There is only one boss—the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.
—Sam Walton
Those words epitomized the belief system of Walmart, the first company in the history of the United States of America to generate US $500 billion in annual sales in 2017. Walmart continued to top the Fortune 500 ranking in 2018 (Fortune 2018), grabbing the top spot for the 15th time and 7th time in a row. With over 11,000 stores worldwide, Walmart employs 2.3 million employees with 1.5 million of them in the U.S. alone. Walmart is also continuously ranked as the top retailer in the world with its closest rival, Costco Wholesale Corporation coming in a distant second. According to Investopedia, the market capitalization of Walmart was US $194 billion in December 2015 versus Costco’s US $73.6 billion.
Founded in the summer of 1962 by Samuel Moore Walton or better known as Sam Walton, Walmart continued to be a family-owned business as Sam Walton’s family still controls over 50 percent of the company. The remarkable growth of Walmart, from a single store in Rogers, Arkansas, to the unrivaled giant of a Fortune 500, is highly attributed to the strong belief system instilled by Walton, which continued to underpin the culture of Walmart today through his family’s involvement.
Walton had always put the customer first ever since his first foray into the retail business as a sales trainee with J.C. Penney in 1940. He hated having the customer to wait while he completes the necessary paperwork thus he was not one of J.C. Penney’s most thorough employees. His records were haphazard and were even threatened to be fired if he didn’t improve on his record keeping. On the other hand, customers loved working with him, and he added a US $25, a significant amount then to his starting salary on a monthly basis.
Walton’s belief in customer service is still very much alive today. Walmart has continued to invest in improving customer service, such as customer in-store experience, by shifting stocking to daytime hours to ensure that stocks never run out from the shelf. Walmart is also sensitive to the demand of the new generation of retail shoppers who are digital natives and are looking to technology to help them save not just money, but also time.
Walmart’s vice president of marketing and customer service experience Jamie Sohosky shared that Walmart acknowledges this new phenomenon and are working on helping customers save time by getting through the grocery list quicker with technology. The retail giant has immersed itself in disrupt technology from A.I., robotics to biotech to look for the technology which could bring about an impact in all layers of the shopping experience.
After the customers, Walton’s second most important focus was his employees. He treated them like family and had earned their loyalty many times over. Arlene Wright who had worked for Walmart for more than 30 years since 1977, still worked as a part-time greeter at the ripe old age of 80 in 2012. She had only fond memories of Sam Walton whom she had met when he visited the stores as part of his routine. “He was such a wonderful person,” Wright said.
He was just a common man. He didn’t let his success go to his head. He was very down to earth. He would ask us if we had comments, good or bad. We did get some changes made because of comments, and it could come from customers or the employees. He called us family, and he wanted everybody to be happy with how the store was run, said Arlene (Lake News Online 2012).
Sam Walton treated everyone with respect, valuing their feedback and empowered his employees to act like business owners. Employees are known as “associates” giving them both respect and a sense of ownership. “Share your profits with all your associates, and treat them as partners. In turn, they will treat you as partner, and together you will all perform beyond your wildest expectations,” said Sam Walton, putting his words into action.
In 2015, Walmart raised the minimum wage for hourly associates to at least US $9 per hour, surpassing the national minimum wage by US $1.75. Chief Executive Officer, Doug McMillon, a Walmart careerist with his first role as a summer associate, unloading trucks in a distribution center in 1984 to CEO in 2014, is a firm believer in taking care of his “associates”, and like Sam Walton, in sharing the company’s profit with them.
In addition to the minimum wage raised which benefited 1.4 million employees, Walmart through Walmart Foundation also committed US $100 million over five years to increase entry-level workers’ economic mobility and in advancing their careers, especially in the retail and service industry. “These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers,” Doug McMillon, CEO of Wal-Mart Stores, said in a statement. He added, “We’re pursuing a comprehensive approach that is sustainable over the long term.”
(Entrepreneur.com 2015).
In total, McMillon invested US $2.7 billion in associates’ wages, benefits and training during a time of slow growth and increased competition from rivals such as Costco and Amazon, a strong indication that Sam Walton’s belief in investing in people continues to be part of the core culture of Walmart.
The nascent Walmart which Sam Walton founded in 1962 was built on the foundation of a strong belief system which had transcended generations. It’s crowning as the top Fortune 500 company is a living testimony that Walton has been right and is continuing to be right in his belief that its culture drives a strong company.
