Technology continues to create new markets, reduce barriers to entry and eliminate manual labour. These technologies will become commoditised and a point of parity. How then will organisations, under increased pressure to deliver year-on-year growth, gain competitive advantage? The differentiator will be the performance of their people. Culture is central to this.
“Culture eats strategy for breakfast” -source debatable
In this post, I cover definitions of culture, offer proof it can affect companies performance with examples, discuss the dangers of culture and finally look at how to go about designing and implementing an organisational culture the right way.
Culture schmulture. What is it anyway?
Culture “subconsciously influences our assumptions about what behaviour is desirable or not okay, it helps people align their behaviour towards goals and how they work together, and is how organisations reap the benefits above.” (adapted from Overbeck, 2016).
In other words, culture is how people act when no-one is watching. Imagine you’re holding a piece of rubbish and no-one is around. In some cultures, people would likely throw it on the ground. In others, they would be more likely to find a bin / put it in their pocket. These acts are driven by culture; a combination of social norms and motivations, often subconsciously.How do you want your employees to act when no-one is watching? #culture Click To Tweet
So culture can be a mechanism of control. It is also a powerful intrinsic motivator; an invisible constraint that is experienced as autonomy. It can add a sense of meaningfulness and pride to work. Culture can also increase commitment and facilitate cooperation.
To understand how culture manifests itself in an organisation, we can use Hall’s iceberg model of culture.
For illustrative purposes, we will refer to the levels as below:
Artifacts – these can be seen, felt, heard. They are observable products of the culture: symbols, stories, texts, ceremonies, rituals.
Values – we can articulate but don’t typically talk about. Rules of appropriate behaviour. Norms about what is right and wrong, important and unimportant.
Assumptions – Assumptions are deep below, fundamental orientations about how we think reality is structured. Underlie organisational culture; taken for granted, shared beliefs, hidden and must be inferred.
But does culture really impact organisational performance?
Culture is more than just a buzzword. Many studies have been done on its impact on performance, consistently saying the same thing for over 20 years; stronger culture is correlated with stronger organisational performance.
Many successful companies credit their success to a culture by design, not by default. Let’s examine 3 of them – each with very different cultures.
1. Netflix culture – Freedom & Responsibility
Netflix’s performance culture is (in)famous. They advertise a very high performance environment where only stars “that managers would fight to keep” will stay in a job for very long. Why would anyone stay in this cut-throat environment? Their culture also dictates they pay the best rates in the market, consistently eliminate rules and policies (including no vacation policy – take what you want, when you want) and promote “highly aligned, loosely coupled” teams. Autonomy is a big instrinsic motivator. The Netflix Culture slidedeck is a great example of a self-selective culture; it encourages only those that will fit to apply/stay.
The kicker to the story is the HR manager that the architect of this culture felt victim to it later, being let go of herself for only ‘good’ performance. Netflix have designed a culture that was a driving factor in their financial performance, with a market cap over $60B:
Amazon culture – Customer Obsession & Innovation
Over 20 years ago, a little startup called Amazon aimed to sell books on the internet. They are now on the verge of taking over your life, through powerhouse marketplace, internet hosting and entertainment offerings. Throughout that time, their CEO has consistently reinforced their culture. The message hasn’t changed much from the famous 1997 shareholder letter (below) through to his latest version in 2016.
“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.” – Jeff Bezos
Their unwavering focus on customer obsession, innovation, frugality & having employees think like owners (via stock options/commission) have led them to a staggering $107B revenue in 2015.
3. Mary Kay Cosmetics culture – Beauty and Empowerment
Was Mary Kay the grandmother of organisational culture? In the 60’s when women were burning bras, she built a direct-selling cosmetics company (think Avon) to over 50,000 female ‘entrepreneurs’. Don’t let the age of this case fool you; Mary Kay was a natural born leader whose organisation bordered on cult-like. Everything about the system was straight out of a psychological textbook; from the visible artifacts of ranking and success badges, to the songs and initiation ceremonies, to the pilgrimages made to the annual off-site conferences where Mary Kay was held in almost holy regard. Mary Kay remained humble and focused on her mission to empower and reward her female sales-people. This 10-minute documentary is worth a watch if nothing else to see the devotion of her employees.
Organisational Culture can be positive and negative
All this talk of culture driving performance is only true when it’s done well. Anecdotally and from 1st-hand experience, maintaining a great culture is fiendishly difficult. Everything about it must be congruent; from hiring to firing, from incentive schemes and structures, to every action of the leadership team. If any of these are not in sync with the espoused culture, it can become a limitation at best and a performance-killer at worst. Great leaders embody the culture, they live and breathe it, and will generate followers. However when employees detect incongruence at any level of culture, where the talk isn’t walked, where there are different sets of rules for managers & workers, then trust is broken. Sarcasm, pessimism and false cultures can take root; where the bottom of the iceberg no longer reflects levels at the middle and top.
