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LEADING CULTURE CHANGE
What Every CEO Needs to Know
By Christopher S. Dawson STANFORD UNIVERSITY PRESS
Copyright © 2010 Board of Trustees of the Leland Stanford Junior University
All right reserved. ISBN: 978-0-8047-6342-4
Chapter One
Culture Creates Value
Culture is the engine of value creation. Building a consistent, strong organizational culture is one of the most important contributions a leader can make. Why? Because organizational culture is the prime mover and the accelerator, or barrier, for all other value-producing (or destroying) activities.
A distinctive, well-aligned culture creates a powerful competitive advantage, one that is difficult to duplicate. It is the medium through which any leadership initiative will be executed. Indeed, leadership priorities will only be realized to the extent that the culture allows and facilitates those priorities to come about. Culture is a first cause in creating value outcomes, and can be shaped by leaders who channel this powerful force.
The CEO and top team can shape and change culture to accelerate or hinder organizational value. This book is about how to shape culture so that it becomes an accelerator to value creation.
Why is Culture underutilized by Leaders?
Impediments arising from the organizational culture pose a serious risk to successful execution of any and all leadership initiatives. In extreme external conditions, overcoming those culture impediments will determine survival. Why is there such fatalism and abdication by leaders when it comes to active shaping of this critical variable? Leaders often speak eloquently about their culture, but then delegate the entire space to the Human Resources function, as though it were an accounting detail they did not need to bother with.
Understanding, defining, and leading the culture of an organization is a primary job of the CEO or top leader and should not be delegated. CEOs should be as knowledgeable and involved in shaping the culture as they are in relating to customers, working with the board, and driving the strategy.
Culture Can Be Shaped and Changed
Here is the good news: culture can always be shaped, and often changed for the better! I have seen it happen many times in my consulting practice over twenty-five years-and the literature is full of rich examples that reinforce that conclusion. How is it that culture changes? And can it be deliberately shaped? These are the questions I hope to answer in the pages that follow.
Individual personality and organizational culture have much in common that we can learn from. We all have certain personality traits-some of them established early on and relatively fixed, others acquired through life in the course of experience. When we meet any of life's challenges-whether aspired to as a goal or thrust upon us by circumstance-our ability to deal with that challenge will be accelerated or limited by our personal attributes. If it is our desire to climb a mountain (or if we "find ourselves" at the bottom of one that must be climbed), there are numerous physical and personality characteristics of the climber that will make the journey more or less successful. Some of these characteristics could even preclude the journey before it ever begins. We all begin with some baseline portfolio of physical, mental, and emotional attributes: stamina, determination, lung capacity, risk-taking, and so on. These can be developed-to a degree-through focused training and sufficient will to achieve the goal. However, there will almost always be a point at which baseline traits and physical attributes become limiting factors instead of facilitators.
The very wish to climb the mountain (or to recognize that it must be climbed due to circumstance) is an attribute of the individual at the bottom of that mountain. There are some, finding themselves at the bottom of the mountain, who conclude, "I am perfectly content here without the bother of climbing this mountain." Others cannot begin their climb soon enough. Some need or drive compels such individuals to climb the mountain, for reasons that are important to them. That "reason" may be reactive or proactive: "I'll die if I don't get out of this valley, over that mountain" or "I'll be better somehow when I get to the top."
There are many parallels with organizational culture in this discussion of individual personality. If the "mountain" is the external environment facing any organization, and organizational culture is a stable set of values and capabilities, we can think of organizational culture as the accelerator or barrier to those strategic intentions of the organization. In this context, organizational culture may also become a powerful competitive differentiator that is difficult for others to copy.
Organizational culture also functions as a prime mover or "container of possibilities" in the sense that core values of the organization manifest in a diverse spectrum of possible strategies, structures, and cultures as well as corollary limitations. Like the great diversity of achievement that comes from different personalities, different companies have a priori cultural attributes that predispose them to success or failure in various endeavors.
Culture as accelerator and Barrier
There are many challenges in developing a successful business strategy. Is it aggressive enough? Have we chosen the right value proposition? Are we reading our customers accurately? Have we positioned ourselves well in relation to competitors? Even if there are perfectly accurate answers to all of these questions, the successful execution of that strategy still dangles in the wind of the organizational culture. This point is axiomatic: the more aligned the culture is with the intended strategy, the more likely the strategy is to manifest according to plan; in other words, the greater chance it has of actually creating value versus being "just another set of plans." By the same token, the less aligned the strategy is with the organizational culture, the more difficulty it will encounter, up to and including outright failure. Like human beings, many organizations stumble along in spite of themselves-being lifted by favorable economic conditions or industry sectors-and never grapple with their own culture as a source of potential value.
Any strategic initiative will be either accelerated or delayed by the existing culture. Precisely for this reason, leaders must understand their culture, and be skillful in ways to shape or change it. Case 1.1 illustrates an example of an accelerated culture.
Case 1.1. accelerated Culture
A midwestern phone equipment OEM supplier realized that it needed to reduce its defective returns, which were running at an unacceptable and costly level. It brought in a Six Sigma quality-improvement consultancy to impart methods, tools, and techniques of this continuous-improvement paradigm. The company also had a long-standing inclusive and familial culture in which the founder was still very much involved in running the company-and had been extremely generous during good and bad times to all twenty-five hundred employees. Although there were the usual organizational tensions between different functional departments, an employee stock option plan, frequent company social events, and numerous other demonstrations by the executives in modeling the "midwestern" values of the company all provided fertile ground for the rapid adoption of the new program-seen as a set of tools and methods to help solve a critical quality problem. In preparing the company for the substantial investment of time and effort needed to implant the Six Sigma methodology, the founder went around to every department and explained how important this was to the company, making a personal request to senior managers to put aside petty silo differences and embrace this methodology to improve organizational effectiveness. The consultants commented that they had never seen a Six Sigma program go in so smoothly or so quickly-and they continue to use the company as their premiere testimonial. The company has significantly reduced its defective return rate, and is applying the Six Sigma methodology to other areas of improvement.
