Why Every Executive Should be Focusing on Culture Change Now

Posted by Genesis

 Rose Hollister, Kathryn Tecosky, Michael Watkins, and Cindy Wolpert

As we see glimmerings of light at the end of the Coronavirus tunnel, the priority now is to lay the foundation for your organization to thrive as we emerge. The COVID-19 crisis has accelerated three interlinked types of transformation – adoption of digital technologies, development of new business models, and implementation of new ways of working – impacting every industry. Most companies are now engaged in one or more of these types of transformation. Businesses that aren't– or aren't advancing quickly enough – are akin to dinosaurs admiring the beauty of the approaching asteroid.

 

While most executives recognize the imperative to transform their businesses, far fewer understand that it's essential to simultaneously embrace culture change. Why? Because you cannot realize the true potential of digital transformation or embrace new business models or implement new ways of working without supporting changes in employees' ways of thinking and acting. A recent study by the Boston Consulting Group confirmed this: companies that focused on culture were five times more likely to achieve breakthrough results in their digital transformation initiatives than those that didn't. Even so, much of the transformation advice that leaders get still gives culture change short shrift. Too often, culture is the missing element; without it, transformation efforts fail.

 

The lack of attention to culture may happen because some transformation consultants don't understand how important it is for culture change to occur in tandem with transformation. More likely, we believe, they do understand but either can't or don't want to support it. As we will discuss below, good culture change consulting is much different than the approaches used to design new strategies, structures, and processes. Culture change must be leader-led and supporting it requires a unique blend of advising, coaching, and teaching. Also, few companies have the requisite internal culture transformation capabilities, so it's easy for this essential work to fall by the wayside. Often too late, its importance becomes apparent, and then it's an uphill battle.

 

Even if you have not yet embarked on digital/business model transformation, you should focus on whether you need to change your organization's culture. Why? One reason is that having the right culture will make transformation easier when it, inevitably, becomes a focus. A second is that culture change may be essential for your business to remain competitive even without the overlay of digital. A third reason is that your organization may have a fragmented culture, resulting from incomplete integration of acquisitions, a legacy of growth across multiple geographies, or a failure to build a sufficiently unified culture across business units.

 

It's also essential to understand that your organization's culture is happening even if you do nothing. The crisis has and will continue to drive organic changes in organizations' ways of working and cultures. Employee values, mindset, and behaviors have been evolving rapidly and have been doing so from home. These changes may or may not be the ones your organization needs and may or may not be progressing at the right pace. So, it's far better for leaders to be shaping their organizations' cultures in the right ways and at the right speeds rather than ignoring it and hoping for the best.

 

It, therefore, is much better to get to work proactively on building the right culture now and save yourself the work of doing it in parallel with large-scale organizational transformation or playing competitive catchup, or watching dysfunctional fragmentation take hold later on.

 

What is culture, and why is it important?

"Culture" is a shared set of values (“what we care about”), beliefs (“what we believe to be true”), and acceptable behaviors (“how we do things here”). They develop in organizations to align effort, engender shared sense-making, increase predictability, and encode organizational lessons about what does and doesn't work. In the context of organizational transformation, it's essential because, as Peter Drucker put it, "culture eats strategy for breakfast." Having the wrong culture inevitably undermines the best-laid strategy and organizational development plans. While leaders have been reminded repeatedly that people and culture are essential determinants of success and failure, they haven't necessarily accepted the need to be proactive in building the cultures required for their strategies to succeed.

 

As people working within the culture, it is sometimes challenging for leaders even to "see" culture. Senior leaders may have long tenures, so the culture may have become so deeply ingrained in their thinking that, like the fish that isn't aware of water, it is taken for granted. Therefore, organizations intending to transform themselves may need outsiders or newcomers to help identify the underlying cultural beliefs and behaviors that are deeply woven into the organization's social fabric.

 

In what ways does culture need to change to support transformation?

While there, of course, needs to be adjustment for the specific context in which your organization operates, we see a lot of consistency in the elements of culture required to make digital/business model/ways of working transformations realize full potential. At the risk of promoting a "one best way," there are seven elements of adaptive culture, summarized below, that we see consistently in businesses that have engaged in successful transformation. Together they provide the cultural foundation necessary to support rapid adaptation, innovation, and resilience.

 

Seven Elements of Adaptive Culture

1. Customer centricity – Understanding and meeting the needs of its customers and not focusing more on products or profit

2. Ecosystem focus – Prioritizing the well-being of the entire multi-organizational system and not just the company

3. Analytical orientation – Fully embracing the power of data and analytics in decision-making and not relying on experience or judgement

4. Collaborative reflex – Proactively engaging in lateral and cross-organizational collaboration and teamwork and not working in silos

5. Bias to action – Valuing speed over perfection and not risk-minimization

6. Learning mindset – Engaging in experimentation and rapid learning (learning mindset) and not making the perfect the enemy of the good (or great)

7. Leader-as enabler – Empowering and energizing people

while holding them accountable

 

Customer centricity and ecosystem focus are the critical reference points for defining organizational strategy and priorities – focus on the customer and focus on the network. They are the "north and south stars" through which the organization orients itself and pursues opportunity. The next four – analytical orientation, collaborative reflex, bias to action, and a learning mindset – are the capabilities and "habits of mind" that must shape all employees' day-to-day work. Finally, leader-as-enabler is the essence of how leaders add value when working with their people and teams – empowering and developing while holding them accountable. These seven elements are consistent, comprehensive, and mutually reinforcing; together, they constitute the foundations of adaptive culture – one able rapidly to adopt new technologies and business models and respond to changing business and social environments.

