Company culture, the advantage no one can copy

In the video, in Italian, I argue that company culture is a competitive advantage because no competitor can import it, and I quote Jay Barney. Here I tell the question Barney asked in 1986, when corporate culture had become a fashion, and the uncomfortable conclusion he reached: the culture that makes a difference cannot be installed on command.

Video transcript (translated from Italian)

A company’s internal culture is not an accessory. It is not the mood of an office, not a manifesto hanging on the wall, not a sentence on the “about us” page.

Culture is the invisible infrastructure on which every decision rests.

Jay Barney, one of the most influential management scholars, asked a precise question in 1986: can organizational culture be a source of sustained competitive advantage? His answer was clear: yes, but only when it is authentic, rooted and impossible to imitate.

And that is the point. A competitor can copy a product, replicate a process, imitate a campaign. But it cannot import another company’s culture. Because culture comes from people, from history, from relationships built over time.

Companies that treat it as an ornament end up losing consistency. Those that recognize it as structural build something that lasts.

The real competitive advantage is not what a company makes. It is what a company is.

When corporate culture became a fashion

On October 27, 1980, the American weekly Business Week ran a long piece on corporate culture, and two years later came the books that would take it into boardrooms: Corporate Cultures by Terrence Deal and Allan Kennedy and In Search of Excellence by Thomas Peters and Robert Waterman. The thesis was seductive. IBM, Hewlett-Packard, Procter & Gamble and McDonald’s did better than others, it was said, because of their culture.

Company culture is the infrastructure on which a company’s decisions rest, and treating it as an ornament means not seeing it.

In 1986 Jay B. Barney, a strategy scholar, opened an article in the Academy of Management Review by citing those very works and companies. Then he asked the question no one had yet put coolly: can organizational culture be a source of sustained competitive advantage?

Three conditions, and none can be bought

Barney’s answer goes through three conditions. For a culture to give an advantage that lasts it must be valuable, that is, enable the company to do things that bring economic results; it must be rare, that is, uncommon among competitors; and it must be imperfectly imitable, that is, impossible to reproduce with an investment or a plan.

In the video I sum up the conditions with three adjectives of my own: authentic, rooted, impossible to imitate. Barney’s are cooler, and more useful. Value and rarity can be checked by looking at the accounts and at competitors; authenticity remains a claim.

For Jay Barney, culture gives a lasting advantage only if it is valuable, rare and hard to imitate.

The third condition explains everything else. A competitor can copy a product, a process, a campaign. It can even hire another company’s best people. It cannot copy the way those people, together, make decisions without anyone telling them to, because that way comes from a history, from relationships and from habits that are not for sale. It works like a competitive moat that no one built on purpose.

The uncomfortable conclusion: culture cannot be installed

At this point Barney reaches a conclusion that, at the height of the fashion, sounded almost like a provocation. If a culture that gives an advantage is by definition hard to imitate, a company that does not have one cannot build it through management action: a culture designed at a desk could be imitated by competitors too, and would stop being rare. For companies without such a culture, Barney writes, managing culture can give at most a temporary advantage.

A company that does not have a culture of this kind cannot build it through management action: a culture designed at a desk can also be copied.

It is hard not to read it also as a response to those years. Copying the excellent cultures described in the books was, following his reasoning, the least useful thing to do: what can be copied, by definition, does not set you apart.

For whoever runs a company the practical consequence is different from what one might expect. The work does not start by inventing a new culture, but by recognizing the one that exists: understanding which part brings results and building the strategy so that it uses it, instead of fighting it. In Italian small and mid-sized companies, where culture often bears the mark of the founder and of decades of work with the same suppliers and customers, that part almost always exists; and bringing in professional management also means not losing it. The risk is not seeing it, because those who live inside it take it for granted.

It may be the stubborn attention to detail a machine shop learned from a fussy founder, which no larger competitor can afford. It may be the speed with which a family company decides, because the chain between those who know and those who decide is short. It may be the bond with a local area, its schools and its suppliers, that keeps people for decades. None of these things appears on a balance sheet, and all of them support everyday decisions. A strategy that ignores them, or treats them as a defect to correct, risks dismantling precisely what competitors cannot copy.

Where culture shows, and where it does not

To recognize it you need to know where to look. Edgar H. Schein, an organizational psychologist at MIT, distinguished three levels at which a culture shows itself: visible artifacts, espoused values and basic assumptions, that is, what people take for granted without thinking about it anymore.

The manifesto on the wall and the sentence on the “about us” page, which I mention in the video, sit at the first level. They say something, but little. The culture that matters for strategy sits at the third: in how people react to a mistake, in who can contradict the owner, in what happens when an important customer asks for a discount. It is read by listening, and that is why in my work I spend a lot of time with the people who keep the company going every day, from executives to factory workers.

Finally, one limit has to be taken into account. The same culture that protects a company can make it rigid when the world changes: what competitors cannot copy is sometimes also what the company cannot change. Recognizing it also tells you how far it can take you, and that is where all my work on organization and culture begins.

What to do and what not to do

• Understand which part of the current culture brings results, before designing a new one.
• Read culture in the basic assumptions: how decisions are made, how people react to mistakes, who can say no.
• Build the strategy so that it uses the culture that exists.
• Do not copy the culture of a company you admire: what is copied does not set you apart.
• Do not mistake the values statement for the culture.

Sources

• Jay B. Barney, “Organizational Culture: Can It Be a Source of Sustained Competitive Advantage?”, Academy of Management Review, 11 (3), 1986, pp. 656–665. https://doi.org/10.5465/amr.1986.4306261
• Terrence E. Deal, Allan A. Kennedy, Corporate Cultures, Addison-Wesley, 1982; Thomas J. Peters, Robert H. Waterman, In Search of Excellence, Harper & Row, 1982.
• Edgar H. Schein, Organizational Culture and Leadership, Jossey-Bass, 1985 (later editions with Peter Schein); “Organizational Culture,” American Psychologist, 45 (2), 1990.