Business Norms
- bennym40
- Jun 15
- 5 min read
Updated: 2 days ago
TL;DR: Business norms can be critical to organisational success, but only become noticeable when they stop working or start to become harmful. Changes in strategy, company size, or personnel are the most likely causes for the undermining or corruption of business norms. Risk teams can benefit from identifying, documenting and evaluating business norms, especially when they have an unacknowledged impact on the decision-making process.
The views and opinions expressed on this account are my own and do not reflect the official policy or position of my employer. Any content provided is for informational purposes only and should not be considered or relied upon as professional advice.
What Are Business Norms?
All businesses have norms; unspoken rules that guide how organisations operate. These norms can be complex, selectively applied, and they often go unnoticed until they're pointed out. They tend to be undocumented, unacknowledged and under-examined.
A great example of a norm that we follow every day, but couldn’t articulate relates to adjective order:
“Adjectives in English absolutely have to be in this order: opinion-size-age-shape-colour-origin-material-purpose-Noun. So you can have a lovely little old rectangular green French silver whittling knife. But if you mess with that word order in the slightest you’ll sound like a maniac. It’s an odd thing that every English speaker uses that list, but almost none of us could write it out. And as size comes before colour, green great dragons can’t exist.”[i]
Business norms can be harmless (bringing cake in on your birthday), helpful (an attention to safety), or harmful (a distrust of cross-team collaboration). Changes in strategy, company size, or personnel often lead to changes business norms.
We can explore this idea through two case studies; Toyota and Boeing.
Toyota
Toyota was known for quality, reliability and durability. The prevailing norms supported these ideas so completely that management could rely on employees to act appropriately with limited formal oversight.
However, when Toyota's strategy shifted to aggressive sales growth (targeting 15% of the US market), its informal norms lost their power. The switch to significant sales growth undermined the organisational importance of quality, “key decisions affecting product development, supplier management and production became biased in favour of meeting sales, delivery, cost-cutting and profit targets.”[ii] This led to Toyota’s single largest recall, affecting over 7 million vehicles.
Boeing
Boeing's culture shifted after merging with McDonnel Douglas. Previously led by engineers, it became more profit driven. This was no accident. As an ex-McDonnel Douglas CEO put it: “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm.”[iii]
Building aircraft at scale is incredibly complex; a 737 Max has more than half a million parts. Boeing outsourced much of that production, assembling components from at least 600 suppliers, not counting sub-contractors.
Over time, post-merger culture:
Replaced technical rigour with financial targets.
Weakened safety-focused norms.
Actively suppressed the formal reporting of quality issues.
After a run of bad news stories about missing bolts and blow-out door plugs, Boeing experienced two fatal crashes in 2019 and 2020. Those two crashes were linked to the failure of a flight control system that relied on a single sensor with no backup. Such a single point of failure violated a core aviation engineering principle of always ensuring system redundancy when the consequences are severe – something that would have run counter to the norms that underpinned pre-merger Boeing culture.
Key Takeaways
High growth firms in particular often face challenges when their strategies disrupt norms. For example;
Informal processes and information sharing that were effective with a small staff count must be replaced by formal processes.
A small number of generalists are replaced by a large number of specialists, creating responsibility and informational silos that may require new norms.
Changes in leadership personnel impact how and what cultural values are communicated and rewarded.
Ensuring continuity of performance requires clear incentives for the promotion of best practices, and the proactive development and embedding of those cultural norms that remain useful. This is difficult to accomplish if those norms have not been identified in the first place, and the Risk team is well placed to identify and catalogue the most consequential business norms.
Why Risk Teams Should Care
Risk teams can benefit from identifying, documenting and evaluating business norms, especially where they have an unacknowledged impact on 1) the decision-making process, or 2) the likelihood of individuals’ compliance with company policy.
Examples of types of business norm that risk teams’ should be aware of include:
Norms that Create a disconnect between the stated goals of a strategic initiative, and the priorities the team actually pursues. For instance, a company that has norms that favour decentralised decision-making may under-invest in a project to increase centralised oversight of decision-making.
Norms influencing how success is defined. The execution risks associated with a company with a culture of over-promising and under-delivering will differ from those at a company that seeks to under-promise and over-deliver.
Norms affecting what issues are escalated. There may be a perception that certain types of issue should be "fixed" at team level, or escalated outside of the formal governance processes.
Norms that dictate which assumptions can be challenged. Certain types of assumption may be considered unimpeachable, for instance when made by someone that sits on the Board, or by a certain function, or that are hardwired into the company's strategy.
Norms setting which behaviours are rewarded, and which are punished. A formal policy of prioritising safety will be undermined if formal and informal benefits and status flow to individuals that bring in revenue over those that follow policy.
The economist Douglass North thought that it was much easier to alter formal rules than informal social conventions (or norms)[iv]. He concluded that understanding and influencing informal cultural norms was the key to understanding the effectiveness and longevity of any cultural change. North's conclusion is relevant for Risk teams, particularly with respect to strategic initiatives, organisational change, and control and process development.
How this relates to control frameworks
Control frameworks are most effective when they:
Compliment Positive Norms. For example, if a company values attention to detail, key controls should prioritise cross-silo and top-down review, rather than seeking to replicate the detail-focused activities that the business is going to prioritise regardless of the control framework.
Address Harmful Norms. For example, if informal decision-making is common, controls should focus on introducing formality to the decision process only for the most material decisions. Controls that conflict with the underlying business norms are more likely to be ignored and become a source of friction, so they should be limited to the most material risks and decisions, where they are most defensible.
I hope this blog sparks ideas and discussion. If you found it interesting, please share or connect with me on LinkedIn to contribute or provide feedback!
[i] The Elements of Eloquence: How to Turn the Perfect English Phrase, 2013, Mark Forsyth, 978-1848316218
[ii] Toyota Motor Case Study, Lal Bahadur Shastri Inst. Of Management
[iv] Institutions, 1991, Douglass North, Journal of Economic Perspectives
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