A New Era for Culture, Change, and Leadership

When social psychologist Edgar Schein joined MIT’s Sloan School of Management in the 1950s, the school had just launched its great experiment of teaching management through formal disciplines like mathematics, social psychology, economics, and history. That was a radical departure from expounding “the practice of management” through cases taught by professors who had been managers for most of their careers. The new approach sparked close, unlikely collaborations and deep, innovative thinking about leadership, group cultures, and organizational change — all nascent fields of study at the time. It was in this environment that Ed and his colleagues embarked on what he calls “an exciting quarter century of model building,” which helped define how people thought about and engaged with organizations.

Decades later, in a digital era, Ed says it is time for a new model, one that is built on close professional relationships, openness, and trust. He and Peter Schein, his son and collaborator, have been working on this model for the past few years. After earning a degree in anthropology and an MBA, Peter spent most of his career as a strategy executive at a number of Silicon Valley companies. In 2015, he decided to join Ed in analyzing and describing the changes afoot as the tasks of management become more complex, interdependent, and volatile. In this conversation, they share their perspectives on organizational life, a brief history of ideas leading up to this moment, and their thoughts about the future.

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Ed Schein: Peter, in our recent work together, you have advocated for combining culture, change, and leadership into an integrated process, rather than viewing them as three separate topics of importance. Why this approach?

Peter Schein: Most of us at work these days, in organizations large and small, implicitly accept that culture matters. Whether or not it eats strategy for breakfast, culture is a deep substrate: coercive, empowering, good, or toxic. It does not change when our business has a bad quarter or when we proclaim, “We have a culture problem.” Organizations’ cultural concerns certainly vary from environment to environment: Startups may worry about building the right culture; midlife organizations may worry about how to integrate the various occupational, social, and other subcultures that often conflict or are at cross-purposes; and older organizations may focus on how to create a culture of innovation, for instance, or a culture of employee engagement as stability regresses toward stasis and apathy. Nevertheless, culture is the great stabilizing force as organizations mature and cannot be manipulated with quick fixes, such as revising a mission statement. Culture survives through phases of growth. Change initiatives that metaphorically alter the color of the walls take a long time to alter the deeply held beliefs that positioned those walls in the first place.

And yet organizations must operate in a world that is continually in flux around them. Our work processes are evolving in response to rapidly changing micro- and macroeconomic conditions. Much of our data gathering and decision-making now happens at network speed, generally the speed of light, whereas it used to happen at the speed of sound, of conversation and reflection.

In this context, if we think about change as a linear progression or a step function — if we believe we have time to pause-change-resume as events unfold — we may be left behind. Although linear, top-down change models still can work for simple production flows, they often amount to amending, appending, or fine-tuning existing processes, and it’s not clear how long humans can bet on adding this kind of value before AI ends up doing a far better job.

We might be better served to think of change as a waveform with no wait states, just variable ebbs and flows that we can try our best to manage. I sure hope humans will outperform AI when it comes to continuously adapting to shifting contexts, in four dimensions, while automation excels at fine-tuning, in three dimensions.

I am both curious and optimistic about new models of work and of organization design, in which hierarchy, job descriptions, and work streams have morphed into fluid processes of perpetual adaptation as circumstances change, just as an organism shifts blood flow to the subsystems with the greatest need. Organizations will have evolved a number of subcultures as they mature. Rapid environmental change will affect these subcultures very differently, and the change processes, in turn, will shape both formal and informal leadership. So you really can’t think about these things separately.

Ed Schein: Leadership, too, has morphed into a fluid process rather than something to be characterized by the title, talent, or tenacity of individuals in formal positions of authority.

Peter Schein: Yes, it reflects what we are seeing throughout organizations. For some today, and many of us soon, work is done in groups and projects with shifting membership and constantly evolving new roles as the tasks become more complex and interdependent. We can now think of leadership as the creation and implementation of a new and better way of doing something, whether that be a new strategy, a new product or service, or a new way for a group to run its meetings and make decisions.

Leadership in this sense results from seeing a need, building the kinds of relationships that will make something new and better possible, and embracing the idea that impulse and action can come from anywhere in an organization or a work group. The relationships we see thriving, not just among peers in formal organizations but also in coalitions and ecosystems, foster openness and trust to maximize information flow and optimize decision-making.

