DETROIT EDISON

How the outside forces changes the

company culture

SUMMARY
This case shows how a company altered forever the assumptions by
which the organization had been managed for the past 50 years. The
company has to change and adapt to the new culture and
environment, driven by the forces outside the organization to stay in
the business. The three changes (the energy crises, the nuclear
power plant and the affirmative action) were the result of forces that
were beyond the control of the organization. The company had to
cope with a complex, multifaceted environment that was changing
rapidly. The forces that would determine the future of the Detroit
Edison organization now lay outside the company, rather than within.

BACKGROUND

D
etroit Edison operates in a highly regulated environment : rates, profits and capital
investment must all be approved by the Michigan Public Service Commission. This
kind of regulation and oversight as well as the historical development of the
organization, have helped create a distinctive management style and organizational
culture.

T
his company is a leader in the industry and led by several legendary executives who
were closely involved with the evolution of public utilities nationally and
internationally. Edison grew rapidly along with Detroit and the automobile industry
from the 1920s through the early 1970s. with a predictable 7 percent annual
growth, the most important management function was to plan the continual
construction of generating stations and distribution systems.

ut by the early 1970s, all of this changed. All

represented changes driven by forces outside the
organization and they altered forever the
assumptions by which the organization had been
managed for the past 50 years.

THREE MAJOR CHANGES

First Major Change :
It begins with the oil embargo in 1973, fuel prices skyrocketed, the growth in demand
declined to 1 to 3 percent per year. The energy crisis also threw Detroits automotive
industry into chaos and led to further decline in the region.
Second Major Change :
Meanwhile its nuclear power plant get the final approval completed in January 1988.
This make the estimated costs have risen to more than $4 billion. The companys
future now depends on keeping the plant on line at full power. Edison was once an
organization that prided itself on engineering expertise. Construction of conventional
plants had been carried out by the company itself and represented an important
source of vitality, dynamism and pride. But, with the experience on its nuclear power
plant Fermi 2, Edison tended to increase the companys dependence on outsider
rather than demonstrate its independent engineering expertise and leadership.

T
hird Major Change :
B
lack Edison employees charged the company with racial bias in hiring practices. The court decision ordered that
the 8 percent proportion of blacks in the company be raised to 30 percent and that the company pay $4.25
million in damages to the victims of discrimination. The company was also ordered to undertake a court ordered
affirmative action program, which stipulated that one black must be hired for two whites who were hired, and
that one black employee must be promoted for every white employee who was promoted. After this, the company
leadership of the time began to adopt a pragmatic approach toward integration and later became more
progressive. Change at the top however was easy compared with change throughout the rest of the organization.
The company changed quickly at both the top and the bottom but very slowly in the middle. The middle
management protested as they saw the affirmative action as a major threat for them. This situation also altered
the strongly paternalistic culture and sense of family that had characterized the company for years. It created
racial barriers within an organization that had traditionally held a set of remarkably egalitarian customs for
informal socializing both on the job and outside of work.

THE DETROIT EDISON

CULTURE
T
he traditional stability of the work force and the long tenure of many employees ; Employees saw themselves
as a family member
H
ighly paternalistic
T
he employees socialized outside work, pleasant and respectful manner of interaction
I
ssues that might raise conflict often have been avoided
M
ale culture, dominated by engineers
T
he engineers vs politicians dynamics within Edison provide a classic example of conflicting subcultures. The
logic of the technical core often contradicts political and social considerations.
C
areer tracks in Detroit Edison are quite clearly defined and managers often know well beforehand what their
next position will be.
H
igh level of stability and predictability both in organization and in individual careers.
A
ll upper management positions within the company were filled by insiders.

D
uring the 1970s, the company began bringing outsiders at very high levels in an
effort to make itself more responsive to external factors. Slowly, the newcomers
began to change the style of top management and achieve integration of the
organization with the community and the state. These changes occurred through
recognition that many of the most important decisions of the future were going to
be made by those outside the company.
E
dison has great skepticism about innovative human resource practices. They point
that culture and internal organization are irrelevant to the company and that such
things were best left alone. The organization favored a conventional human
resource function, concerned primarily with selection, training and performance
appraisal.

E
ffectiveness
D
etroit Edison is a relatively high cost producer and generally falls in the next to lowest quartile when
compared to a national sample of utilities. That is because most fuel must be imported into the state,
and the regions wage rates are relatively high. These performance issues are beyond the managers
and executives control, yet the general trend persists. One response to the low growth environment
has been to try to diversify for profit subsidiary named Syndeco. Syndeco has attempted to diversify
by building on the organizations expertise and resources and by forming new service based
companies to provide an alternative to a totally regulated environment. Syndeco is an interesting
study in the clash between an entrepreneurial culture and the traditional Detroit Edison culture.
T
he potential of deregulation also requires Edison to begin to consider adapting to a changing future.
Deregulation could change the regional monopolies to competitive situation, where non Edison
producers of power to sell to customers on the Edison system. This innovation would provide
customers with choices that they do not now have.