“While most people tell human resources they are leaving for more money or a better opportunity, 88% change jobs because of negative factors in their current workplace, ranging from subpar people management to toxic culture.” – Leigh Branham, author of The 7 Hidden Reasons Employees Leave
Defining culture strength
We have seen examples of ‘strong culture’ and heard about the dangers of otherwise. How do we measure culture strength?
Crystallisation of values: Degree to which employees believe company values
Intensity of values: Degree to which employees care about the company values
Warring factions arise when people have strong values, but those values are different from each other / from the company.
Vacuous beliefs are when people understand the company values, they just don’t care about them / behave true to them.
Weak culture is when nobody feels strongly about values nor cares about them.Which describes your company: Strong culture, Warring Factions, Vacuous Beliefs, Weak Culture?… Click To Tweet
How to design and implement culture the right way
Given that culture can be a competitive advantage, it should be part of your Go-To-Market plan. Values shouldn’t just be feel-good; they should be critical to your strategy.
The discussion and design of these values should involve everyone you want to still be working there after the exercise. I’m not suggesting they should be decided upon through democracy. However telling people what to believe != what they actually believe.
Thus, culture design and implementation is far easier done upfront in a startup or small team. The team agrees on the culture that will build and nurture the practices, processes and capabilities needed to win. From there, appropriate cultural ceremonies, values, norms, artifacts, recruitment, training and rewards can be designed. There is buy-in across the team members and it becomes intensified (they care) and crystallised (they believe), resulting in a strong culture.
How to change an iceberg?
The bigger challenge is to turn around a larger or existing companies culture. This is very difficult for a number of reasons.:
- People are resistant to change.
- Existing employees won’t buy in to being assigned new ‘values’ – it will lead to warring factions or vacuous beliefs.
- Employees have subconscious assumptions at the bottom of the iceberg; changing things at the surface level isn’t enough.
Even Tony Hsieh of Zappos, once famed for their strong culture, has since hit a major pothole when trying to reinvent their culture in 2015.
Culture clash is often cited as the major reason that mergers and acquisitions fail. So well known is it that M&A decisions go/no-go decision are often based on the level of culture fit between the two companies. Trying to change the culture of one simply doesn’t work.
Here are three strategies to consider when facing a culture overhaul:
- Create a new division/team: While there is an overarching organisational culture, teams have their own sub-cultures. The culture in a sales team is likely very different to an engineering team or IT help desk. Creating a new team is an opportunity to design and implement a new sub-culture; just as long as it isn’t diametrically opposed to the overarching organisational culture.
- Use prospect theory to increase appetite for risk/change: People that have something (an item, a job, etc), have a tendency to want to protect it. If you’ve ever seen two toddlers fight over a toy you’ll understand loss aversion; something becomes more valuable when someone else wants it. To this end, people in a gain frame can be said to be risk-averse. Meanwhile people that have lost something have a tendency to be risk-seeking (picture The Gambler that doubles down to chase a loss). Thus if people were faced with losing (e.g. the company shutting down), they should be more open to adapting change.
- Rebrand/rename the company: This involves a massive organisational, HR and change management effort. Each employee needs to be screened and consulted, to the point where they are given an option to leave if they don’t fully commit to the new direction. When Zappos performed this HR overhaul (sans rebrand),14% of the company resigned. A company spokesperson said that was the right number; they only want those that fit to stay.
Has anyone changed a culture?
General Motors used a combination of all three of the above methods. This is the story of the rise of NUMMI, or how one of the worst auto plants in America started producing some of its best cars, thanks to lessons learned from the Toyota production system. Actions taken were:
- GM shut down the original plant
- Rebranded it as a Toyota/GM hybrid plant
- Only re-hired those that would adopt the new culture
- Flew the team to Japan to observe first-hand a better way (giving them a new mental model & benchmark)
The results were startling. They were also unable to be reproduced at other plants, as the drastic measures weren’t replicated. The case is told in a fascinating podcast here.
Culture is the key
If people are going to be the winning differentiator, culture is the key. Championship teams will be built around strong culture that comes from the coach, the captain and the playmakers alike.
Credit to Associate Professor Jen Overbeck @ MBS for teaching most of the above subject matter to me. This is an attempt at consolidating that knowledge – follow her on Twitter here.