(iStockphoto/skynesher)Most CEOs recognize the power of organizational culture and the impact that it can have on the bottom line. They acknowledge the importance of shared values and behaviors that influence the way an organization conducts its business.
One extensive study by researchers at Duke University (completed before the outset of the pandemic) concluded that a strong corporate culture fosters better execution, reduction in agency cost, and therefore, higher productivity and creativity. Of the many executives surveyed, 92 percent thought that improving a firm’s culture would improve its value. But only 16 percent felt that “their firm’s culture is exactly what it should be.”
In other words, they’re telling us that it’s an important way to improve firm value, but 76 percent of them haven’t done as much as they could to improve it. So why the reluctance to undertake what would seem to be an obvious performance improvement effort?
"An organization’s culture, among other things, touches every functional department ... and is often perceived as critical to its strategic direction."
In my research on culture change, several possible explanations have arisen. For starters, consultants who provide advice on changing an organization’s culture generally estimate that the chances of success are low, typically one in three or four attempts. Those odds aren’t encouraging. But what isn’t clear in those statistics is what constitutes an attempt and what the criteria are for success or failure.
The perceived complexity of the effort may deter some effort. An organization’s culture, among other things, touches every functional department, affects assumptions about the nature of needed controls, influences the way people organize to work, and is often perceived as critical to its strategic direction.
The question fostering the widest range of opinions among those whose counsel I value is that of just how long it takes to change a culture. Among many, there is a perception that organizational culture change takes a long time, longer than the tenure of a leader, longer than the attention span of the organization—so long that other high priority initiatives by necessity will distract the organization from completing the effort. As venture capitalist John Doerr has said, “time is the enemy of transformation.”
Studies have shown that the single most important element in determining success in changing an organization’s culture is the interest, support, and even passion displayed by its leader. The quality of leadership is strongly linked to the level of employee engagement, and employee engagement (based in large part on trust) is a critical factor in achieving any kind of change.
"Are Nadella and Microsoft the exception to the rule?"
Exhibit A is CEO Satya Nadella, who is credited with leading the reshaping of Microsoft’s culture. In 2014, he found an organization that, among other things, had “lost its soul,” honored “the smartest person in the room,” fostered “know-it-alls vs. learn-it-alls,” practiced “accountability that trumped everything,” and in which “hierarchy and pecking order had taken control.” The process of changing that culture involved a classic effort to identify and implement values and behaviors that would serve the company well in an age of cloud-based computing as opposed to Microsoft’s former concentration on Word software.
Nadella feared that the organization would be perpetually distracted, but instead he completed one of the most significant culture change efforts in American corporate history in a matter of months, before organizational focus could languish.
Are Nadella and Microsoft the exception to the rule? Or has he put aside commonly (and perhaps erroneously) held beliefs and set an example for others?
How long does it take to improve an organization’s culture? What do you think?
Share your thoughts in the comments below.
Editor's note: Heskett explores the leader's role in his upcoming book, Win From Within: Build Organizational Culture for Competitive Advantage, available in January 2022.
References:
- Randall Beck and Jim Harter, “Managers Account for 70% of the Variance in Employee Engagement,” Gallup Business Journal, April 2015.
- John R. Graham, Campbell R. Harey, Jillian Popadak, and Shivaram Rajgopal, “Corporate Culture: Evidence from the Field,” Social Science Research Network, http://ssrn.com/abstract=2805602, accessed November 5, 2016.
- Satya Nadella with Greg Shaw and Jill Tracie Nichols, Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone (Harper Business, 2017).
Your feedback to last month’s column
How Do We Make Sure the Right People End Up with Power in Organizations?
The right culture, hiring and promotion processes, peer evaluations, and firing policies will ensure that power ends up in the right hands in organizations. That’s the sum of most of the responses to last month’s column. Not everyone agreed.
Phillip Mathew kicked things off by stating that “Selection recommendations must undergo rigorous independent review… the selection criteria and process of gathering and presenting the judgment data needs to be robust, efficient, and the sole basis for decisioning. And the final decision-making taken by a panel that may include the boss.”
Tom Kaneb added, “We look for people who give power away. They empower others. The hallmark of leadership is helping others to become leaders.”
Beyond hiring, Dr. Mason Oghenejobo pointed out that “organizations must explicitly include humility and empathy in their core values if they want these good leadership characteristics to be part of their culture.” MB added, “Empathy requires a complete culture shift, which doesn’t happen overnight, and it requires commitment from the top … If the bullies’ behaviors are called out by their peers, they won’t feel welcome or supported, and they will leave.”
Edward Roberrts cautioned us not to expect too much from these kinds of suggestions: “It is naïve to think that empathy and humility will be welcomed in the current environment in most large organisations, where for the most part short-term (quarterly) targets take precedence over long-term values and goals, even assuming the senior management accepts these values are critical to success.”
Persephone De Cumbria left us with something to think about: “What is the ‘right’ person? I thought that we had evolved beyond using any specific set of variables to define ‘right’ and realized the value of embracing the concept of ‘situational management.’ A dictator may well be right in a crisis situation.”
Is De Cumbria right? What do you think?