality to neartautological status does not present the problem it would in alternative concepts ofscience” (Boettke 1998:63). So although we have developed a heuristic device ratherthan a full explanatory theory, an empirical agenda is possible—and I suggest the Austriantoolkit of imaginary constructions (Aligica and Evans 2009).

The reason this article is so preoccupied with developing and justifying thetheoretical framework prior to empirical application, is that (i) theory is logicallyprior to historical interpretation; and (ii) methodology depends upon what theory isbeing used. I am therefore utilising the approach outlined in Boettke and Coyne(2005), which calls for the fusion of thin theoretical propositions (i.e. a simple anduniversal framework) with a dirty empirical predisposition (i.e. ethnography, see(Geertz 1973)).10 However I am acknowledging that the toolkit of economic theoryis a necessary but not sufficient condition to understand cultural phenomena, and amproposing a typology built upon an axis of conformity and allegiance to supplementit. This thin/dirty nexus requires a universal behavioural requirement, and empiricaltechniques to uncover meaning.

“To grasp the rules, I must grasp the thoughts. To grasp the thoughts, I mustgrasp the rule; I can break the circle only by imputing rationality” Hollis(1977:153)

7 See Boulding (1966). However I don’t wish to assert that I am the first person to make this point. Forexample, Denison and Mishra (1995) provide a criticism of using a positivist methodology to studycorporate culture, and call for more phenomenological work. However my claim for novelty lies in myproposed solution, which is the use of forms of analytic narratives associated with the Austrian school ofeconomics.8 “The validity [of Cultural Theory] is not to be judged by the statistician’s correlation coefficients and t-tsets, but by the degree to which it accords with people’sexperience” Adams 1995.9 Indeed this position mirrors Ludwig Lachmann’s capital theory: if one can’t measure something, weshould classify it10 Consequently we can reject even the most famous cultural analyses—such as Hofstede (1980)—forbeing unsatisfactory on the grounds that they are quantitatively driven (and therefore fail to truly capturecultural conditions); and are based on national data (towards methodological holism).

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5 Conclusions: Flux, constitutionalism and corporate harmony

To recap on previous sections, we have seen that the levels of allegiance andconformity within a corporation are in fundamental conflict—it is not clear howmuch of either is optimal, because trade-offs exist: procedures vs. novelty, andsolidarity vs. accountability. From a theoretical perspective the chief insight is thatmovement towards one of these implies movement way from another. Culturaldevelopment is thus ambiguous, and it is hard to say which direction one needs totravel. In addition to this theoretical point, we have also seen a methodological issueregarding the ability to empirically observe or map these dimensions. We haveexplicitly rejected an ability to perform quantitative analysis, or treat these fourelements as variables that can be maximised. This presents a dilemma: we have notheoretical basis to know a priori whereabouts on each dimension we wish to positionourselves (i.e. culture is hard to manipulate), and no methodological toolkit to verifyit anyway (i.e. culture is hard to authenticate). The solution is twofold. Firstly, onemust realise that this depiction of a corporate cultural environment is one of flux. Andsecondly, there are constitutional means to establish the institutions that facilitate acompetitive process.

Regarding the first part, culture is typically invoked to explain resistance tochange, “when we say that something is “cultural”, we imply that it is not onlyshared but deep and stable” (Schein 1992:10). But this needn’t be the case—a“novelty” culture will be quick to adopt new routines, and therefore strong culturesare not necessarily tied to inertia. In fact, the existence of sub cultures within anorganisation offers the possibility of an unstable cultural landscape, where employeesswitch between alternative cultures depending on their incentives for doing so. Inshort, culture is not a stable, static reflection of a corporation. It is an underlyingpattern of development that is in constant evolution, and thus conscious manipulationis almost impossible.

Once we’ve established that the cultural state of nature is one of flux, the issue ofmanagement becomes very different. Rather than use the scientific tools of alteringvariables and recording the results, management must be viewed as a constitutionalissue (Evans and Wenzel 2013). We have previously seen that Schein separated theconcepts of cultural essence, and cultural manifestation, and Hayek made a distinc-tion between formal and informal institutions. If institutions are the rules of the game(and organisations are groups of players), constitutions are the choices made betweenalternative rule systems.

In The Science of Success Charles Koch presents a theory of management thatattempts to install the principles of free markets within the firm (Koch 2007). Theinstitutional mechanisms by which this is implemented include: competitive visionbuilt around an understanding of the social function of profit; emphasis upon thevirtue and talents of employees; internal price mechanisms to generate knowledge;the transfer of decision rights (and accountability) from managers to workers; andreward systems to generate effective incentives. The point I wish to make is that theinnovation behind Koch’s system is not simply the institutional mechanisms that heas CEO has installed. Rather, the underlying principle is that the local knowledgerequired by central planners to plan doesn’t exist, and therefore senior managementcan only hope to create an incentive structure that allows it to be discovered

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throughout the firm (also see Sautet 2000). We can see this as a meta-institution, orconstitutional system that determines how the rules of the game are created. In otherwords, Koch isn’t simply altering the incentives of his employees to illicit behaviourthat is consistent with his strategic vision. He is constructing a constitutional orderthat allows the simultaneous exploitation of multiple visions. When the underlyingconditions are in flux, it is these constitutional choices that are the proper role ofmanagement.

Verweij and Thompson (2006) is a set of cases split into two sections. The firstlook at “elegant failures”, where too much attention to a particular cultural typecommitted the Fatal Conceit (Hayek 1988) and therefore led to failure. The secondsection presents “clumsy solutions”, where the interplay of multiple cultural typesleads to unexpected success. Ultimately we cannot know ex-ante what culturalfoundations are necessary. The nature of a specific industry might naturally favoura particular level of conformity or allegiance, however it is only through conflict thatoptimal solutions emerge. From both a policy and management point of view,facilitation and not stimulation is the bottom line. When the defining characteristicof social life is diversity, the predominant attitude for a flourishing organisation mustbe that of tolerance and humility. It is only through the flux of cultural dialogue thatwe can all prosper.

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