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Why Culture Matters and How to Create it

By Lindsey Nehls, Senior Consultant, The Piras Group

How to create culture

What is Culture?

Culture is important. Let’s review why culture matters and then cover a 5 step process that will help you create a culture for performance in your organization.

First, let’s make sure we are aligned on the definition of culture. Culture is the pattern of behavior that is reinforced by people and systems over time.

Much of what we accept as “true” or “important” in organizations comes only from consensus of others. Your colleagues’ actions tell you what is acceptable and what isn’t.  For example, if you see people sitting down for lunch together in the office, then you join and think taking a break for lunch is acceptable. If you don’t see anyone eating lunch together, then you think you are supposed to just eat at your desk. Leaders can’t control every decision people make; it is the company culture that tells employees how to act when no one is looking.

Quote on Culture

Why Culture Matters?

We can spend so much time trying to get a company’s strategy right, but if the culture doesn’t support the strategy it won’t come to fruition, no matter how brilliant it is.

As Dick Kovacevich, former CEO of Wells Fargo, says: "A well-conceived strategy is important, but I could give our strategic plan to our competitors and not worry about it, because it’s all about execution. A second rate strategy perfectly executed will beat a first-rate strategy poorly executed."

It’s not about the idea, it’s about the execution, and a company’s culture is one of the most important elements of how it executes its ideas.

  • If the company strategy requires employees to be nimble and make decisions very quickly, then the culture needs to reward speed and tolerate mistakes.
  • If your company requires reliable quarterly results, then the culture needs to reward consistency and tolerate a lack of innovation.

When the strategy and culture are congruent, the results are profound but if the strategy and culture are incongruent, it is extremely difficult to execute the strategy.

Stanford Graduate School of Business performed a study to see if there was a correlation between culture and financial performance. The study included 56 high-tech companies that, at the time of the study, made up 75% of the total revenue from high-technology Fortune 1000 firms.  Apple, Google, EBAY, Adobe, Cisco and HP were a few companies in the study.  

The research concluded that the firms with a strong culture (clearly defined, aligned with strategy, and pervasive through the organization) had much stronger financial performance than those with a weak culture [1]. Revenues from the companies with a strong innovative culture increased 682% over a three-year period while those with a weak, less adaptable, and strategically incongruent culture only increased 166%. Culture matters. 

Weak Culture vs Strong Culture Comparison

How to Build Culture?

If a strategically aligned culture is so critical, then how do you create it? Here are 5 steps that we used at my company when our division was spun out of a multi-national company and we needed to shift our culture to be successful under our new private equity ownership. Please note that prior to architecting and implementing a company’s culture, it is important that the company has already defined their business strategy.

Step 1: Build a Team: We created a diverse cross-functional task force to develop and implement a culture that supported our business strategy. We made sure the individuals had organizational influence beyond their title, so they could be effective ambassadors for the new culture we would create.

Step 2: Assess Your Current Culture: Before trying to change culture, it is important to identify where you are starting from. What is it today? How much change needs to be created? Here are some questions to help:

  • What do people have to do to get senior management’s attention?
  • How do people get approval from their colleagues or get promoted?
  • How do you get respect from your coworkers?
  • What does it take to “fit in”?

This cultural assessment can be done through focus groups, employee interviews or surveys.  

Step 3: Identify Your New Ideal Values: Create a list of values that explain how employees need to behave to be successful in their business. Make sure it is intentional and aligned with what the company is trying to achieve. It is not what will make employees happy, but rather how employees need to operate to execute the strategy. Remember this exercise is creating values that will govern the organization – it should be designed to influence how people act when no one is looking. Try to narrow the list down to no more than 5 values and clearly define them.

Step 4: Implementation: This is the most important step and can often be the hardest step. However, there is any easy way to think about it. Constantly ask: “what information is being sent to our employees that tells them how to behave?” Below are four areas that will help.

Communicate, Communicate, Communicate: , It is critical that the entire senior leadership team communicate the new values and why these behaviors drive success. When we rolled out our new values to our 350 employees, a senior executive and a task-force member lead a discussion around the values and why they matter to our performance. While it is imperative the senior leadership team is bought in, they can’t be the only ones.

The values need to cascade throughout the organization and the communication around the values needs to be relentless. As Jack Welch, former CEO of GE said, “The reason managers fail at culture change is that they get bored. If you’re successful, you must be two things: relentless and boring.” A strong culture means it must be widely shared among employees and constantly reinforced.  Look at all the ways employees communicate in your organization and make sure your values become a part of those communications: newsletters, new hire on boarding handbook, company website, visuals on the wall, team events, etc. 

Make it Visible: What visible signals can the company send that rewards the right behaviors? We created a separate award for employees that live out our values day in and day out. The award is given at our quarterly companywide meetings. Make sure the values get incorporated into your performance management process – hire for cultural fit, create a values section in your performance management reviews, and make sure those that get promoted demonstrate the values.

Make it Easy: You want to make sure that you are making it easy for your employees to operate in the way you want them to. For example, if you need to create a culture of agility and innovation then you need to make sure your decision-making processes are decentralized. We wanted our employees to move quickly and be highly responsive to customer needs, yet many of our processes required internal committee approval which was a lengthy and slow process. We were not making it easy for our employees to operate how we want them to, and we had to make a change.

Minimize the Inconsistences: Make sure you are not sending conflicting information. This can’t be emphasized enough. Contradiction simply cannot be present when trying to make cultural change. If an employee is promoted who performs, but doesn’t demonstrate the right culture values – you will pay. It will send the signal to all the other employees that behaviors don’t matter after all.  You must walk the talk!

Step 5: Assess your culture: After a year, run another cultural assessment to diagnosis the current situation and identify the gaps. Culture must be managed on an on-going basis.  Remember, don’t get bored.

The Bottom Line…

Once a company has determined its strategy, make sure the culture supports it. Culture is a powerful tool; leaders can’t afford to overlook it. As Peter Drucker says, “culture eats strategy for breakfast.”

 

[1] Charles III O’Reilly, David Caldwell, Jennifer Chatman and Bernadette Doerr “The Promise and Problems of Organizational Culture: CEO personality, Culture and Firm Performance.” Group and Organization Management Volume 39 (2014)


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