Recommendation

James Heskett, one of the most eminent business educators of the 20th century, offers a deep dive into how to build a successful organizational Culture. Heskett, UPS Foundation Professor Emeritus at Harvard Business School, explains that having a strong culture does not always guarantee marketplace success. He tells you how to build and maintain a winning culture while avoiding the pitfalls of a culture that is strong but also toxic. Heskett maintains that leaders can shift a company’s culture in a matter of months. To that end, he offers many research-based examples that will be highly useful to everyone involved in managing organizations.

Take-Aways

• Evidence does not support most of the common wisdom about organizational culture.
• An effective culture boosts the bottom line, and fosters flexibility, innovation, and learning.
• Leaders must engage and retain employees.
• High-engagement workplaces share several crucial characteristics.
• Experimentation improves your likelihood of success.
• An organization’s policies must reflect its values.
• Remote work presents cultural challenges, but they are not insurmountable.
• When good cultures go bad, change becomes difficult.
• Take 16 steps to change your culture.

Summary

Evidence does not support most of the common wisdom about organizational culture.

A strong culture isn’t necessarily a winning asset. Companies with strong cultures can be winners or losers, depending on the nature of their culture and the context it creates for corporate strategy.Forward-looking leaders find culture and strategy complementary. For example, Microsoft CEO Satya Nadella simultaneously healed its dysfunctional culture and led a major strategic shift from Windows to cloud computing. He demonstrated that the right leader can change a company’s culture in months.

“When adjusted for industry-related effects of the pandemic [studies] will show that those organizations that put their employees first gained long-term market share and later rewarded their shareholders handsomely.”

The leaders of companies that falter mistakenly often assume that what worked in the past will continue to work. Their leaders resist new ideas.

An effective culture boosts the bottom line, and fosters flexibility, innovation, and learning.

The competitive advantage of an effective culture can outlive that of any strategy. Working only from cultural information, analysts can predict a company’s relative profitability. Using internal and external data, they can estimate how culture affects profit and use that information to motivate cultural change.

“Organizations around the globe are doing a poor job of developing employees who are engaged in their work.”

Culture’s impact on profit is clear when you see how it affects employee engagement. Consider the Ritz-Carlton hospitality chain, where any employee – even a housekeeper – can authorize a solution to a guest’s problem, spending up to $2,000. The policy works because Ritz-Carlton is meticulous about hiring. It emphasizes attitude and empathy. Daily staff meetings include formal on-the-job training, plus a discussion of the guest list to inform employees of any special needs, outstanding personalities or pending events. The company’s recruitment, mentoring and incentives feed employee engagement.

Leaders must engage and retain employees.

Instead of recognizing an employee of the month, leaders should reward teams over individuals. Recognize employees quietly when they succeed, so that, in effect, recognition becomes part of coaching. Compensation is relevant to engagement, but it’s not the most important factor. In a great culture, employees focus less on pay. This doesn’t mean you can underpay, but rather that culture can be a tiebreaker in engaging talent.

“Organizations with effective cultures can be pressure cookers.”

Organizations with solid cultures are not free of pressure, but the employee, not the organization, is often the primary source of the pressure. These organizations foster high levels of employee engagement. Fully 70% of engagement depends on people’s managers. Employees’ trust in management, especially in their individual immediate supervisor, is indispensable. More than half of the employees who leave say their manager could have prevented their departure, yet fewer than one in five agree that their managers motivated them to do well. Their discontent stems from a lack of training and a lack of being acknowledged.

High-engagement workplaces share several crucial characteristics.

Companies known for highly engaged employees train their recruiters in employee engagement as a competitive advantage. They seek people with complementary viewpoints and empower them with the necessary skills. Recruiting becomes more a matter of employees selecting themselves for the organization than of the firm selecting them.

In high-engagement workplaces, technology simplifies complex processes and eliminates boring chores. Within prudent limits, employees may act as necessary to get results. Engaged companies recognize their people’s successes. The staff is lean, but the staffers receive reasonable wages. Measures are in place to counter burnout, and employees can rely on their leaders. Engaged employees seldom quit, but when they do, high-engagement organizations use exit interviews to uncover problems that may have led to each departure.

“Teamwork succeeds or fails depending on the amount of authority and responsibility delegated to the team as well as the extent to which the team is held accountable.”

The US Marine Corps, the Mayo Clinic and Harvard Business School all have sustained high engagement beyond their founding generation. Such workplaces often use a team-based structure to maintain their culture and their internal connections.Southwest Airlines uses this approach for every flight, so a late departure is a team failure, not an individual one. Consequently, Southwest has a top on-time record.Competitive strength and ethical corporate behavior demand prioritizing diversity. While diversity can lead to some conflict, diverse teams are more innovative.

Experimentation improves your likelihood of success.

Organizations that want to learn from their experiences run frequent experiments and retain the choices that work. Booking.com authorizes any staffer to run a test without advance approval. The company teaches employees how to run experiments, and they do thousands a year. Test evidence overrides executive judgment. Failed tests provide lessons.

“Measurement without action is a great way to scuttle the success of a lot of effort that precedes it.”

Handelsbanken, a Swedish bank, prioritizes sharing best practices. Each branch’s performance is visible to everyone, so managers of underperforming branches seek the advice of top performers. The bank’s corporate culture fosters concern for the entire organization. The Mayo Clinic and Harvard Business School also offer incentives for sharing best practices.

An organization’s policies must reflect its values.

