There’s a feeling among many business leaders that culture is both everything and nothing. That it’s squishy and can’t be quantified. That it’s nice to have until something more urgent gets in the way [read: all the time].
Author James L. Heskett systematically takes apart those beliefs in his forthcoming book, Win from Within: Build Organizational Culture For Competitive Advantage, which is a how-to roadmap for improving an organization’s culture.
Heskett, the UPS Foundation Professor Emeritus at Harvard Business School, argues that an effective organizational culture provides businesses with a major competitive advantage, allowing for higher employee and customer engagement and loyalty, all of which translate into greater growth and profits. Although many business leaders are aware of these benefits, too few are focused on boosting their organizations’ cultures. And maybe that’s just because they don’t know how to get there.
In the book, Heskett shares a collection of stories that illustrate the real-world ways a number of CEOs have swiftly and effectively tackled cultural change, spurring their employees to become more loyal, productive, and creative.
Take the tale of Satya Nadella, the CEO of Microsoft who assumed the reigns of the software giant at a juncture when growth had plateaued and ennui enshrouded the mission. Nadella undertook a speedy cultural transformation at the same time he engineered a shift in strategy toward cloud computing. Heskett charts how Nadella led a renewal of the company by discarding performance metrics that discouraged risk-taking, aligning employees behind a mission to empower customers, and proclaiming that the “C” in his title stood for culture.
The book, forthcoming in January, tackles head on some of the logistical hurdles of cultural change and provides a playbook to help leaders hire productive employees, organize around teams and values, and lead by inclusion. In a nod to the times, he devotes space to tips for creating and maintaining culture in remote settings. The book is peppered with advice on the role of the leader, including how to lead with passion and how to create an inspirational mission.
In this excerpt from the book, Heskett takes on the corporate adage that “culture eats strategy for lunch.” Culture and strategy don’t have to be in conflict, he argues. Instead, an effective culture can be a springboard for strategic change.
Book Excerpt
Win from Within: Build Organizational Culture For Competitive Advantage
James Heskett
Effective Cultures Anchor Strategic Change
Most discussions of the relationship between culture and strategy focus on the limiting effects of culture on strategy. The notion is that a culture limits the kinds of strategies that can be executed. As Edgar H. Schein has put it, “More and more management consultants are recognizing ... that, because culture constrains strategy, a company must analyze its culture and learn to manage within its boundaries or, if necessary, change it.”
I see it differently. Think of it as a glass-half-full vs. a glass- half-empty view. An effective culture embodies learning, innovation, and change. Cultures centered around transparency and trust pave the way for change. In this way, culture is an enabler of an agile approach to strategy. It makes the leadership and management of all kinds of change easier.
There is a catchy, popular, oft-repeated view that “culture eats strategy for lunch.” This implies a relationship that is not helpful. Culture and strategy are not in some kind of competitive race for success. It’s more useful to think of culture and strategy operating in tandem to produce competitive superiority.
"It’s easier to change a strategy than it is to change a culture."
Culture and strategy complement each other in the most successful organizations. For example, we’ll see later how Satya Nadella went about leading a turnaround of dysfunctional aspects of Microsoft’s culture. But at the same time, he was leading a major change in strategy away from the domination of Windows software, a change made more difficult by the market share and huge wealth that Windows had produced for Microsoft. It was time for the company to begin to play catch-up to Amazon in cloud computing, and fast. The culture had to be reshaped to foster trust vs. infighting, a greater reliance on judgment vs. formal controls, and higher engagement of both employees and customers that could lead to faster and easier change—including a shift in strategy within Microsoft. The shift to a greater emphasis on a cloud-based service strategy to take its place alongside an extremely successful Microsoft software strategy was facilitated by the simultaneous effort to address the culture—how things would be done—at Microsoft going forward.
The point here is that an effective culture provides a base, a platform, from which a range of strategies can be launched and executed. It’s easier to change a strategy than it is to change a culture. In a competitive era demanding, in many industries, frequent changes of strategy, any one culture needs to be designed to support a range of strategies. This lays waste to the notion that culture and strategy must be in perfect alignment at all times. The range of strategies associated with any particular culture is, however, not unlimited. For this reason, cultures and the range of strategies they are capable of supporting have to be mutually supportive.