 

While these elements are unlikely to be equally important for your organization, they all are likely to be relevant to some degree. The place to start is to assess your organization's current culture (See, The Seven Elements of Adaptive Culture Assessment). Then think about the relative importance of these Elements for your organization's future and identify the most significant gaps.

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Elements of Adaptive Culture Assessment

Assess the extent to which your organization is ready to adopt digital technologies, embrace new business models, and/or implement new ways of working on these seven dimensions of adaptive culture. Then sum up the scores to get an overall Culture Change Readiness Score for your organization.

 

 

More product-centric

Customer-centricity

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More customer-centric

 

More company-focused

Ecosystem focus

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More ecosystem-focused

 

More decision-making informed by experience

Analytical orientation

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More decision-making informed by analytics

 

More hierarchical control & coordination within silos

Collaborative reflex

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More lateral collaboration & teamwork

 

More risk-minimization

Bias to action

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More speed maximization

 

More planning & execution

Learning mindset

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More experimentation & learning

 

More focus on direction & oversight

Leadership value-creation

-5   -4     -3   -2   - 1       0   +1   +2     +3   +4   +5

 

More focus on empowerment & coaching

 

Culture Transformation Readiness Score

 

 

 

If you scored your organization at 20 or less in total or if it's on the negative side on any of the dimensions, you likely have work to do on your culture, especially if you hope to engage in transformation successfully.

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How do you change culture?

If your culture needs to change, how should you approach working on it? The first step is to recognize that culture change is hard work. It's challenging enough to change one's own habits, never mind those of thousands of people. And those people may love the culture the way it is and see it as the foundation for the organization's success. Absent a real "burning platform" driving change, why bother?

 

In our work with client organizations, we have developed a set of culture change principles for leaders that maximize the likelihood of successfully transforming their organizations' cultures.

Recognize that culture change can't be fully delegated. Senior executives must be the face and voice of the culture change. If top leadership does not authentically and genuinely support the desired culture transformation, efforts will likely fail. Senior leadership must align, balance, empower, articulate, communicate, and demonstrate examples of their own growth and development, encouraging even the most nuanced cultural shifts.

 

Start with the "why." When stakeholders don't understand why change is necessary, anxiety, cynicism, and resistance inevitably build. Even if you have done a decent job explaining why digital transformation is needed, you still have to provide a rationale for the (often most difficult) supporting culture changes. If you don't help critical groups of people understand why cultural change is necessary and how it will affect them, you will never get to the rest of the story. Even with a solid intellectual rationale for change, people inevitably want to understand its implications and impact on them.

 

Define the target cultural values and behaviors. Creating a clear picture of the desired future state is an essential early step in cultural transformation. It must be specific yet flexible enough to shape and influence organizations' performance from the front lines to the executive suite and in all units and geographies. Start by defining the target frontline culture and working from there to identify the other forces (leadership and organizational systems and processes) that will shape that culture. Engage the frontline in articulating what they value and how they see culture impacting their ability to perform at their best. Extrapolating from the best performers how they get work done through respect and collaboration informs the vision for culture change.

 

Engage and get input. People want change done with them, not to them. Inclusion engenders acceptance, if not total commitment. People tend to own what they help to create. Establishing what we call culture coalitions and networks of passionate, highly engaged culture champions is the path to reaching every employee. And that's what it takes to embed new cultural norms throughout an organization. These networks of employees whose job is not traditional HR but rather frontline workers who are themselves advocates for the change they wish to see become the momentum that drives new behaviors.

 

Build a bridge to the future desired culture. No organization wants to ignore the foundational elements that propelled them to success. It is essential to build a bridge from the past to the future by identifying the aspects of the existing culture to be preserved and leveraged to support the culture change. The strengths of the current culture need to be recognized and woven into the culture of the future. Successful cultural transformations evolve their culture by allowing people to honor the legacy of accomplishment while understanding the need for cultural evolution. (See, "Evolving a Culture")

 

Evolving a Culture

The new CEO of a global food service company faced a classic culture transformation challenge. He knew elements of the company culture were strengths that he must preserve. However, other deeply embedded aspects of the culture needed to change if the business were to continue to compete in an industry that was becoming more customer-centric, nimble, and data-driven.

