Company leaders often respond to potential disruption with a scramble to overhaul their business. A recent article in the Wall Street Journal argues that’s wrong.
Short-term and scattered measures don’t last, say Paul Leinwand of PwC and Cesare Mainardi of Northwestern’s Kellogg School of Management. “In these reactive responses the company leaders avoid the difficult work of developing a better strategy and making the fundamental changes that are needed to build real competitive advantage,” they write.
To foster long-term growth, leaders should focus on the benefits of shifting company culture. Changing culture isn’t easy, of course, and it takes time. A McKinsey survey of some 3,000 executives found that only one in three organizational change efforts succeeds. Culture change efforts often have even lower odds of success: The people who need to change their behavior typically have a clear sense of the costs of doing so, whereas the benefits of a “new culture” can seem fuzzy.
Here are three common reasons why culture efforts go astray and examples of how research on change management can help to avoid these problems:
1. Leaders lack commitment
Serious efforts to change company culture can take five or more years to make stick, yet the median CEO tenure for the S&P 500 is only six years. As a result, employees can feel that a culture initiative is only a phase to endure.
Researchers Devon Proudfoot of Cornell University and Aaron Kay of Duke’s Fuqua School of Business suggest that organizations tend toward inertia in part because people are biased toward perceiving the status quo in a positive light. Senior leaders can make this tendency worse by positioning culture change as an emergency response to a company crisis. When employees feel psychologically threatened, they only dig in further to resist change. Proudfoot and Kay explain that when leaders present change as non-negotiable and permanent, employees become less resistant.
At Microsoft, CEO Satya Nadella has demonstrated his commitment to enduring change by reorganizing the company around goals such as reinventing productivity and creating more personal computing, a departure from the old system organized around products and platforms. In doing so, Nadella has reinvigorated a company culture once known for silos and infighting. His senior team extends Nadella’s commitment by modeling the new culture for employees.
Cultures often strengthen when a CEO is passionate and consistent. But new CEOs often want to cut a different path, not follow the prior one, and this can cause culture to be unproductively volatile. Companies can protect against this by making sure the board — the "decider" on who the next CEO will be — has made commitment to the culture a clear expectation. Boards can go further still and even put the nature of this commitment in writing. Remember, too, that the outgoing CEO — so long as she/he is leaving on good terms — has many levers in her/his last year to keep culture change happening and strong, working intentionally with the board being just one such lever. As a dean in my last year after 11 years in the role, and having overseen a major culture initiative, these levers are a focus for my year ahead.
2. Culture change never translates to performance
For people to embrace difficult organizational change, they need to understand how they, the company and society will benefit. Too often, leaders present culture change in broad terms that never get developed into measurable goals. Without these, it is hard for many people to see the “benefit statement” of culture change.
“A strategically relevant culture is vital,” says Jennifer Chatman, professor of management at the University of California, Berkeley, Haas School of Business. “A leader’s job is to help people develop the ability to make good decisions, judgment calls and trade-offs — the ones that leaders would make — that are aligned with strategy.”
Genentech’s immunology and ophthalmology division brought together disparate teams following an acquisition by the Roche Group in 2009. After soliciting employee feedback, executives created four cultural pillars: patient orientation, a focus on people, courage/innovation and integrity. From those pillars, they developed specific behaviors and outcomes; an example of a behavior was “Give feedback that helps people get an accurate picture of not only their strengths but also what’s holding them back.”
Jennifer Cook, then the senior vice president of the Genentech division, and her leadership team focused intensively on culture change and exceeded the division’s goals for numbers of patients treated, strong franchise businesses and revenue after just one year, says Chatman, who wrote a case study about Cook’s experience. The culture change work has continued to the present day, even under new leadership, according to Cook, who subsequently was promoted to region head for Europe at parent company Roche and then to global head of clinical operations.
3. Culture change lacks distinction and flexibility
A bumper-sticker slogan is not a corporate culture. If employees hear the articulation of the changed culture as just another example of unobjectionable but vapid words and phrases, they will never be inspired. Take a phrase like “mutual respect” — hard to argue with that. But if, for example, this is a company where senior people regularly talk over others, everyone gets the true message.
Lucy Kellaway, a columnist at the Financial Times, demonstrated this common flaw in an experiment with managers from two dozen companies. She read lists of values from company websites, company by company, and asked the managers to raise their hands when they recognized their own. Only five of the 24 managers responded correctly — and in three cases, it was because they had been on the committees that wrote them. The problem was the extreme degree of overlap.
A great culture should meet three criteria: true, valued and different. The first two are easier to achieve than the last.
Differentiation builds energy within a culture. The travel-services company Kayak demonstrates the kind of distinct culture that emerges when leaders put their authentic beliefs into practice. Co-founder Paul English felt strongly that personal engagement between employees and customers creates better workplace and travel experiences. So, every employee at Kayak handles customer-service calls. Or consider John Foraker, who was CEO and president at Annie’s for 18 years. He recently told me that the keys to a winning culture include “Dive for the ball!” (always be willing and looking for an opportunity to win), “Be a little weird” and “Hire high-performing ‘misfit toys’ rather than big company heroes.” Now those are some unique cultural statements that have staying power and will resonate within a company from top to bottom.
Culture change can flourish with sustained commitment, an effort to understand what motivates employees and careful planning to align cultural goals with strategy. This requires more than an all-hands email or an annual town hall meeting. Executives who consistently model the change they expect from their employees will create long-term benefits. To paraphrase Gandhi: Be the change you hope to see in your organization.
