By Rocio Summers
In October 2017, the National Association of Corporate Directors (NACD) published its Blue Ribbon Commission’s Report on Culture as a Corporate Asset. The Wall Street Journal's headlines read: “After Uber and Wells Fargo, Boards wake up to Company Culture”. The NACD precisely emphasized that even though organizational culture has been studied in business and academic writers for decades, “it tends to attract public attention mainly in the wake of negative events (…) but if led and managed well, culture is the rocket fuel for delivering value to stakeholders”.
So what is culture, why is it so important and why is everybody speaking about culture, including myself in my prior articles? (see “Doing business internationally. Expanding widely” and “M&A: A marriage of convenience”).
The NACD Blue Ribbon report defines culture as a “series of assumptions individuals make about the groups in which they participate, visible through public statements, stated goals and basic (taken for granted) beliefs”.
The famous saying “Culture eats strategy for breakfast” attributed to Peter Drucker, reflects in a very graphic way the relationship between culture and strategy. Drucker certainly believed that a company's culture normally thwarts any attempt to create or enforce a strategy that is incompatible with that culture.
It’s not trivial, therefore, that Directors are including culture among their priorities in governance practice, as there is no way the best strategy can succeed if there is not an alignment with the culture of the organization. And this means that this alignment is critical and at the same time extremely difficult to evaluate.
And precisely because culture is hard to measure, it is frequently ignored or approached in a merely intuitive manner leading that way to many failures and disappointments.
Among the business literature, I particularly like Spencer Stuart approach to measuring culture. Harvard Business Review dedicates an extensive article in the Jan-Feb 2018 issue to explain this methodology. Basically, the model maps culture styles along two dimensions: how people interact: independence vs interdependence and their resistance to change: flexibility vs stability. Based on this, 8 different culture styles are defined. The distance between styles is important as proximate styles will coexist more easily (purpose and caring) than distant ones (learning and safety).
Spencer Stuart has developed a methodology to evaluate individual’s responses in particular cases and define their preferred relative order in culture: The individual style profile. At the same time, we can define where the organization culture sets through public statements, general behaviors, and employees perception of company's values.
This simple methodology can help us visualize very clearly, whether the Executive Leadership of an organization or the Board of Directors is aligned with the culture and whether the organizational culture is consistent with the Strategy.
The lack of alignment is also the struggle of most mergers and acquisitions. When Amazon acquired Whole Foods last summer, there were plenty of questions in the markets about the success of this union - In Spencer Stuart’s chart, Amazon was classified as Authority style while Whole Foods fell into the Purpose category-
Even though the financial results seem to be good so far, there are still serious concerns about the lack of compatibility of cultures. Miami Herald just published an article titled: "I wake up ... from nightmares:’ Why Whole Foods workers are hating life".
As culture is fed by human beings, it is obviously subject to evolution. And this happens sometimes spontaneously when a company grows and expands geographically or expands its workforce intergenerationally. The role of the leadership and the governance, in this case, must be to safeguard the values and mission of the organization.
But what happens when change is necessary? And why would the change be necessary?
There could be external or internal factors that would make it advisable to change an organization strategy.
In an extremely fast and disruptive world, ultimately no industry can afford remaining status quo and survive. In this context, the very stable organizational cultures, predominantly Authority or Safety styles, have more problems to adapt to the necessary changes, and when the strategy needs to change, they are much more vulnerable. Other external factors can also pose a threat to Purpose and Caring organizations such as nonprofits, and force them to turn to a style more oriented to Results or even Authority.
So how should organizations deal with the necessary change and Change Management?
There’s extensive business literature on this subject. Let’s just focus on a couple of critical points:
· Define precisely what the strategic changes need to be. As with everything in strategy, it is a question of trade-offs. Priorities need to be defined. What is an immediate threat, where can a significant competitive advantage be obtained and what is doable considering the organization’s leadership capabilities and culture? Whether the strategy change means going global, reorienting the strategy to be more customer focused, introducing or prioritizing innovation, promoting sustainability or betting for nimbleness and cost reduction, organizations should choose one of the changes and focus on it.
· Evaluate leadership’s alignment with the necessary change. The organization may or may not have the appropriate leader to achieve the transformation. It will need to evaluate if the organization’s culture is ready to face this change and whether the leadership is strong enough to “steer the boat”. Obviously, the Board needs to be aligned with the needed change and oversee and evaluate the adequacy of the current leadership. It may easily be the case that the strategy change requires a change in leadership and that’s by definition one of the main functions of a Board: hiring and firing the CEO.
· Finally, communication is key. It is necessary to enable a well-dimensioned team to cheer the change, design the execution and put it in place, and send a clear and structured message to the employees. That will facilitate that employees “buy-in” and the morale of the organization doesn’t suffer so much. Make it a purpose to engage employees in conversations about the cultural changes, the new goals, and the desired objectives. Organize structured group discussions and social media platforms. That way, the inevitable discussions will happen in a healthier manner.
Change is never easy and needs to be approached carefully. However, it has been said that change is the only constant. The main challenge with change is precisely how embedded culture is in the people that form the organization and how it is related to their values and principles. When an organization decides to undertake a major cultural change, it needs to assume from the very beginning that it may lose some talent on the way, just because of the lack of fit with the desired transformation.
It's up to the organizations and their governing bodies to find leaders able to lead the change and adjust the culture to the new strategy. Most times the process is painful, but neglecting or ignoring the need to adjust the culture to the strategy, can be fatal.