Proof culture can affect companies performance
Technology continues to create new markets, reduce barriers to entry and eliminate manual labour. These technologies will be commoditised and become table stakes. How will organisations gain a true competitive advantage if not through technology? The differentiator will be the performance of their people. Culture is central to this.
“Culture eats strategy for breakfast” -Peter Drucker
In this post, I cover definitions of culture, offer proof it can affect companies performance, 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?
Dr Jen Overbeck of Melbourne Business School defines culture as something that “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.”
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, some people would be likely to find a bin or put it in their pocket. In others, people would throw it on the ground. These acts are driven by culture; a combination of social norms and subconscious motivations.
How do you want your employees to act when no-one is watching?
Culture therefore 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 meaning 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 – these are the rules of appropriate behaviour. Norms about what is right and wrong, important and unimportant.
Assumptions – these are deep below the surface of conversation and consciousness, fundamental orientations about how we think reality is structured. These underlie organisational culture and are taken for granted. They are shared beliefs, but are hidden and must be inferred.
Does culture really impact organisational performance?
I know what you’re saying. As Product Managers, we’re trained to balance gut-feel with data-driven decision making. Where is the data that proves culture is key? Actually, it’s a fact that many studies have found consistently 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 three of them – each with very different cultures.
1. Netflix culture – Freedom & Responsibility
Netflix’s performance culture is infamous. They advertise a very high performance environment where only people “that managers would fight to keep” stay in a job for very long. Why would anyone stay in this cut-throat environment? Their culture dictates they pay the best rates in the market and consistently eliminate rules and policies. There is no vacation policy; take what you want, when you want. They promote “highly aligned, loosely coupled” teams. This level of autonomy is a big intrinsic motivator for high performers. The Netflix Culture slide-deck 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 who helped architect this culture deck felt victim to it; she was later let go of herself for only ‘good’ performance (Henn, S. (2017). Netflix have designed a culture that was a driving factor in their financial performance, with a market cap over $60B (Stenovec, 2017).
Amazon culture – Customer Obsession & Innovation
Over 20 years ago, a little startup called Amazon set out to sell books on the internet. They are now on the verge of taking over your life, through a powerhouse marketplace, internet hosting and entertainment offerings. Over that time, their CEO has consistently reinforced their killer culture. The message hasn’t changed much from the famous 1997 shareholder letter through to his latest version.
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 and having employees think like owners (via stock options/commission) have led them to a staggering $107B revenue in 2015 (Guppta, 2017).
3. Mary Kay Cosmetics culture – Beauty and Empowerment
You might not have heard of Mary Kay. She may well have been the grandmother of organisational culture.
In the 60’s when the feminist movement was taking off, she built a direct-selling cosmetics company (think Avon) to over 50,000 female ‘entrepreneurs’.
Don’t let the age of this case study fool you; Mary Kay was a natural born leader whose company was more like a cult than your typical employer.
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 near holy regard. Mary Kay remained humble and focused on her mission to empower and reward her female sales-people. This 10-minute documentary is well worth a watch. Her employees are completely devoted to their CEO – it also contains pink cadillacs.
Organisational Culture can be positive and negative
All this talk of culture driving performance is only true when it’s done well. Maintaining a great culture is fiendishly difficult. Everything about it must be congruent; from hiring to firing, from incentive schemes and structures. Every action of the leadership team counts. 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. This generates 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 and workers; then trust is broken. Sarcasm, pessimism and false cultures can take root. This is where the bottom of the iceberg no longer reflects 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, The 7 Hidden Reasons Employees Leave
Uber paid $26 billion for toxic culture
When a non-tangible such as ‘culture’ is allowed to get out of control, it can cost companies in very tangible value. Uber suffered a series of incidents stemming from it’s toxic culture From IP theft, to sexual harassment and misconduct, to a CEO that harassed it’s own employees on video; it spawned the #deleteUber movement that resulted in $26 billion of value being wiped off it’s share price (Knight, 2017). The brand went from being an disrupting hero to a corporate villain in a matter of weeks.
Defining culture strength
We have seen examples of ‘strong culture’ and heard about the dangers of weak and toxic cultures. Culture strength can be measured on two axis:
Crystallisation of values: Degree to which employees believe the 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, or Weak Culture?
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.
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 crystallised (they believe) and intensified (they care), resulting in a strong culture. There are also six keys to ensuring it remains that way.
The six steps to ensuring a strong culture
Follow these six steps to ensure culture remains strong across your organisation.
Rigorous Selection – new employees should be strictly vetted against your existing values or adaptability to them. Look for past behaviours that demonstrate them.
