• June 23, 2023

Organizational culture: Re-examining the foundational principles of sustainability

Organizational culture: Re-examining the foundational principles of sustainability

In the world of organizational culture advice, deluge of opinions often drowns out experience, driven by cognitive biases.

There has recently been a lot of fire and brimstone, which has brought to light the issue of organisational culture in Indian private sector banks. The first, which went viral on social media, was a short video of a middle-management bank executive berating his team for failing to meet clearly lofty targets. The second, a written piece claimed that ICICI Bank was losing top talent as management attempted to build or rebuild its organisational culture and employee trust by revisiting its numeric-based performance metrics, including the widely used bell curve evaluation. Both have had their fair share of commentary. However, in the corporate equivalent of Aesop’s fable of the father, son and donkey they are riding to the market, advice on how organisations should build culture and manage their talent is freely and generously given.

Overdose of advice

The fact that such commentators have far more published output than successful CEOs who have an actual understanding of these issues but are reticent in their written and spoken words exacerbates the problem. As a result, much advice about whether the father or the son should ride the donkey, or neither, or both, drowns out their voices of experience and deliberation. Many companies perish in the process, too much lamentation, chest-beating and finger-pointing, only for a self-perpetuating corporate belief system to revert to peddling what are seen as “self-evident” truths.

Profit maximisation and the inherent selfish human behaviour of maximising self-interest alone are two such theoretical quadrupeds of belief that business economist proponents have long flogged. Despite significant evidence to the contrary, these assumptions, first proposed by Thomas Friedman and Adam Smith, respectively, are now accepted as gospel truths that drive corporate behaviour and are axiomatic of organisational culture and belief systems. This is best explained by two information and knowledge-related effects.

The first is the illusory truth effect, which is the tendency to believe false or incorrect information after repeated exposure. It was discovered in 1977 that when determining truth, people rely on whether the information matches their understanding or feels familiar. The preceding condition is logical, as people compare new information to what they already know to be true. However, because repetition makes statements easier to process than new, unrepeated statements, people believe that the repeated conclusion is far more accurate. A phenomenon that, through repetition, elevates such “received truth” to unquestionable canonical status.

Survivorship bias

The second condition is “survivorship bias,” which is the logical error of focusing on entities that pass a particular selection process while ignoring those that did not. It can also lead to the mistaken belief that a group’s successes have some special property other than coincidence, as in: correlation “proves” causation. Leading to overly optimistic beliefs, for example, because multiple failures are overlooked, such as when companies that no longer exist are excluded from analyses of financial performance to draw conclusions about corporate sustainability and success. The most famous example of “survivor bias” was planes returning from World War II missions. Based on data analysis, the engineers decided to add more armour plating to the parts that were found to be the most damaged. Until a statistician named Abraham Wald discovered that the data and analysis framework itself was incorrect, the task force needed to focus on reinforcing those critical parts that were not damaged. And where the damage caused the planes to never return, skewing the survivor data available for analysis and interpretation.

Like the planes in World War II, the received wisdom of profit maximisation and self-interest maximisation suffers from survivorship bias. The Anglo-Saxon stock market-led model of single-minded pursuit of quarterly profit growth assumes that the “invisible hand” will magically take care of both organisational sustainability and market equilibrium. Despite vast amounts of empirical evidence to the contrary, this illusion of truth continues to hold sway and indoctrinate its corporate messianic followers. Enron, Apple (in its non-Steve Jobs avatar), Theranos, GE, Lehman Brothers, and other examples demonstrate its fallacy. Other models such as Amul, Tatas, Google and the State Bank of India suggest a more balanced reality. It is past time for economists and businesses to examine and recognize the truth illusions and survivorship bias inherent in what is currently peddled as corporate gospel.

To paraphrase Saint Luke the Evangelist’s famous advice to physicians, ‘Medice, cura te ipsum,’ perhaps it is time for business economists and management theorists to heal themselves as well.

Written by Sandeep Hasurkar. Mr. Hasukar is an ex-investment banker.

Views are personal, and do not represent the stand of this publication.

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