Cultural differences in organizations

Opening academic year Faculty of Economics and Business

University of Groningen1st September, 2009

Geert Hofstede

Cultural differences in organizations

Mind your level of analysis!

individuals(“stranger in our midst”)

organizations(“the way we do things here”)

societies(“crazy guys, those Romans”)

Cultural differences in organizations

individuals(“stranger in our midst”)

Cultural differences in organizations and the functioning of a (foreign) individual

• more a matter of persons (on either side) than of culture

• demands on settler’s personality – openness to new experience– emotional stability

• universality of culture shock• dealing with mutual prejudices• expatriate training• cultural intelligence

Cultural differences in organizations

organizations(“the way we do things here”)

Cultural differences in organizations and the culture of the organization

• organizational level: comparing different organizations within same country(ies)

• also called corporate culture but this can include different organizational cultures

• organizational cultures consist of practices that adult new hires can learn on the job

• in particular symbols, heroes and rituals• they can be monitored and changed• but only through what top management

practises, not through what it preaches• “corporate values” are window dressing

Cultural differences in organizations

societies(“crazy guys, those Romans”)

Cultural differences in organizations and the cultures of societies

• societal level: comparing same or similar organizations across different countries

• societal cultures consist of shared values• which pass from parents to children• which can change, but not be changed• for managers they are given facts• which economists have too long ignored• international organizations function through

shared practices, as values are rarely shared

Cultural differences in organizations and the origin of societal culture differences

• we humans are born incompletely programmed• until about age 10 we are physiologically

equipped for completing our programming• which is provided by our social environment• and includes all our basic emotional values• which to ourselves remain largely unconscious • after age 10, these basic values stay with us• even if we migrate to another country

A case of societal cultures: the 2008 crisis

Culture and the 2008 financial crisis

• “That things could turn as quickly as they could, I don’t think anyone saw”, said Sir Fred Goodwin

• Schools of economics and business didn’t teach him one cannot have one’s pudding and eat it

• Economics as a science has ideological roots in Anglo-American cultural values ….

• which have blinded it to the role of other values• Goodwin and his kind still did not discover that

their own values were at the root of the crisis• Ideology of privatization led to nationalization

Business goals around the world

• How does one find out about the goals-in-use of business leaders? Asking the leaders themselves is not a solution – there is an obvious self-serving bias; moreover, real goals may be unconscious

• In 1995, Hong Kong evening MBA students rated their successful business leaders on 15 goals

• From 1996 to 2002, evening MBA students in 16 other countries replicated this exercise

• Part-time MBA students with day jobs in business organizations may be the best objective judges of their top managers’ goals available anywhere

Business leaders’ goals attributed rank order:mean across 17 countries around 1998

Growth of the business Continuity of the business This year’s profits TOP 5 Personal wealth Power

Honour, face, reputation Creating something new MIDDLE 5 Profits 10 years from now Staying within the law Responsibility towards employees

Respecting ethical norms Responsibility towards society

BOTTOM 5 Game and gambling spirit Patriotism, national pride Family interests

Goals of business leaders perceived by MBAs more & less important goals compared to other countries

in the U.K. in the Netherlands Staying within the law Game and gambling spiritThis year’s profits Responsibility tds. employeesResponsibility tds. employees Continuity of the business Responsibility tds. society Honour, face, reputationContinuity of the business Responsibility tds. society

Game and gambling spirit Personal wealth Profits 10 years from now Profits 10 years from nowGrowth of the business Patriotism, national pridePower Family interestsCreating something new Growth of the business

Goals of business leaders perceived by MBAs

more & less important goals compared to other countries

in the USA in ChinaGrowth of the business Respecting ethical normsRespecting ethical norms Patriotism, national pridePersonal wealth PowerThis year’s profits Honour, face, reputationPower Responsibility tds. society

Profits 10 years from now Family interestsResponsibility tds. employees Game and gambling spiritFamily interests This year’s profits Creating something new Personal wealthContinuity of the business Staying within the law

Top goals of US business leaders in 1998: growth, wealth and short term gains

• Growth, no continuity• Short term, no long term• Personal greed and power• No responsibility towards stakeholders• No creativity for innovationThis was the recipe for a collision courseThe 2008 crash was predictable in 1998 –

but economists didn’t see it

Rated importance of wealth vs. reputation

Reputation more importantDenmark, Netherlands, GermanyChina, Asians in Hawaii, New Zealand

About equal India, Brazil, Britain

Personal wealth more importantUSA, Australia, Hong Kong

Don’t spill our cultural assets

• The USA has played a key role in the world economy of the 2nd half of the 20th century

• Civilizations rise and fall, and the American civilization is no exception – its era is fading

• A Dutch cultural trait is to admire others – often forgetting to look at own strengths

• Dutch universities are able to link co-European, American and Asian cultures

FEB after the crisis – business as usual?The University of Groningen was founded on 23rd

August, 1614, and international from the beginningIt always recognized the challenges of the times

Desirables for its 5th century - Studying the economics of responsibility- Studying business as a creative game- Forming masters prepared to serve society