In the last three years Deloitte, Ernst & Young (E&Y), and PwC have all issued reports focusing on the importance of organisational culture in driving a company’s success.
- According to E&Y, 55% of the FTSE 350 companies have seen a 10% increase in operating profits driven by their investment in culture. Overall 92% of the Board Members of these companies said that a focus on culture had improved their financial performance.
- According to Deloitte, culture has become one of the most important business topics of 2016. CEOs and HR leaders now recognise that culture drives people’s behaviour, innovation, and customer service: 82% of Deloitte’s survey respondents believe that ‘culture is a competitive advantage’.
- According to PwC, 84% of leaders believe that culture is critical to their organisation’s success. 60% think culture is more important than their strategy or their operating model.
- Cultural capital is the new frontier of competitive advantage.
- The culture of an organisation is a reflection of the values, beliefs and behaviours of the current leaders, and the institutional legacy of the values and beliefs of past leaders that have been institutionalised into the organisation’s structures, policies and procedures.
- Organisations do not transform. People do.
- Therefore the transformation of an organisational culture begins with the transformation of the values, beliefs and behaviours of the leaders.
The starting point of every cultural transformation initiative should be to find out what is working and not working in the organisation. This involves carrying out a cultural diagnostic, including data cuts for each business unit, department and team, as well as organisation-wide demographic categories such as gender and age. The results of the assessment will allow you to identify the cultural health of the organisation, and of the sub-cultures in each business unit, location, department and team.
The Process of Cultural Transformation
The cultural transformation process can be divided into 10 steps. These are described in the following paragraphs. The first five steps apply to organisations that have not been involved in a cultural transformation programme in recent years. The last five steps represent the feedback loop that allows organisations to measure and manage their culture on a year-by-year basis.
Step 1: Commitment to Transformation
Cultural transformation begins with the personal commitment of the leader and the leadership team to the transformation process, which necessarily includes a commitment to personal change. Without this commitment to cultural and personal change, there is no point in proceeding with a cultural transformation initiative. It is important for the leaders to understand that in making this commitment they may have to focus on their own personal transformation, particularly those who head up units, locations, departments or teams that display low levels of cultural health or high levels of cultural entropy.
Step 2: Baseline Measurement
After the leader and leadership team have made a personal commitment to the cultural transformation, then you can proceed by carrying out a cultural values assessment and, at the same time, build a scorecard of the organisation’s current performance, including output indicators such as productivity, efficiency and quality, outcome indicators such as profit, income and market share.
The object of the scorecard is to develop a set of baseline indicators from which you can measure the progress and impact of your cultural transformation journey from year to year. This is also the best moment to do a values clarification exercise. This involves setting up focus groups across the whole organisation to help people develop a deeper understanding of the impact and behaviours associated with the top positive and potentially limiting values that show up in the results of the cultural values assessment.
Step 3: Executive team alignment
At this point, it is vitally important for the leadership team to own the results of the cultural values assessment, individually and collectively. It is also important that they have a fundamental agreement on the way forward: on what is working and not working, and what they individually and collectively propose to do to move the cultural transformation process forward. Without this alignment and commitment, nothing will change. The culture of an organisation is a reflection of leadership consciousness. If there is no internal cohesion in the leadership team there will be no internal cohesion in the organisation.
The only way to build internal cohesion in a leadership team is to create a climate of trust. This requires that the leaders spend quality time together, getting to know each other at more than a superficial level. Early intervention with the Executive Team is critical so that they enter the organisational values discussion with accountability and humility. What we are looking for at this stage of the process is their individual and collective accountability.
Step 4: Vision and Mission
After you have completed your baseline measurements and agreed a way forward, the next step is to develop an internal and external vision and mission statement. In large and medium-sized organisations setting the vision and mission is the job of the leadership team. This task cannot be delegated. The direct reports of the leadership team and a cross-section of the rest of the leadership group should be asked for their comments once the leadership team has sketched out some draft statements.
The vision and mission statements should be short, easily memorable and inspirational. They should reflect a higher purpose. The purpose of the mission and vision statements is to give focus and direction to the organisation, so everyone is working towards the same goals. In small organisations, as long as it is manageable, it makes sense to involve as many people as possible in setting the vision and mission.
Step 5: Values and Behaviours
In addition to developing the vision and mission, it will also be important to define the values the organisation wishes to embrace to guide its decision-making. These are known as espoused values. The purpose of the espoused values is to provide a set of common principles that define how people in the organisation should interact with each other and with the outside world.
To the extent possible, all employees should be involved in this process. The values should be single words or small phrases that are easily memorised and support the vision and mission. Normally, there should be no more than five values: Four is ideal. Some organisations also like to prioritise their values. This is useful if a particular decision requires adherence to more than one value.
Once the espoused values have been chosen, two or three behaviour statements should be developed for each value. The purpose of developing behaviour statements is twofold:
- To give clarity to what each espoused value means in the context of the day-to-day operations of the organisation so you can recognise the value in action.
- To provide a way of evaluating executive and employee performance – to measure the degree to which leaders, managers and supervisors as well as other employees are living the values of the organisation.