Shared Humility-Inducing Experience – there is a reason most cults and sporting teams have initiation ceremonies; it strengthens people’s connection to the group. The ceremony needs to be public and of their own free choice to join in. People will later reduce the cognitive dissonance in their own mind (caused by doing something they may have preferred not to) by justifying that joining this group was a good decision.
Structural Closure – being closed off the outside world promotes cliques, facilitates role taking amongst the group. This is why ‘off-site’ workshops and team-building activities are so popular (in addition to everyone loving a free trip).
Distinctive Training – having a training program with company-specific language/jargon, particularly combined with Structural Closure, creates an environment of in-group/out-group mentality. People around you “get it” and outsiders don’t. It increases your reliance on them.
Adherence to Values – this is walking the talk and actually acting on the values. Should be reinforced by with folklore, stories, heroes and champions within the organisation that did things that displayed the values. It proves that acting in-line with the culture is something that people look up to.
Rewards System – rewards must reflect values and reward behaviour that contributes to what the culture is meant to produce. This includes awards, ceremonies and bonuses being tied back to organisational values. Having rewards that don’t align with values gives people a mixed message; you’re telling them to act in one way, but rewarding them for acting in another. Which do you think they’re going to choose?
Can an existing culture be changed?
Turning around an existing companies culture is about as easy as trying to shift an iceberg. This is due to 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, CEO of Zappos, once famed for their strong culture, 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 go/no-go decision are often based on the level of culture fit between the two companies. Trying to change the culture of one to suit the other is fraught with danger.
That said, there are some strategies to consider when facing a culture overhaul.
1) Remove those that promote a toxic culture
Culture strength varies from employee to employee; there will always be those in the company that belong in the Warring Factions or Vacuous Beliefs camps. Like a virus, these people risk infecting those around them. Removing these people should be the priority of any manager. Doing so generally improves the morale of those around them, as a constant source of negative energy is removed from the workplace.
2) Create a new division/team
While there is always 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.
3) 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 a 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.
4) 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 (Prontefract, 2017). A company spokesperson said that was the right number; they only want those that fit to stay.
Has anyone changed a culture successfully?
General Motors used a combination of all 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. The same results weren’t reproducible at other plants that didn’t have the same drastic measures. The case is told in a fascinating podcast here (https://www.thisamericanlife.org/radio-archives/episode/403/nummi).
Culture is the key
If people are going to be the winning differentiator for companies, culture is the key to getting the most from them. Championship teams will be built around a strong culture that comes from the coach, the captain and the playmakers alike.
1. Branham, L. (2017). Keeping The People. [online] Keepingthepeople.com. Available at: http://www.keepingthepeople.com/ [Accessed 14 Aug. 2017]
2. Glass, I. and Langfitt, F. (2017). NUMMI. [online] This American Life. Available at: https://www.thisamericanlife.org/radio-archives/episode/403/nummi/ [Accessed 14 Aug. 2017]
3. Guppta, K. (2017). How Jeff Bezos Maintains Amazon’s Killer Company Culture. [online] Strategyzer. Available at: http://blog.strategyzer.com/posts/2016/6/23/how-jeff-bezos-maintains-amazons-killer-company-culture [Accessed 14 Aug. 2017]
4. Henn, S. (2017). How The Architect Of Netflix’s Innovative Culture Lost Her Job To The System. [online] NPR.org. Available at: http://www.npr.org/2015/09/03/437291792/how-the-architect-of-netflixs-innovative-culture-lost-her-job-to-the-system [Accessed 14 Aug. 2017]
5. Knight, E. (2017). Uber pays a $26 billion price for its toxic corporate culture. [online] The Sydney Morning Herald. Available at: http://www.smh.com.au/business/uber-pays-a-26-billion-price-for-its-toxic-corporate-culture-20170630-gx1x3w.html [Accessed 14 Aug. 2017]
6. Dr Jen Overbeck (https://mbs.edu/faculty/jennifer-overbeck)
7. Prontefract, D. (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/danpontefract/2015/05/11/what-is-happening-at-zappos/#645cfcfe4ed8 [Accessed 14 Aug. 2017]
8. Quora. (2017). Did Peter Drucker actually say “culture eats strategy for breakfast” – and if so, where/when?. [online] Available at: https://www.quora.com/Did-Peter-Drucker-actually-say-culture-eats-strategy-for-breakfast-and-if-so-where-when/ [Accessed 14 Aug. 2017]
9. Stenovec, T. (2017). One Huge Reason For Netflix’s Success. [online] Huffington Post Australia. Available at: http://www.huffingtonpost.com.au/entry/netflix-culture-deck-success_n_6763716 [Accessed 14 Aug. 2017]