We talk about the importance of relationships all the time. Ed, you have repeatedly argued that improving relationships involves developing a richer understanding of the different levels and types and how they work. How do we do that?

Ed Schein: The depths of work relationships basically reflect broad categories that have arisen in all societies. What we have called a level minus 1 relationship is, in a word, domination. It exists when someone in control exercises absolute power and subjugates the other person, as in sweatshops or prisons.

Most of our relationships, both at work and in civil society, are not quite that asymmetrical, but they tend to be distant and transactional. In these level 1 relationships, we learn to play various roles in order to get along with others and manage our daily affairs. At work, this level is reinforced through organizational design. Employees are hired for their skills to fulfill certain clearly defined roles and are expected to maintain proper social and professional distance from their peers and from people higher or lower in the hierarchy.

We are very familiar with the managerial culture that typically goes with this design. If the work lends itself to such precise role definition, we accept it because it is efficient even though its impersonality makes us call it a bureaucracy (and perhaps even grouse about it). But the fundamental weakness of level 1 relationships is that the distance between and even within roles makes it very easy for employees at all levels to avoid open communication and harbor distrust. Not speaking up becomes easier and safer when career competition is culturally taken for granted in a rigidly designed hierarchical system. This leaves the organization vulnerable to deficits in quality, safety, customer satisfaction, and innovation. We can think of level minus 1 as power relationships and level 1 as role relationships, and assert that neither will work in the future.

Instead, we will need level 2, which can be described as personal relationships. We see these now in the evolution of what the sociologists have labeled the informal organization, where employees and managers form closer connections to create better communication and more trust. In level 2 relationships, people choose to treat each other as whole human beings, not just role occupants, which collapses the psychological distance even across hierarchical boundaries, as when a C-level executive forms a personal relationship with a line-level engineer and thereby finds out what is really going on in the organization.

With work becoming more complex and interdependent, and organizations becoming organic and flexible spheres of groups and teams, the managers of tomorrow will have to get to know their people in order to create valid and reliable communication and to build trust in both directions. All members of the organization will have to feel psychologically safe to speak up when things are not working and to exercise leadership when they see a new and better way of getting something done. Great leaders and managers have always done this, but it has never become a necessary part of traditional managerial culture. It should be.1

Peter Schein: You have had a long career in the field of organization studies. Can you describe how you arrived at your emphasis on relationships in your work on leadership and culture?

Ed Schein: Let’s start with my first postgraduate job. As a social psychologist and an officer at the Walter Reed Army Institute of Research, I was assigned to be part of a team that brought back repatriated prisoners of war from North Korean prison camps following the Korean War. My job was to diagnose psychological maladjustments and to be helpful during the 16-day voyage home from Korea to San Francisco. What I had handed to me was a huge data pool showing how the Chinese communists in the early 1950s indoctrinated some of their civilian prisoners on the mainland and got a small number of POWs to collaborate with the enemy and provide the Chinese with some useful propaganda. This experience dovetailed with my research interests in interpersonal influence and made it very clear what a level minus 1 relationship involved.

That led me to my first years at the MIT School of Industrial Management — what Sloan was called back when Douglas McGregor, a prominent leadership theorist, recruited me in 1956 to bring social psychology to graduate management training. He brought me into the first of several “hot groups” that were forming there. I was thrown together with Warren Bennis and Richard Beckhard, who became major mentors in introducing me to experiential learning. The human relations training labs that grew out of Kurt Lewin’s group dynamics research at MIT had evolved experiential learning methods to help managers develop the skills of observing and managing group and interpersonal processes. After some initial resistance, because I thought I already knew all of this stuff, I discovered that experiential learning was much more powerful than learning through lectures, readings, and cases, and that I could be an effective coach for these groups. In these training groups, I saw how a number of strangers could move quite quickly from level 1 to level 2 relationships.

I then posited that the essence of good management and good leadership was the ability and desire of people in those positions to observe, understand, and manage the relationships they had with their superiors, subordinates, and peers. I took it for granted that level 2 was the appropriate manager-employee relationship long before it had been labeled as such. It was only recently that I saw the need for an explicit model of relationship depths that reflects how society trains us all as adults to differentiate exploitative, bureaucratic, personal, and intimate relationships.