THE CULTURE &

EFFECTIVENESS MODEL
I

nvolvement :
A
t the early years, Edison has enjoyed conditions : rapid and steady growth in the
demand for its product and no competitors. And its engineering based culture met
these demand extremely well.
T
oday, Edison appears to be a low involvement organization. It is true in the highly
stable operating organization, which is no longer challenged by the growth and
construction of the early years. The top management has changed considerably in
response to outside forces, and it appears to have developed a style that
incorporates diverse viewpoints, values, innovation and contemplates the impact
that regulatory decisions may have on future business.

C
onsistency :
T
he consistency of the organizations culture has changed appropriately to reflect changes in the
organizations environment, but the balance must necessarily continue to shift toward diversity
to adapt to future demands.
A
daptability :
F
or years, adaptability simply meant responding in a timely manner to predictable linear growth
in the demand for electricity. But now, adaptability has come to mean responsiveness to outside
influences and accommodation of the needs of a larger set of stakeholders. In the future, as
demand for adaptability and responsiveness to outside influences continue to grow, adaptability
at all levels of the organization will become more important. For now, the organizations ability
to adapt and change appears to be the most critical factor limiting its future performance.

M
ission :
E
dison missions has changed. These changes in mission can be directly traced to a changing definition
of what it means to be a public utility. Being a public utility meant adding capacity in a predictable and
efficient manner. But, now being a public utility meant responding to the publics demands,
represented through the political system, for cost effective options and safeguards.
O
ld mission : Maximizing capacity
N
ew mission : responding to the public demands.
T
he difficulty is that the first mission is still alive and well in the hearts and minds of many of the
organization members. Some of the systems are compatible with both the old and the new mission, but
many are not.

LESSON LEARNED

ulture and effectiveness at Detroit Edison is the tremendous inertia that a culture
can develop over a long period of time. The culture in this case has many roots,
and engineering occupational culture, a long period of stable growth, monopoly
situation, a paternalistic organizational family company.

his case analysis has pointed out, the 1970s were a decade of incredible
turbulence, and challenged nearly all these basic assumptions. The energy crises,
nuclear power, affirmative action and the end of construction required that the
company adapt to influences by those outside the company. With such inertia,
change could occur only through great pain and turmoil. Cultural changes in this
organization did not occur without massive change in the organizations business
environment.

THE CONCLUSION
Culture is like any object with inertia : the more
momentum the object gains, the larger the disruption
necessary to change its course, and the smaller the
deflection from its original path. Only over a period of
time comparable to the development of the original
culture, can a substantial redirection of a culture occur.

ANALYSIS
he definition of Culture :

set of norm, moral, value and customs (rules) that

belong to human, that used also for interpreting the
environment and used to create the behavior

THE PROCESS OF CULTURE

ANALYSIS
I
n this case, the changes in the outside environment of the organization, has urged the changes in corporate
culture. The Detroit Edison company has its original culture, where employees saw themselves as a family
member, had a pleasant and respectful manner of interaction, with highly paternalistic situation, and
traditional stability of the work force and the long tenure of many employees. These kind of culture had
been derived from the business environment, where Edison start as a public utility service. As a public
utility services, Edison has a stable demand from customer, and become the only company which supply an
electricity to the community (monopolistic environment).
B
ut, as years goes by, the outside environment changed. The three major changes were : The energy crisis,
Nuclear power plant and Affirmative Action. These kind of situation, has urged major changes in Edison
culture. They cannot use the original culture anymore, as it not suitable anymore with the current business
and economic situation. In that case, the company has to adapt with this kind of situation, in order to stay
in the business. The new culture that derived from the outside changes was : they build a competitive
environment among the top management, by filling up the top management from the outsider. So that, the
company can see clearly about the changes at the outside world.

ANALYSISS
The company also reduce the level of consistency that Edison traditionally
has had include more active intervention by government and regulators, a
higher profile public image, and a racially integrated work force and
management staff.
The consistency of the organizations culture has changed appropriately to
reflect changes in the organizations environment. Also, the company
adaptability has generally increased over the past 10-15 years. Adaptability
is to respons as quickly as it could, to outside influences and
accommodations of the needs of a larger set of stakeholder. Besides that,
the company changes their mission from the old one, that is to respond to
the public demands. These are all changes of the company culture, urged by
outside situation changes.