One useful way to think about the relationship between culture and strategy is that an effective culture can provide a competitive advantage for a very long time, often much longer than any strategy. This is a particular advantage in a world in which some claim that strategy today confers only short-term competitive advantage. In her book, The End of Competitive Advantage, Rita Gunther McGrath argues that the management presumption that competitive advantage is sustainable creates all the wrong reflexes in a world in which the best one can hope for is “transient competitive advantage.” It’s a world in which, among other things, smaller, faster, more agile organizational entities marshal resources rather than own them and management-by-consensus is replaced by management governed by shared overarching beliefs.
Think of an effective culture as one that provides a platform, in the high-tech sense of that word, one that is designed to foster the ability to learn, adapt, innovate, and change anything, including strategy. It is this kind of platform from which strategies with transitory competitive advantage can be developed and executed. The figure below shows this. It describes, in a nutshell, much of what this book is about.
Here’s how to read the figure. An organization’s culture is the foundation for phenomena leading to two of an infinite range of outcomes, track A or track B. Both can produce strategic success. But track A is a successful strategy owing little to an effective culture. The culture itself is characterized by an authoritarian management style with today’s ubiquitous mission to “be the best” at something. It may make claims to be customer-centered and emphasize employee development but it allows only limited employee voice and gives limited support for cross-boundary (read silo) cooperation.
As a result, organizations employing a track A culture can expect only moderate levels of trust with a relatively heavy reliance on controls to produce desired behaviors. That slows down decision making and execution. Employees (and, as we will see) customers are loyal only to a point.
This is a culture designed to support one strategy. It may be a strategy built around a highly successful product, an effective distribution system, or even government protection. An organization may execute the strategy very well and enjoy success. But a problem presents itself when it becomes necessary to change that strategy or to make any important change in the organization. Change is very difficult. The strong, authoritarian culture makes it difficult. Success may validate the rightness of the culture—until it doesn’t. But that success is relatively short for organizations on track A in a competitive environment that is changing faster and faster, much too fast for any change in culture needed to support a new strategy.
Compare this with the organization on track B in the figure above. It too has a strong culture, but one centered on a participative (vs. authoritarian) management style. The mission is inspirational (to change the world vs. to be the best). It is a team-oriented, employee- and customer-centered culture with an emphasis not only on employee development but also on cross-boundary cooperation and organizational learning and innovation.
The culture associated with track B fosters a high level of trust; therefore, it functions well with a heavy reliance on employee judgment (vs. more formal controls) among a group of people that is comfortable with “how and why we do things around here.”
This is a place where employees like to work and are highly engaged, leading to both employee and customer loyalty that is directly linked to growth and profitability (as the numbers will show later). This is a culture in which the leadership of change— change of any kind—is easier than most. Ease of change extends to the matter of strategy.
"That’s an interesting thing about cultures: they form with or without management intervention."
A track B culture can support a range of strategies as well as a change from one to another. It is a culture geared to the long-term success of an increasingly rapidly changing panoply of strategies in an accelerating competitive environment based on a stream of new ideas and constant change. At no time has the importance of this been driven home more than during the COVID-19 global pandemic, for which no plan could be made. Agility, not long-range planning, is the answer to hard-to-predict events. Finally, effective culture is especially important for organizations in the start-up phase of their development in which several business models or strategies may have to be tested to find the one that can provide sustained success. Repeated strategic success (and even failure for the right reasons) validates the rightness of a track B culture.
Of course, you have the option of largely ignoring issues of organizational culture. That’s an interesting thing about cultures: they form with or without management intervention. But as a leader, you ignore them at your own risk. As Ben Horowitz, founder and leader of LoudCloud, a pioneer in software as a service, put it, “If you don’t methodically set your culture, then two-thirds of it will end up being accidental, and the rest will be a mistake.”
Adapted from Win from Within by James L. Heskett. Copyright (c) 2022 James Heskett. Used by arrangement with the Publisher. All rights reserved.
[Image: Unsplash/Jason Leung]