Because behaviours are always contextual, it is not unusual for different behaviours to be used for the same espoused values in different parts (business units) of the organisation. The behaviour statements should be short, memorable, one-sentence statements that describe the actions that support the value they represent, and they should be appropriate for the context of the work unit. For example, the value of ‘trust’ on a factory floor may give more focus to competence-based behaviours, whereas ‘trust’ in a sales or accounting department may give more focus to character-based behaviours.
Together, the values and behaviours, and the vision and mission, should define the unique character and personality of the organisation, the levels of consciousness it aspires to operate from, and the key features of the brand. The ultimate purpose of defining the vision, mission, values and behaviours of an organisation is to create internal cohesion and a capacity for collective action.
Step 6: Change Strategy
For any significant change process or cultural realignment, there should be a clear understanding among executives about why the proposed changes are being undertaken. The changes that are proposed should be clearly communicated to everyone along with the benefits the proposed changes are expected to bring. Since the changes proposed will be alignment with the desired culture that employees have indicated, there should be very few problems in getting the employees to accept them.
Step 7: Personal Alignment
Personal alignment should begin with the leadership team and senior executives. When the leaders transform – achieve a higher level of personal mastery or adopt a higher set of values – their behaviours change, and as their behaviours change, the culture changes.
To this end, it is important for all members of the leadership team and the extended leadership group to get feedback from their colleagues on the extent to which their behaviours support or detract from the desired culture. The feedback should include a coaching session to support each leader to shift his or her focus to a higher level of consciousness. This will involve developing their empathy and compassion skills and tapping into their intuition and inspiration.
After the leadership team has embarked on the process of personal alignment, the direct reports of the leadership team should follow suit. Eventually, everyone in the organisation who is a leader, manager or supervisor should participate in some form of feedback process that enables them to develop, grow and improve their performance.
Step 8: Structural Alignment
The purpose of the structural alignment is to reconfigure the structures, policies, procedures and incentives of the organisation, so they fully reflect the espoused values and the vision and mission of the organisation.
In large-scale organisations, the process of structural alignment can take up to two-to-three years to implement. In smaller organisations, it can be done in less than a year. The responsibility for this usually falls to the Human Resources function.
Step 9: Values Alignment
For the espoused values of the organisation to be lived, everyone in the organisation needs to know what the values are, and how the values relate to the role they are performing. This is usually communicated through an all-staff one-day values alignment experience.
Step 10: Mission Alignment
Just as everyone in the organisation needs to be aware of and aligned with the espoused values and behaviours of the organisation, they also need to be aware of and aligned with the vision and mission. This is usually communicated through a mission alignment workshop. Apart from the informational content, the mission alignment workshop should give employees the opportunity to explore their own sense of purpose or mission to see if the role they are currently performing matches their skills and talents, and aligns with their passion. The workshop should also enable employees to get a clear line of sight between the work they do each day and the mission or vision of the organisation. Every employee needs to know how the contribution they make on a daily basis makes a difference to the success of the organisation.
The four most frequent mistakes made in culture transformation programmes are:
1. Forgetting to do structural alignment
This step – the realignment of the structural incentives – is the one that is most frequently forgotten in cultural transformation initiatives. Many organisations put a great deal of energy and resources into personal alignment or personal development programmes for their executives without doing anything about structural re-alignment. This serves only to aggravate the level of discontent and disillusionment in the executive and employee population. When executives and employees return from personal development and personal mastery programmes, they usually come back with a higher personal awareness about how they should be interacting with their colleagues. They quickly become disillusioned when they realise that, although they have changed, the organisations policies, systems, processes and procedures have not. The new behaviours they have learned are not only not practised, they are also not rewarded.
2. Unique focus on team building
Another frequent mistake that companies make is to invest in team building without first focusing on personal alignment. This significantly limits their potential for success: without self-knowledge and personal mastery, the impact of a team-building exercise may not last. For maximum impact, personal alignment (learning to lead yourself) should precede team building. This particularly applies to the top team where very often most of the dysfunction lies. Learning to lead yourself is a fundamental prerequisite to leading others.
3. Failure to customise the transformation process
Change agents and consultants frequently make the mistake of using off-the-shelf personal alignment or team-building programmes that have not been tailored to the specific needs of the organisation, unit, department or team they are working with.
4. Failure to build internal capacity for values/culture management
Cultural transformation is an inside job, and it is an ongoing process: it needs to be managed and facilitated by people who are trained. It cannot be handed off to consultants, but it can be guided by experienced individuals who can transfer their knowledge and skills to the people in the organisation who are charged with values/culture management. In large organisations, it is particularly important to train people throughout the organisation to become cultural ambassadors and culture navigators, also known as change leaders or culture leads.
To build a high-performing, values-driven organisation that engenders high levels of cultural health, employee engagement and well-being, you will need to develop a cultural transformation process that targets both the personal alignment of the leaders and the structural alignment of the organisation.
This work should not be approached as a project: it should be regarded as an ongoing process of values management that becomes deeply engrained into the measurement ethos of the organisation.