 

Collaboration, for example, was a long-standing pillar of the culture that he needed to sustain. High-performance teamwork had and would continue to be essential to success. On the other hand, a strong emphasis on consensus - another element of the legacy culture - had slowed decision-making and diffused accountability in ways that were increasingly unacceptable given the speed of change the company was experiencing. Likewise, the ethos that the company was a “family” had encouraged loyalty but resulted in the unintended consequence of allowing performance issues to fester.

 

Then there was the historical value placed on promoting people from within that had fostered retention and commitment in the management ranks. However, the company increasingly needed to adopt digital technologies and new ways of working that required healthy infusions of new types of outside talent. How could he move the culture away from seeing inside promotion as an entitlement to embrace a more nuanced emphasis on elevating internal talent where possible and hiring from the outside when necessary?

 

As often is the case, the challenge was not creating a new culture but evolving some elements to match the new realities while retaining and even elevating other ones. It was with this focus on evolution and elevation that the CEO began to engage his leadership team. Together they worked to precisely specify the target culture, identify what needed to change and what they would retain, and how elements of the existing culture – such as collaboration – could be leveraged to help accelerate the transformation. With clarity about the destination, attention was focused on communicating the future and fully enlisting the organization's leadership to create and accelerate the path forward.

 

 

Build a Culture Roadmap. For the desired future cultural shifts to become a reality, the future path must be visually depicted, and every function, division, and discipline across the enterprise must be represented. Ongoing active communication is a crucial enabler. Extensive communication strategies that invite every level of the organization to hear, interpret, and clarify their role's cultural impacts can further activate the cultural shifts.

 

Reinforce the target culture in all organizational systems. To transform culture, it is essential to have a strong focus on changing behaviors. It is not enough to seek to shape attitudes or develop and communicate a set of values; it is necessary to clearly define and demonstrate the behaviors that will reflect those attitudes and values. To support the desired culture, therefore, all key systems must be revised to reinforce expected behaviors. All the important people systems – recruiting, assessment, performance management, development - must be carefully assessed and modified consistently to drive the target culture.

 

Rapidly reward the emerging culture. Empowering managers and leaders to immediately recognize and reward people for showing up differently is vital. When people break down barriers, take risks to work together differently, and begin to illuminate the desired culture, leaders must notice. Encouraging just-in-time creative and personal recognition that employees appreciate accelerates the new behaviors. If consistently applied, these actions quickly build the belief that an emerging culture is "real" and the "way we've always done things" is no longer the way we will be doing things. (See, "Overcoming Roadblocks to Culture Change")

 

Overcoming Roadblocks to Culture Change

The CEO of a Fortune 100 financial services firm embarked on a culture transformation that started well and then hit some common roadblocks. The company was a dominant player in rapidly changing industry; in fact, the rules of the game were shifting in fundamental ways. Some company units also suffered from the strains of adapting to rapid growth and expansion into new markets.

 

It had become clear to the CEO, who had been promoted from within, that the business lacked the customer focus, innovation, and nimbleness in execution required to sustain success. The solution also seemed straightforward: change the culture.

 

So, she mobilized her leadership team to take on the transformation. They started with defining the target culture in the form of a clear and compelling set of leadership principles and supporting behaviors. Then they committed to adjusting their ways of working as a team to reflect it. They were mostly successful in being intentional in their actions to serve as role models for the desired culture.

 

The team also launched an intensive communications campaign to support the new leadership principles. Through a series of individual, team, and large-group discussions, they cascaded the information about the desired culture down through the organization.

 

After a few months, and despite all this effort, the CEO and her team could see the new culture wasn't "catching" in the company. After some diagnostic work, it became clear why. While the leadership team was committed to the change, the rest of the organization was still being measured and rewarded based on the old cultural norms – such as demands for perfection in new products even it meant being slow to market. So, there was an understandable lack of enthusiasm among middle managers, which translated into confusion below them.


The problem boiled down to incentives. The deployment had not embedded the leadership principles, and especially the supporting behaviors, into managers' goals and metrics and the performance management and reward systems that reinforced them. Recognizing this was the issue, leadership launched a concerted effort to embed the new culture into business cycles and people processes. Doing so helped managers understand why and how they needed to change their focus and priorities and the consequences of not doing so. By aligning people processes with the desired culture, managers had incentives to behave differently, hire differently, and develop new competencies.

 

Finally, recognize that culture change is a marathon, not a sprint. Cultures are deeply engrained, so changing them requires a significant amount of attention. Launching a culture change effort can be exciting. Like most things that feel "new," people are more likely to be energized if they are part of creating the desired culture in the beginning phase. However, for cultural transformation to occur, the work will need to be adequately resourced for the long haul. Sustaining progress and embedding new cultural behaviors is a marathon, not a sprint. Depending on the breadth and depth of the change, this effort may take 18-36 months. Measuring change and celebrating breakthroughs along the way is essential.

 

Cultural transformation is enormously challenging. Yet, by following a model for success, marshaling the right executive support, ensuring the proper clarity and focus, and recognizing and rewarding desired behaviors, transforming your organization's culture is not only possible but highly probable. You should be thinking about what and how your organization's culture is changing because it already is.

 

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