failing business

Culture ate strategy for lunch – now it’s eating at your value

“What is a good business culture?” is a question that many CEOs continue to struggle with. In this article, EY provides great insight into the problem and why it requires immediate attention.

You would be hard-pressed to find a leader today who is unaware that culture matters. Yet here we are, almost two decades after Peter Drucker first set the stage for a corporate culture movement, still trying to figure out how to do it.

What CEOs continue to struggle with is what a good culture is for their business and how to operationalize it. They are running out of time to figure it out, too. Digital disruption has brought sweeping change to the way we work, forcing businesses across industries to rethink their business models. Failure to align culture to strategic objectives is delaying and in some cases completely derailing progress. And we don’t tolerate inappropriate and unethical behaviour anymore (rightfully so). The #Metoo movement helped expose what happens in companies when the lights are out. When the spotlight shows the dark side of culture, employees, customers and investors leave. People get hurt and lose their jobs. This is the age of transparency, and we are not likely to go back to old ways.

The Coalition for Inclusive Capitalism and EY recently reported that intangible assets, such as culture, on average make up 52% of a company’s market value. And for some companies, that makeup is as high as 90%. Today, we are less defined by our physical assets and more by our people than at any other period in modern-day business history. We cannot afford to get culture wrong any longer.

Aware of the serious risks associated with bad cultures, the world’s largest institutional investors have pledged their commitment to reviewing purpose and corporate culture, and regulators have begun to mandate oversight from boards. So, a reckoning is afoot. The time has come to finally figure this culture thing out – what needs to change and how to bring that change about.

What culture is and what it is not

In the mid-2000s, startups made headlines for the generous perks they offered employees in exchange for their long hours. Corporations, fearful of losing top talent to these more relaxed offices, took note and adopted similar amenities.

It turned out not to be the quick fix many hoped, however, because – reality check – culture is built on a number of intangibles, not office perks, that promote a feeling of belonging and safety at work. By way of example:

• A good culture is more than unlimited vacation time; it’s actually unplugging when you are out of the office without repercussions.

• A good culture is more than company parties; it’s enjoying spending time with your colleagues during these events, without fear of sexual harassment.

• A good culture is more than the flexibility to work from home; it’s managers who don’t count the days you do so because they don’t trust you to do your work.

In essence, culture is grounded in trust and psychological safety in the workplace, and that can never be purchased or produced in haste. Yes, superficial perks can help loosen things up, but if you’re setting up ping-pong tables without doing deep work in tandem to change the undertone, the investment appears artificial and feels disingenuous to employees – a detriment to building trust.

Although we often recognize small or tech companies as best able to drive modern cultures, size and age are not barriers to a healthy, differentiated culture. Heritage, history and purpose are huge advantages if you tap into and celebrate them well. And they can be as inspirational as any progressive mantra of a tech company. This point needs emphasis: Being large and having a rich history are advantages, not disadvantages. There is no shortcut to instilling legacy and wisdom in your culture. If you have those, even if they are shrouded in current challenges, you have something great to build on. But build you must – every organization of any size, shape and age must shepherd its culture to stay fit over time.

Operationalizing the intangible

Instilling and maintaining a healthy culture takes a lot of time and dedication. Senior leadership is accountable for its success, but boards must also establish that the execution of culture modernization is an ongoing priority, and that management has adequate resources to operationalize it.

Operationalizing culture includes three key parts:

1. Regularly reading the pulse of the organization to keep the good and improve the not-so-good

2. Social mapping to know the culture carriers and influencers

3. Top-down and bottom-up intentional shifts over time

Any culture work should be done collaboratively, not punted to Human Resources with limited resources. Culture is a lot about making work simpler over the long term, but to do it right, you will probably have to free up time for people to take on additional work in the near term. Transformative culture work is never achieved by people who are already overextended and exhausted. It takes a team that is incentivized to collaborate and do things differently.

Reading the pulse of the organization

Culture work typically has a catalyst — commonly a shift in strategy, a new CEO, a merger or acquisition, digital or functional transformation, regulatory changes, increasing calls for inclusivity, or unethical behavior events. As a first step, senior leaders should ask questions to determine what needs to be done, evaluating their catalyst and identifying how it can or should shift culture:

• Are we trying to achieve new things with old ways of working?

• Do we have a clear view of the culture we have and need to have?

• Do we, as leaders, set the right tone at the top? Not just a nice tone based on our style, but the right tone for our business? Do we live it consistently?

• How are we operating today, and how will it change in the face of transformation?

• Is our culture an asset or impediment to a desired change in our business strategy?

• Are there skeletons in our closet? Would we rather know and do something about them, or ignore and hope nobody gets hurt?

The answers to these questions can initiate a movement. To quantify progress, you’ll need to assess data from employees, customers and shareholders to create a baseline of where you are, and establish regular check-ins over time to track progress. Most of this data already exists, and advancements in analytics and technology make it easier than you might expect to gather, use and learn from it. With this information in hand, leaders can determine what the company should keep doing, stop doing and start doing to best drive the strategy.

Social mapping

Before moving toward new ways of working, leaders need to clearly understand the social network of the company – who actually connects to whom and who has the largest influence. Every company has a formal structure and an arguably more important informal social structure. This is part of your culture; if you don’t see it today, you need to. The real influencers aren’t always the people in senior leadership roles, and as such, the vast majority of companies have no clue who can really help them shift culture.

To identify your influencers, examine the “digital exhaust” of your company. Using data for example, from email traffic and calendaring, it is possible to create social maps and determine how people are influenced. This analytic method, Organizational Network Analysis (ONA), is used globally to better understand and measure certain aspects of culture. It allows leaders to identify areas for impact and to design change to and through the real influencers in the business.

Top-down and bottom-up

While it’s true that behavior is modeled from the top down, pushing a new way of thinking on others isn’t an effective strategy for operationalizing culture. Executive sponsorship is key, however. To get that buy-in while allowing the real work to happen on the ground, adopt a “rocks and boulders” approach.

At the senior level, identify the big boulders, like governance, operating model, performance systems, rewards systems, and business processes that must change to shift and sustain new ways of working. Prioritize one boulder at a time, so that senior leadership can put their collective shoulders into rolling it forward.

Outside of the senior leadership team, identify the influencers who are open-minded and ready to do things differently. With these people at the forefront, plan small changes for local teams by creating an environment conducive to learning and adopting new behaviors. Over time, these new behaviors (the rocks) create new norms that can be promoted to other teams as a new way of doing things. When enough rocks move, they create an avalanche, resulting in the force needed to truly make a culture shift.

Shape up or ship out

Everyone who works in your organization contributes to your culture. We are each accountable for how we show up every day. One bad egg is all it takes to disrupt harmony, prompt a new wave of employee turnover, damage client relationships, or even drop your share price.

It is past time organizations got serious about stopping bad behavior. In part, this means working on self-awareness, so that everyone understands the impact they have every day on trust, safety and performance. Unfortunately, some people just won’t get on board. So it also sometimes means removing people whose actions are detrimental to the cultural health of the organization.

Aligning culture across every level of the organization so that it enables your strategy is essential to moving with agility in a time of unprecedented change. As external pressure mounts, leaders should take action to create a blueprint for purpose and culture that delivers short- and long-term value for employees, customers and investors. Culture isn’t the soft stuff, it’s the real, human stuff. And it’s time we got that right for each other.

Posted in Engagement, It's all about people, Organisational culture, Other, Productivity.