Organization Culture and Belief System
Edgar H. Schein in his book “Organizational Culture and Leadership,” defined culture as a “dynamic phenomenon that surrounds us at all times, being constantly enacted and created by our interactions with others and shaped by leadership behavior, and a set of structures, routines, rules, and norms that guide and constrain behavior” (Schein 2004). In essence, Schein is accentuating the fact that leadership is about the creation and management of organizational culture. It is in his term, “two sides of the same coin.”
Schein further added that culture begins with leaders imposing their belief systems; values and assumptions to the group, setting the precedence that will define not only the leadership to come in future generations but also in birthing a culture when the group is successful. This is clearly seen in the case of Sam Walton and Walmart. Walton put into practice his belief on how retail should be, avoiding the pitfalls he learned at J.C. Penny where he was declared to be unsuitable for retail business. And when Walmart began to see successes after successes, the assumptions and values began to take root, and culture is born where it inadvertently defines the organization.
Organizational culture in Schein’s perspective is also evolving at all times to meet the challenges posted by the environment in which the organization operates and it’s the leader’s responsibility to “perceive the limitations of one’s own culture and to evolve the culture adaptively” (Schein 2004). That is the essence and the ultimate challenge of being a leader and also a demonstration of the effectiveness of the culture within that organization.
Schein further developed an organizational model which consists of three levels, of which each level corresponded to how much cultural phenomenon is visible to the observer. The highest or the surface level is (i) Artifacts, which is constructed all the visible products of the group such as behavior, languages, physical environment, technologies, style, organizational structure, tradition and more. At this level, a cultural phenomenon is readily observed but difficult to decipher. A westerner may find the Japanese ritual of group morning exercises before work odd and inexplicable. (ii) Beliefs and values level, which consists of strategies, beliefs, goals or philosophies which can be observable from espoused justification. The organization’s value and belief systems originally reflect that of the leader or founder, and it’s adopted as the groups’ shared belief when it continues to bring successes to the group in overcoming challenges. Beliefs and values at this conscious level can also predict behaviors that are seen in the artifacts level. And if these beliefs and values continue to bring successes to the group, it will be assimilated or transformed into the lowest level of “undiscussable assumptions supported by an articulated set of beliefs, norms and operational rules of behavior”. (iii) Basic assumption is the lowest level, the most difficult to observe but is the ultimate source of values and beliefs. The basic assumption level is made up of unconscious, taken-for-granted beliefs, thoughts and or feelings which is the result of a high degree of consensus within the group from repeated successes in implementing certain beliefs and values. Therefore, one can understand an organization’s culture by understanding the learning process by which its basic assumption comes to be.
Succinctly, it can be said that belief or belief system is the foundation of any organization’s culture. Without it, the group has no compass in which to guide its response to the challenges of the environment it finds itself in. Therefore, nurturing this belief system and its underlying assumptions must be the focal point of any organizational leadership. How is that achievable? The next few sections aim to answer this question with a practical approach, implementable by the organization, its leaders and their followers.
Belief System: It Must Be True
Warren Buffett or more famously known as the “Sage” or “Oracle” of Omaha, the Founder and Chairman of Berkshire Hathaway is the world’s third richest man, making the list of Forbes 400 in 2018 at the grand old age of 88 with a net worth of US $82 billion. Unbeknownst to many, Berkshire Hathaway, the investment holding company he founded in 1970, was originally a textile manufacturing company which Buffett acquired and later pivoted to what it is today. He later claimed that the textile business was one of his worst trades.
The transformation of Berkshire Hathaway from a failing textile company to the world’s largest financial services company and the fourth largest conglomerate by revenue in 2018 by Forbes Global 2000, an annual ranking of the top 2,000 public companies in the world owes to Buffett’s belief that his reputation and integrity (and that of Berkshire) has high economic value. Buffett guards his reputation with such immense intensity that often it went over and beyond his financial obligation to the deal at hand. This trait could be seen as early as 1972 in his acquisition of Wesco, a financial company which was about to merge with a different suitor. The CEO of Wesco, on the advice of Buffett, called off the merger at the 11th hour, causing the stock price of Wesco to fall drastically from a high of US $18 to a mere US $11. Instead of swooping in to buy Wesco at a depressed price, Buffett felt responsible for the drastic drop and to protect his and Berkshire’s integrity; he started acquiring Wesco stocks at the price of US $17 before subsequently making a formal offer at US $15. The sharks of Wall Street would have disagreed with such “a colossal mistake”! Similarly, Buffett had always been willing to pay a premium for companies led by CEOs whom he deemed to be of high integrity. One of Buffett’s famous quote is after all, “Honesty is a very expensive gift, don’t expect it from cheap people”.
