10 Reasons to Design a Better Corporate Culture

Organizations with strong, adaptive cultures enjoy labor cost advantages, great employee and customer loyalty, and a smoother on-ramp in leadership succession. A book excerpt from The Ownership Quotient: Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage by HBS professors Jim Heskett and W. Earl Sasser and coauthor Joe Wheeler.
by James L. Heskett, W. Earl Sasser & Joe Wheeler
Why is it that many of the same companies appear repeatedly on lists of the best places to work, the best providers of customer service, and the most profitable in their industries? In their new book, The Ownership Quotient, HBS professors Jim Heskett and Earl Sasser and coauthor Joe Wheeler assert the answer lies in recognizing that strong, adaptive cultures can foster innovation, productivity, and a sense of ownership among employees and customers. They also outlast any individual charismatic leader. But how can you as a manager create and nurture that special culture? In the following excerpt, the authors outline the top 10 lessons of the best practitioners, from ING Direct to Build-A-Bear Workshop to Harrah's Entertainment.We can learn a great deal from organizations whose strong and adaptive ownership cultures give them a powerful competitive edge. Here are our top 10 lessons.
  1. Leadership is critical in codifying and maintaining an organizational purpose, values, and vision. Leaders must set the example by living the elements of culture: values, behaviors, measures, and actions. Values are meaningless without the other elements.

  2. Like anything worthwhile, culture is something in which you invest. An organization's norms and values aren't formed through speeches but through actions and team learning. Strong cultures have teeth. They are much more than slogans and empty promises. Some organizations choose to part ways with those who do not manage according to the values and behaviors that other employees embrace. Others accomplish the same objective more positively. At Baptist Health Care, for example, managers constantly reinforce the culture by recognizing those whose actions exemplify its values, its behaviors, and its standards. Team successes are cause for frequent celebrations. In addition, BHC rewards individual accomplishments through such things as "WOW (Workers becoming Owners and Winners) Super Service Certificates," appreciation cards for 90-day employees that list their contributions to their team, one-year appreciation awards, multiyear service awards, employee of the month awards, and recognition of workers as "Champions" or "Legends" for extraordinary achievements or service. Managers at all levels offer frequent informal recognition and send handwritten thank-you notes (which stand out in the age of e-mail). Those who aren't living up to BHC's values soon get the point.

  3. Employees at all levels in an organization notice and validate the elements of culture. As owners, they judge every management decision to hire, reward, promote, and fire colleagues. Their reactions often come through in comments about subjects such as the "fairness of my boss." The underlying theme in such conversations, though, is the strength and appropriateness of the organization's culture.

  4. Organizations with clearly codified cultures enjoy labor cost advantages for the following reasons:

    -- They often become better places to work.
    -- They become well known among prospective employees.
    -- The level of ownership—referral rates and ideas for improving the business of existing employees—is often high.
    -- The screening process is simplified, because employees tend to refer acquaintances who behave like them.
    -- The pool of prospective employees grows.
    -- The cost of selecting among many applicants is offset by cost savings as prospective employees sort themselves into and out of consideration for jobs.
    -- This self-selection process reduces the number of mismatches among new hires. 

  5. Organizations with clearly codified and enforced cultures enjoy great employee and customer loyalty, in large part because they are effective in either altering ineffective behaviors or disengaging from values-challenged employees in a timely manner.

  6. An operating strategy based on a strong, effective culture is selective of prospective customers. It also requires the periodic "firing" of customers, as pointed out in our examples of companies like ING Direct, where thousands are fired every month. This strategy is especially important when customers "abuse" employees or make unreasonable demands on them.

  7. The result of all this is "the best serving the best," or as Ritz-Carlton's mission states, "Ladies and gentlemen serving ladies and gentlemen."

  8. This self-reinforcing source of operating leverage must be managed carefully to make sure that it does not result in the development of dogmatic cults with little capacity for change. High-performing organizations periodically revisit and reaffirm their core values and associated behaviors. Further, they often subscribe to some kind of initiative that requires constant benchmarking and searching for best practices both inside and outside the organization. For example, at Baptist Health Care, all employees are expected and encouraged "to search until they find 'the best of the best' in their area of expertise and benchmark against them (and possibly emulate them)."

  9. Organizations with strong and adaptive cultures foster effective succession in the leadership ranks. In large part, the culture both prepares successors and eases the transition.

  10. Cultures can sour. Among the reasons for this are success itself, the loss of curiosity and interest in change, the triumph of culture over performance, the failure of leaders to reinforce desired behaviors, the breakdown of consistent communication, and leaders who are overcome by their own sense of importance.
We have learned repeatedly that there is a pattern in the actions and activities involved in developing strong and adaptive ownership cultures. When an organization consistently builds and reinforces such a culture, it creates a competitive edge that is hard to replicate.

Excerpted with the permission of Harvard Business Press from The Ownership Quotient: Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage. Copyright 2008 Harvard Business Publishing Corporation. All rights reserved.