While all this was going on at MIT, I learned that organizations valued much of what we were teaching. They would hire us to give lectures and get into consulting engagements to help sort out their career, management, and leadership issues. It was not a huge leap from there to transfer my interest in indoctrination to the question of how corporations were able to influence their new hires to adopt a corporate value system.

Peter Schein: How does all this connect with your contributions in the fields of career development and talent management and with your ideas about culture?

Ed Schein: I found many examples of strong corporate influence in my research, but I also found that people could easily resist this influence by leaving a company or leaving an industry altogether to become teachers or consultants. That led to a major panel study in which I followed 44 MIT alumni and discovered that in the first 10 to 20 years of their careers, people use their experiences to build an image of who they are, what motivates them, what they are good at, and what their central values are, which came to be called a career anchor. Once alumni panelists had developed such a self-image, it anchored their career decisions and organized their work lives.

To further study these issues, I was joined by Lotte Bailyn and John Van Maanen, with whom I worked intensely for more than two decades on career development, the role of women in the workplace, dual careers, work-life balance, and various related topics that together virtually formed the field of career development. Our different perspectives and ability to work closely together made for an exciting quarter century of model building that drew equally on psychology and sociology.

Most of my consulting in the early years grew out of my interest in career development and, from the organization’s point of view, socialization of new employees and talent management. I wrote a paper on how the primary function of the personnel department, already called human relations at that time, was the difficult task of matching the needs of the individual employee with the needs of the organization. The concept of culture had been applied by anthropologists to preliterate and modern societies for a long time, but it became clear to me that what companies taught to their new employees could also be described as the company culture. I then observed how every startup organization had a strong value system that the new employees had to fit into. If the organization became successful, what started out to be the founders’ values soon became taken for granted as the basis for the organization’s success and not long after that became the organizational culture. And I then observed as well that this process of building a core value system around which rules and norms of behavior evolved applied not only to organizations but also to various occupations and professions — engineering, medicine, law, various forms of ministries, and so on.

I had felt for a number of years that organization studies at Sloan and at most business schools was dominated by psychology. With the arrival of John Van Maanen, we were able to broaden our focus and build a PhD program around ethnographic methods. That spawned a series of PhDs who took this point of view to many other major business schools and gradually brought much-needed sociological and anthropological insights into this field.

Employee socialization, we realized, was basically the same process as a group teaching its new members the culture of that group. In order to justify its survival and grow, the organization had to hire and train employees with the right kinds of talents and career anchors.

Peter Schein: In that sense, culture and leadership have long been connected.

Ed Schein: Founders and entrepreneurs set the tone as they form their new organizations, so leaders clearly create culture from the outset. But as those organizations mature, their cultures determine what kind of leaders they choose. They develop a very clear idea of what leadership is supposed to be in that environment, and they select people for senior jobs who match that profile. The same thing happens throughout the ranks. A young organization draws on a variety of talents to achieve success, but as it ages, it develops strong beliefs, expressed in job descriptions, about what kinds of talent are needed and then recruits only those people. Talent management in the very mature organization then becomes a subtle process of the culture just re-creating itself, of hiring only people who “fit” in both the technical culture (how tasks get done) and the social culture (how relationships work in the organization). When the outside environment, or macroculture, changes, organizations arrive at a moment of truth: We need innovation, yet we can’t get our people to do it! If we understand how culture works, this should not be a surprise, and indeed some large organizations have figured out how to innovate, in part by allowing their R&D functions the freedom to evolve their own technical and social cultures.

But enough about how we got where we are…. Peter, you’ve been here in Silicon Valley since the very early days of the internet. It’s one of those places that seems inevitably about defining more than accepting the future. As we think about our integrative view of organizations, what do you see out here that gives you hope or concern about organizational futures?

Peter Schein: Without giving new technology companies too much credit, I’d say it’s true that innovators out here have revolutionized both tools and processes of work. There are so many examples. Terms like loosely coupled, tightly aligned, fail fast, reality distortion field, and radical candor are all little points of light in a complex night sky reflecting the simple idea that we can work smarter.