Buffett’s belief in integrity is also ingrained into the DNA of Berkshire Hathaway. For a financial services conglomerate with a total number of employees totaling 277,000 in 2017, Buffett had deliberately kept the department of compliance small. He believes that it is the culture of trust and personal integrity that would protect the reputation of the company and not a big compliance department.
An effective belief system which drives the culture of a company has to be adopted by the employees of the company wholeheartedly. However, to convince the rest of the employees of the company, not only that the leader of the company has to walk the talk, but he or she also has to convince the employees that they can do it too. As Buffett ceaselessly keeps himself in check to maintain high integrity in all his dealings, he simultaneously chooses to trust his subordinates that they can also lead a professional life of high integrity. Warren Buffett has clearly lived up his belief system when he said,
The greatest institutions select very trustworthy people, and they trust them a lot. There’s so much self-respect you get from being trusted and being worthy of the trust that the best compliance cultures are the ones which have this attitude of trust. This general culture of trust is what works. Berkshire hasn’t had that many scandals of consequence, and I don’t think we’re going to get huge numbers either.
Following Schein’s concept of organizational culture, a belief would be ingrained into the basic assumptions of the company, the deepest level of organizational culture, primarily when it produces empirical results. The personal wealth of Warren Buffett and the financial revenue of Berkshire Hathaway which stood at US $242.137 billion in 2017 had embedded the belief of integrity, trust and reputation deep into the culture of the company.
Belief System: It Must Be Communicated
Peter Drucker, the founder of modern-day management, whose writings predicted pivotal business paradigm shifts in the 20th century such as privatization, the rise of Japan as an economic power post World War II and the emergence of knowledge workers, said, “The most important thing in communication, is hearing what is not said.” Therefore, communication must not only speak to the mind but also the heart.
As a belief system is foremost about winning the hearts of a group of individuals, effective communication is a must. The most significant responsibility lies with the leader or the leadership of the organization. The leader must become the belief or value that the organization is espousing to be. He must show that he is living and breathing the belief system, moving hearts and minds to join him through his actions. Warren Buffett, who is also renowned for his belief in giving back to the society, communicated that belief through his philanthropic work. He had promised to donate away 99 percent of his wealth and had to date, donated a whopping US $35 billion to charities and foundations such as the Bill and Melinda Gates Foundation. Action not only speaks louder than words, but also a convincing and robust communication tool.
Another form of communication will be to encourage employees to visualize the positive aspects of adopting the belief system, or conversely, the consequences of neglecting it. However, the key is to lead each employee to visualize it at his or her level. The positive impact or the negative consequences must be felt at their own personal capacity. Again, Warren Buffett had demonstrated that he knows how to reach to each and everyone’s heart and to get them to live his belief of integrity at the workplace through his “newspaper test”. Written in the Berkshire Hathaway Inc. Code of Business Conduct and Ethics handbook, employees are urged to fall back on the newspaper test whenever they are in doubt or when they find themselves in ethically ambiguous situations. Buffett’s rule of thumb is,
…I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper to be read by their spouses, children and friends-with reporting done by an informed and critical reporter (Berkshirehathaway.com 2018).
Through a simple example, Buffett had communicated a lasting impression about ethics to his employees.
Lastly, for any belief system to be wholeheartedly adopted by employees or any group of individuals within an organization, it must be communicated to them at their level of understanding. Leaders must meet every individual and speak their “language” to win hearts and minds. A case in point would be Warren Buffett’s annual shareholder letter. Buffett’s famous annual letters are filled with stories, quotes, witty comments on investments, leadership, ways to value shareholders and employees, management decision, but above all, he is communicating his beliefs to the shareholders in their language. In one of his letters, he simply said, “It’s insane to risk what you have and need in order to obtain what you don’t need” (Berkshirehathaway.com 2018). That simple sentence epitomize Buffett’s investment beliefs which had brought him and Berkshire successes after successes, that is, investing for the long-term and not to be perturbed by short-term losses. Concurrently, the language use is a simple everyday mantra in a small shareholder’s household whereby being prudent with expenses is practiced on a daily basis.