Wells Fargo, formerly an exemplary bank, became a counter-example for a time. It once put culture first, focusing on customer success, concern for its people and business ethics. However, its incentive system pushed employees to sell more services to existing clients. The incentive goals were extremely – arguably impossibly – challenging. As a result, people cheated by setting up phony accounts and transferring money among accounts but not informing customers. Eventually, customers noticed and complained. Wells Fargo paid steep penalties and fired more than 5,000 people, incurring replacement costs. These sad events came about because its policy at the time was incongruent with its residual culture.

Sometimes, a toxic culture has devastating results. After two Boeing 737 MAX planes crashed, a whistleblower said management had rejected an engineer’s request for a safety measure. Employees feared retaliation for bringing problems to management’s attention. Similar issues were at the root of the O-ring failure that destroyed the Challenger space shuttle and of Volkswagen’s emissions-testing imbroglio. Managers and engineers at VW had such profound differences that they shared no mutual understanding.

“Results (of surveys) are obtained and discussed with managers and even employees, but little is done about problem areas.”

Similar disconnections may characterize the relationship between headquarters staff and field people, military officers and enlisted troops, doctors and hospital administrators, and so forth. Such strife can happen anywhere, but high-engagement workplaces try to minimize it. To make sure ideas and proposals fit your culture, consider designating a “Culture Ombudsman.” This office can offer a hotline for reporting value violations, running employee surveys and promoting engagement. To keep the ombudsman objective, locate this office outside of marketing, finance, HR or operations.

Remote work presents cultural challenges, but they are not insurmountable.

The pandemic reinforced a shift to remote work. Facebook announced that half its workforce may be remote in years to come. Yet some studies suggest that remote work has cultural disadvantages. In one case, almost half the members of a remote team felt isolated and more than 25% found collaborating difficult. Nevertheless, more than four out of five remote workers report that they would like to continue working remotely due to the ease of scheduling and relief from commuting. The “digital experience design agency” Critical Mass (CM) adopted remote work to make sure its location didn’t hamper its recruitment efforts. The CEO led a strategy of integrating remote and in-office workers by learning from other companies. Critical Mass tested a framework of organizing remote workers into hubs and told everyone to work from home one day a week, so they could understand the remote workers’ experience.

“The best that leaders of increasingly remote workforces can hope for may be hiring advantages and modest increases in productivity.”

Because remote workers may consider themselves of lesser status in the corporate sphere than their in-house colleagues, some organizations, such as GitLab, made all work remote and closed their offices. Middle managers are crucial to the success of remote work and should communicate with one another organization-wide. For example, Deloitte and Schlumberger rely on communication, social gatherings and individual coaching to keep employees engaged.

When good cultures go bad, change becomes difficult.

For many years, the Coors Brewing Company distributed beer only in the Western United States. East Coast visitors took Coors home for their friends. The corporate culture reflected Old West mores: Senior executives would even step into the parking lot to settle disagreements with fistfights.

“When it comes to culture change, organizations suffer from attention deficit disorder.”

Corporate pride turned into arrogance. When Coors introduced new packaging customers found hard to open, distributors complained. Coors leaders assumed what worked in the past would keep working. They didn’t share best practices internally or learn from other firms. Pete Coors set out to change this culture by dealing with the packaging problem and insisting on a high-quality product and customer experience. He taught quality improvement to senior executives. He emphasized listening to customers. And, he stopped the fistfights.

Take 16 steps to change your culture.

Shifting a corporate culture requires leading with passion, but efforts to change culture fail when leaders don’t clarify why this change is urgently necessary. Leaders must deal with points of resistance, foster realistic expectations, and celebrate and nourish momentum. To accomplish culture change, follow 16 steps:

1. Leaders acknowledge the need for culture change – Be alert to metrics and to messages from the “shadow culture” that indicate the need for change.
2. Use discontent with the status quo as a spur for change – People see change as hard, so you may need to crystalize their concerns with initial shifts, such as firing weak leaders, documenting problems or closing units that don’t perform.
3. Share the message of change – Begin and continue a process of ongoing, clear, simple communication. Listen to the reactions. Repeat.
4. Designate a change team – Charge the team with codifying values, gathering input, meeting deadlines and maintaining the impetus for change.
5. Install the best leaders – Bring the right people to the fore; tell the wrong people good-bye. Your goal is alignment around change.
6. Generate and maintain urgency – Culture change should take six to 12 months. As John Doerr said, “Time is the enemy of transformation.” Build in a sense of drive.
7. Draft a culture charter – State which values and behaviors have to change, and how. Draw from your mission, for example, Microsoft spurred change to empower people “to achieve more.” Compare the current state to the desired future.
8. Promulgate a change statement that involves the whole organization – Communication is crucial. Gather comments; include or reject them; document the outcome.
9. Set up a “monitor team” – This team tracks relevant measurements, checks progress and ensures that communication continues.
10. Align everything – Make sure the changes in your policies and procedures align with your corporate values. Reward what matters.
11. Put changes into motion – Have leaders pave the way by putting new approaches into action. Leaders must live the change. McKinsey found that change is more than five times likelier when leaders act the way they want their employees to act.
12. Teach people at every level how to implement change – Train managers to train or retrain their employees in new value-based behaviors and processes.
13. Measure new behaviors – Align your metrics with your new expectations. Coach those who can’t adapt and decide whether to retain them.
14. Acknowledge progress – As you aim for big changes, recognize small victories along the way.
15. Give big changes time to unfold – Seeing the changes in your culture being reflected in customer behavior takes time. Remember you’re inculcating new long-range habits.
16. Keep reminding yourself what culture change requires – This is an ongoing evolution. Leaders must keep checking whether everyone – and every team – understands, prioritizes and communicates about culture change.

About the Author

James Heskett is the UPS Foundation Professor Emeritus at Harvard Business School, where he previously served as faculty chair of the MBA program.

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