If the founder had not created the culture to proactively embrace the Six Sigma change, then the goal would have been slow going or entirely stagnant. It was the cultural attributes of the company that helped it adapt itself so quickly.
How Do You Know When Your Culture Is a Gate or Barrier?
When leadership has been inattentive to organizational culture, or unintentionally created the wrong culture to support the strategy, the result is usually "no result." Following are a few common examples of how culture can function as a barrier to value creation:
Profitability and other performance measures are slowing or declining relative to peers.
Initiatives begin with fanfare but then falter or fail.
There is "tribal warfare" between departments that prevents sharing of information and collaboration.
Managers play it safe in setting goals because they fear reprisal.
There is a big gap between what customers really think about the company and what employees believe they are delivering.
The reality of dealing with today's fast-changing environment means that few companies will have continuous alignment between strategy, initiatives, and culture. The most effective companies are modifying their strategies and culture periodically to adapt to the external environment. In some industries such as technology that have predictable change every eighteen to twenty-four months, a culture focused on adaptability and agility may have high survival value. Case 1.2 provides an example of undesirable consequences when the culture is misaligned with the strategies.
Case 1.2. innovation Misalignment
A global food company had continued to spiral into "commodity hell" after holding a premiere brand position for many years. Over-relying on its legacy brand, and failing to see competitive dynamics that accelerated commoditization throughout the industry, it faced increasing margin pressure. The company became more and more heavily leveraged in debt, seeking to solve the margin compression problem with cost-reduction programs. Consultants were brought in to make the "painful cuts," which they did, eliminating a centralized research and development facility and many other nonessentials. after several years of incremental margin improvement, the leadership came upon the "innovation" paradigm, going headlong into the latest and greatest innovation training programs and consultancies. The innovation program at this company is still only a "corporate initiative," and a thin one at that, after many years. The cause? a completely misaligned culture based on scarcity and fear. Every time the leaders try to push out innovation as a solution to commoditization-and they have done so in numerous ways-they are met with the same powerful "barriers": a culture in which a dominant financial function requires short-term return on any investment and a management culture of fear and intimidation in which new ideas that do not meet with the executives' notion of a "good idea" are publicly criticized and even humiliated at high decibel. The best innovation processes and business initiatives in the world will not succeed in such a culture of scarcity and fear. This company's innovation initiative-which it desperately needs in order to escape commodity hell-has literally been stalled for years due to an "inhospitable culture" that is grossly misaligned with the business solutions leadership is trying to create. Here is a simple example of how one can draw a very direct "line of sight" between value creation and culture or, sadly in this case, value destruction.
Culture as Competitive advantage
When organizational culture has been developed in deliberate and focused ways over time, it can create a distinctive advantage that is difficult to imitate. There is no better example of this than Toyota. Beginning with the mechanistic paradigm of the early Demming quality control methods, Toyota has gradually iterated a manufacturing culture that is arguably the best in the world-certainly when judged by the value created as a result of this culture. What is most interesting about Toyota is that they have publicly documented exactly what they do-indeed offer daily tours of their assembly plants-and yet competitors have been unable to copy some "secret sauce" in the culture to imitate their success. Toyota is a dramatic standout of how massive value can be created through the establishment of a highly differentiated culture.
At some point it becomes difficult to distinguish between "brand" and "culture"-though an external brand cannot be sustained with a misaligned culture. Insofar as "brand" is a form of strategy-an initiative to create differentiation and customer loyalty-culture will be an accelerator or barrier to the execution of that brand strategy.
Culture as prime Mover and "Container of possibilities"
On another level, organizational culture shapes potential value in a more fundamental, causal way. Culture is a prime mover in determining a universe of possibilities, as well as creating degrees of freedom on what an organization is capable of accomplishing. Every organization's basic "DNA" allows and defines what is possible for the organization to undertake or even to conceive. The analogy to personality is, again, useful to illustrate the point.
We each have a "package" of defined qualities-our "personality." Though this can change to some degree, there are key elements in most of us that "allow" or "constrain" possible behaviors and outcomes. For example, not everyone has the ability, drive, or interest to become an accomplished pianist. Most everyone can learn to play the piano given sufficient interest and effort. There are real individual differences which place constraints on, and open opportunities to, what any of us can accomplish.
The "DNA" of organizational culture functions in very much the same way. There is that primary DNA in every organization that invisibly shapes everything that is possible for that organization, before anything ever bubbles up as an option. The analogy to personality breaks down in that organizations may have successive "lifetimes" in the form of new leadership, acquisitions, and so on, allowing them the real possibility of more dramatic transformation than is typical of individuals (though certainly some instances of personal transformation qualify as dramatic). IBM, GE, and the U.S. Post Office are all excellent models of organizational cultures that have undergone massive transformations of their fundamental core values. IBM transformed itself from the stereotypical "Big Blue" 1950s company that sold "big iron" computer hardware and wore the blue-suit, white shirt, and red tie uniform, into a creative and flexible technology solutions company with a globally diverse "knowledge worker" culture.
A good example of how organizational culture functions as "prime mover" can be seen in the interface of international companies struggling to find common ground around cultural values (Case 1.3).
(Continues...)
Excerpted from LEADING CULTURE CHANGE by Christopher S. Dawson Copyright © 2010 by Board of Trustees of the Leland Stanford Junior University. Excerpted by permission.
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