What it takes to build a winning organizational culture

Many business leaders feel that culture is both everything and nothing. That it’s spongy and you can’t quantify it. How nice to have until something more pressing gets in the way [read: all the time].

Author James L. Heskett systematically dismantles these beliefs in his forthcoming book, Win from Within: Create an Organizational Culture for Competitive Advantagewhich is a practical roadmap for improving an organization’s culture.

Heskett, UPS Foundation Professor Emeritus at Harvard Business School, argues that an effective organizational culture provides companies with a major competitive advantage, enabling higher employee and customer engagement and loyalty, which results in growth. and greater profits. While many business leaders are aware of these benefits, too few are focused on strengthening their organization’s culture. And maybe it’s just because they don’t know how to get there.

In the book, Heskett shares a collection of stories that illustrate how a number of CEOs have tackled cultural change quickly and effectively, inspiring their employees to become more loyal, productive and creative.

Take the story of Satya Nadella, the CEO of Microsoft who assumed the reins of the software giant at a time when growth had plateaued and boredom shrouded the mission. Nadella undertook a rapid cultural transformation at the same time as he engineered a shift in strategy towards cloud computing. Heskett describes how Nadella led a corporate renewal by pushing aside 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, to be published in January, tackles some of the logistical hurdles of cultural change head-on and provides a playbook to help leaders hire productive employees, organize around teams and values, and lead by inclusion. A nod to his time, he dedicates a place to tips for creating and maintaining culture in a remote environment. The book is peppered with advice on the role of a leader, including how to lead with passion and how to create an inspiring mission.

In this excerpt from the book, Heskett echoes 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.

Win from Within: Create an Organizational Culture for Competitive Advantage

James Hesket

book cover of Winning from Within

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 types of strategies that can be executed. As Edgar H. Schein said, “More and more management consultants are recognizing … that because culture limits strategy, a company must analyze its culture and learn to manage within its limits or, if necessary , change it.”

I see it differently. Think of it as a glass half full or a glass half empty. An effective culture embodies learning, innovation and change. Cultures centered on transparency and trust pave the way for change. In this way, culture is an enabler of an agile approach to strategy. It facilitates leadership and the management of all kinds of change.

There is a catchy, popular, and oft-repeated view that “culture eats strategy for lunch.” It implies a relationship that is not useful. Culture and strategy are not in some sort of competitive race for success. It is more useful to think of culture and strategy working in tandem to produce competitive superiority.

“It is easier to change a strategy than to change a culture.”

Culture and strategy complement each other in the most successful organizations. For example, we’ll see later how Satya Nadella led a turnaround on dysfunctional aspects of Microsoft’s culture. But at the same time, he was leading a major shift in strategy away from the dominance of Windows software, a shift made more difficult by the market share and enormous wealth that Windows had produced for Microsoft. It was time for the company to start catching up with Amazon in cloud computing, and fast. The culture had to be reshaped to foster trust rather than infighting, greater reliance on judgment rather than formal checks, and higher employee and customer engagement that could lead to faster and more effective change. easy, including a change in strategy within Microsoft. The shift to a greater emphasis on a cloud-based service strategy to take its place alongside a hugely successful Microsoft software strategy was facilitated by the concurrent effort to address the culture – how things would be done – at Microsoft in the future.

The point here is that an effective culture provides a foundation, a platform, from which a range of strategies can be launched and executed. It is easier to change a strategy than to change a culture. In a competitive era that requires frequent strategy changes in many industries, any culture must be designed to support a range of strategies. It destroys the idea that culture and strategy must be in perfect alignment at all times. The range of strategies associated with a particular culture is not unlimited, however. For this reason, cultures and the range of strategies they are able to support must be mutually supportive.

A useful way to think about the relationship between culture and strategy is that an effective culture can provide competitive advantage for a very long time, often much longer than any strategy. This is a particular advantage in a world where some argue that strategy today only confers short-term competitive advantage. In his book, The end of competitive advantage, Rita Gunther McGrath argues that management’s presumption that competitive advantage is enduring creates all the wrong instincts in a world where the best one can hope for is “transient competitive advantage.” It is a world in which, among other things, smaller, faster and more agile organizational entities pool resources rather than own them and management by consensus is replaced by management governed by shared global beliefs.

Think of an effective culture as one that provides a platform, in the high-tech sense of that term, designed to foster the ability to learn, adapt, innovate, and change anything, including The strategy. It is this type of platform from which strategies with transient 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 is how to read the figure. The culture of an organization is the foundation of the phenomena leading to two outcomes out of an infinite range of outcomes, Path A or Path B. Both can produce strategic success. But track A is a successful strategy that owes little to an effective culture. The culture itself is characterized by an authoritarian style of management with today’s pervasive mission to “be the best” at something. It may claim to be customer-centric and emphasize employee development, but it only allows a limited voice for employees and offers limited support for cross-border cooperation (read in silo).

As a result, organizations employing a Path A culture can only expect moderate levels of trust with a relatively heavy reliance on controls to produce desired behaviors. This slows down decision making and execution. Employees (and, as we’ll see) customers are loyal only up to a point.

It is a culture designed to support a strategy. It can be a strategy built around a high-performing product, an efficient distribution system, or even government protection. An organization can very well execute the strategy and experience success. But a problem arises when it becomes necessary to change this strategy or make a significant change in the organization. Change is very difficult. The strong and authoritarian culture makes this difficult. Success can validate the rightness of culture, until it doesn’t. But that success is relatively short-lived for organizations on Path A in a competitive environment that is changing faster and faster, far too fast for any culture change needed to support a new strategy.

Compare this with the organization on lane B in the figure above. It too has a strong culture, but centered on a participative management style (vs. authoritarian). The mission is inspiring (change the world vs be the best). It is a team-oriented, employee- and customer-centric culture that emphasizes not only employee development, but also cross-border cooperation, organizational learning and innovation. .

The culture associated with Path B fosters a high level of trust; therefore, it works well with a heavy reliance on employee judgment (versus more formal controls) among a group of people who are comfortable with “how and why we do things here”.

It’s a place where employees love to work and are highly engaged, resulting in employee and customer retention that’s directly tied to growth and profitability (as the numbers will show later). This is a culture in which change leadership of any kind is easier than most. The ease of change extends to the issue of strategy.

“It’s an interesting thing about cultures: they form with or without management intervention.”

A B-track culture can support a range of strategies as well as a shift from one to another. It is a culture focused on the long-term success of an increasingly rapidly evolving set of strategies in an increasingly fast-paced competitive environment based on a flow of new ideas and constant change. At no time has the importance of this been emphasized more than during the global COVID-19 pandemic, for which no plan could be made. Agility, not long-term planning, is the answer to hard-to-predict events. Finally, an effective culture is particularly important for organizations in the start-up phase of their development in which several business models or strategies may need to be tested to find the one that can provide lasting success. Repeated strategic successes (and even failures for the right reasons) validate the correctness of a B-path culture.

Of course, you have the option of largely ignoring organizational culture issues. This is an interesting thing about cultures: they form with or without management intervention. But as a leader, you ignore them at your peril. As Ben Horowitz, founder and CEO of software-as-a-service pioneer LoudCloud, said, “If you don’t methodically define your culture, two-thirds of it will end up being accidental, and the rest will be a error.”

Adapted from Win from Within by James L. Heskett. Copyright (c) 2022 James Heskett. Used by agreement with the publisher. All rights reserved.

[Image: Unsplash/Jason Leung]