Our friend and colleague at Palo Alto’s Institute for the Future, Bob Johansen, describes “shape-shifting” organizations of the future, capturing the basic notion that static organizational charts are retrograde at best in 2019.2 This shape-shifting idea can be seen in holacracy, an interesting effort by online apparel retailer Zappos and other organizations to unshackle innovation from traditional command-and-control norms.3 For many, this may be too extreme. Global, multifaceted corporations may even deem it irrelevant. Yet categorically, there is little reason why the ideas behind holacracy — which is just one approach to dynamic, ad hoc, self-managed teams — should not be an organizing principle for organizations of any size, assuming the top brass and their key leaders have established level 2 trust and openness and are willing to relinquish hierarchical control. Grappling with degrees of control versus degrees of freedom, I think, is a central struggle for young innovative companies trying to mature as multiproduct, multidivision, long-run winners.

Another interesting development is the popularity of OKRs, or objectives and key results, for helping organizations make progress on their goals. A host of HR software vendors, from Atiim to Weekdone, provide platforms for individuals and teams to share their objectives and key results with their colleagues, on the theory that everyone benefits from knowing where everyone stands. This model is a newer iteration of a familiar socio-technical construct that endeavors to connect the goals and aspirations of all individuals in a work group, or an organization as a whole, to the key strategic imperatives of the organization. Built into OKRs is the sharing of priorities, projects, and progress, up, down, and sideways. Andy Grove used them as the CEO of Intel, and venture capitalist John Doerr introduced them to Google.4 The complementary acronym to OKRs is CFRs, which stands for conversations, feedback, and recognition. With this corollary conversation imperative, this management and control framework is reframed in more humanistic terms with what appear to be more humanistic values.

We may come to appreciate that the alchemy here is in connecting the technical benefits of visibility, predictability, and accountability with the socio benefits of involvement and engagement. This could prove to be a very positive step forward, though perhaps not solving for the transparency fallacy. Transparency may feel like a humanistic benefit in the elimination of secrets and skunk works, and yet it may only be valuable when it’s a requirement in a group or organization that lacks openness and trust. Again, we see the struggle between freedom and control. It is similarly captured in the paradox of CFRs. If the primary goal is to openly share what is going well and what needs to be changed, CFRs may be very effective in accelerating results. However, if the emphasis is more on providing feedback, this may just be a veneer on the deeper motive of top-down control.

Earlier I mentioned the premium that organizations are placing on speed. If we’ve learned anything in a cradle of innovation, it is that pace really matters. Socio-technical innovations may be reenergizing humanism in creative work, yet if any such process innovations slow down the pace, we can expect that the next big thing will aim to speed us up again. A new leader may see a way to do something new and better, built on trust, openness, and reflection. We think this is happening a lot (as Frederic Laloux notes, “something is in the air”5). Yet one of the headwinds that organizations will face as they seek to adapt their social culture is the macrocultural preference for speed over reflection. These forces are in constant tension. Senior leaders, especially those who oversee organizational development (OD), will need to keep thinking like ethnographers and participant observers to get the mix right.

So, Ed, this raises one last observation and question: For a lot of good reasons, OD has evolved dramatically since your first culture and leadership book, particularly in helping organizations to accept new realities and experiment with new approaches. Where do we go from here?

Ed Schein: Trends in OD have for many decades had their own tribes of researchers and practitioners, and we have seen positive developments along many vectors. It is a good thing that there is such a growing interest in change management, reflecting the changing nature of work itself. And I am thrilled to see so many people getting on the culture bandwagon, though I caution that some may lack adequate grounding in culture dynamics.

The need for openness and trust pervades all of these areas. But many of today’s models for leadership, change, and culture are still predicated on the assumption that level 1 — bureaucratic, professionally distant — relationships can work. They can’t. Other models talk about the importance of mutual trust but neither define it nor propose how to build it.

Trust happens through vital information exchange and open sharing, as we build relationships that allow us to intuit and anticipate each other’s responses, so we can count on each other’s next moves to be supportive and collaborative rather than competitive and self-seeking. Building that trust helps us work positively toward mutually defined goals. It’s self-reinforcing, and to get there, we need level 2 relationships.

In short, a positive theory of level 2 openness and trust is the conceptual glue that ties together culture, change, and leadership. We have come a long way, but I can’t help but reflect on the little irony that where we hope this is all going is what Douglas McGregor had in mind all along with his wonderful Theory Y as the foundation for the human side of enterprise.6