Buffett’s annual shareholder letters are a popular feature which is highly anticipated by everyone, including Wall Street bankers, since he wrote the first one in 1965.
Belief System: It Must Be Evolving
and Increasing
Culture is a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that had worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.
—Edgar H. Schein
From the formal definition of culture defined by Schein earlier, culture is formed due to the fundamental human need for cognitive stability, consistency, and meaning. Culture allows the group to maintain those needs for stability by providing a form of appropriate response that would make sense in overcoming the external challenges. In Schein’s three-layered model of organizational culture, this proven “cognitive defense mechanism” would be basic underlying assumptions which define to the group what to pay attention to, how to define issues or situations, how to react and what possible actions that may be appropriate and so forth. In its essence, these underlying assumptions are the DNA of the group which would help to guide the group to thrive, bringing cohesion to the group, especially in assimilating new members. One can catch a glimpse of the manifestation of these basic assumptions at the beliefs and values level in the form of how the group justifies their actions.
Conversely, these basic assumptions could also be detrimental to the group when some of the elements of the assumptions are no longer valid, or have become dysfunctional due to the changing environment. The changes could be due to the introduction of new technologies such as artificial intelligence, the emergence of new consumer behaviors in the form of millennials, or as simple as a merger and acquisition. It is precisely at this moment when cultural change needs to be initiated, that the same characteristics of basic assumptions which had been instrumental to the group’s survival, became a double-edged sword that could scupper it.
To change something that has been universally agreed by the group as “truth” would bring about cognitive instability, anxiety and emotional distress to the group. The next natural thing to happen is for the group to fall back on what’s familiar to them and to perceive the new situation as congruent with their assumptions. This model explains why some CEO and companies had continued to ignore what’s “written on the wall” and didn’t take the necessary action to evolve, as demanded by the changing business environment. A case in point would be Kodak, the camera filmmaking company, when it ignored the emergence of digital cameras.
As such, beliefs and the deeper layer of basic assumptions besides that of ethical elements, would need to evolve as the environment facing the group evolves. Such evolution may not necessarily be of something negative, but to take advantage of what the new environment has to offer. In this sense, the responsibility lies with the leader of the group or company. Leadership in Schein’s opinion is about deciphering what elements within the organizational culture that has become dysfunctional, and to initiate the necessary changes. Schein identified the keys to a successful culture change as (1) management of anxiety that would occur from the relearning of basic assumptions and subsequently change in beliefs system and (2) to assess if the gene for new learning is present with the current group.
One practical approach that has been greatly underutilized is the concept of mentoring. Mentoring provides an excellent platform for the more seasoned member of the group or employees to share the basic assumptions of the organization with new members. New hires need time and mentoring to comprehend the underlying assumptions to the values and beliefs that are taught to them during the orientation week. For new members, having a mentor would also allow them to question the underlying assumptions against what they bring to the group thus bringing clarity to why the group reacted differently to a similar situation they might have encountered previously. This channel for informal questioning is highly critical as it will open up a common ground for the mentor and the mentee to share openly about their assumptions when they are working together toward a challenge, a fundamental experience to forming culture. And conceivably through the shared experience, success would follow, leading to a shared assumption as “the power of culture comes about through the fact that assumptions are shared and, therefore, mutually reinforced” (Schein 2004).
Another benefit of mentoring is that it can also help provide the necessary feedback to the leadership via the mentees on the changing external challenges. Jack Welsh, understood this very well by starting the concept of “reverse mentoring” in General Electric (GE), whereby the roles of the mentors and mentees are reversed. Young recruits who are more technology inclined are given the role to mentor the management who are of the older generation, thus less technology competent. Today, the former is known as “digital natives” and with the rapid changes in the digital world, reverse mentoring is a welcomed program.
In conclusion, organizational culture is ultimately made up of individuals who had chosen to align themselves into a group, sharing experiences, learning, and assumptions. However, they are individuals with different roles within the organization such as a leader or a follower or even stakeholders such as shareholders, customers, and vendors. The authors believe that one needs to see the organization through cultural lenses which examine the individuals in the role that they are in within the organization. Henceforth, in the later chapters of the book, the belief system of a leader, a follower and the company would be examined in respect of a startup founder, startup core employees and the startup itself.