9 ∎ The Truth about Your Organizational Culture

Most people and organizations are either unaware or in denial of how toxic or limited their organizational culture is. And the way to win the game of high performance is through an evolution of culture.

When looking at the Matrix of Reality Map, we see that organizational change depends on culture, people, the use of power, and leadership. Since the role of a manager is to change the organization to get better results, a thorough understanding of all these aspects is needed to make effective and lasting change.

In this chapter, we contrast traditional and evolutionary organizations in their understanding and shaping of organizational culture. More importantly, we share a powerful model to diagnose culture and serve as the foundation for evolving culture. Creating a language and way to perceive and understand culture serves as an important foundation of leading beyond (traditional) change.

PATTERN 9.1: FROM CUSTOMER FIRST TO EMPLOYEE FIRST

CUSTOMERS FIRST

In the past decade there has been a large focus on customer-first strategies, such as customer experience, user experience, and customer net promoter score (NPS). All of these are important and valuable. Looking after customers is essential to serving the purpose of the organizations. The trap is in putting customers first.

Serving customers depends on the employees. If you do not have happy employees, how can they create happy customers? As such, customer-focus and financial-focus are secondary to the care and support of the employees.

EMPLOYEES FIRST

A lot of companies say they put employees first; however, in practice, business concerns such as profits or product launch deadlines may often override intentions.

PRINCIPLE: EMPLOYEES FIRST

Richard Branson is famous for starting dozens of successful businesses. His simple formula is, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” He stands among dozens and dozens of business leaders who have independently identified elements of the virtuous cycle.

John Mackey, founder and CEO of Whole Foods Market, says, “Business is simple. Management’s job is to take care of employees. The employee’s job is to take care of the customers. Happy customers take care of the shareholders. It’s a virtuous circle” (Conley 2007, 217).

In Peak: How Great Companies Get Their Mojo from Maslow (2007), Chip Conley describes the following relationship: “Creating a Unique Corporate Culture → Building an Enthusiastic Staff → Developing Strong Customer Loyalty → Maintaining a Profitable and Sustainable Business” (220). The key to high performance, then, is to focus on the development and care of staff. Employees First, Customers Second: Turning Conventional Management Upside Down (2010) by Vineet Nayar documents HCL’s strategy for shifting the focus to employees.

MODEL: VIRTUOUS CYCLE FOR BUSINESS

The virtuous cycle integrates and simplifies the proven reliable wisdom for creating a high-performance organization.

We define the virtuous cycle as follows: engaged employees → happy customers → healthy operating cash flow that in turn is used to support the employees. The emphasis in our model is on taking care of the employees.

The pattern is present across many high-performance organizations. Of course, organizations may achieve success through innovation or genius, yet performance will be limited by the functioning of its workers.

Consider figure 9.1, which illustrates the virtuous cycle. Where do managers and executives have the most influence to improve the flow of the virtuous cycle? For sure, providing funds to support operations, initiatives, and learning is important. However, the greatest impact on employees is the nature of the interaction leaders have with them. Other patterns we will explore in great detail are about how employees are treated within an organization by leaders directly and by the system as a whole.

As organizational leaders, the place where we have the greatest ability to influence what is happening is with the employees. That’s the starting place for evolutionary leaders.

Shareholder First Is a Trap

In low-performance organizations, cash flow is diverted from healthy operations to support shareholder dividends needed to boost the stock price. Employees do not have the tools and support needed to create products and services that fully satisfy customer needs. The inferior products and customer experiences then lead to reduced revenue, which in turn leads to further pressure on cash flow.

Of course, it is important that shareholders benefit from the profits of an organization. However, healthy organizations limit shareholder payouts to excess cash flow that is not needed for operations. Operations come first. Shareholders second. This ensures the long-term viability of the organization. There has been a recent shift in understanding that putting shareholders first is damaging to company health. It is reported that “America’s top CEOs say they are no longer putting shareholders before everyone else” (Wartzman 2019).

MODEL: HEALTHY ECOSYSTEM

An extension of looking after employees is to look after other stakeholders outside of the organization. Many high-performance organizations also create and maintain a healthy extended ecosystem for the organization. We see this as a key component to B Corporations (conscious business). It turns out it’s not just good business but good for business, as it builds positive sentiment for the organization. Figure 9.2 shows the key elements.

With regard to the healthy ecosystem, Laloux describes green culture as having the following perspective: “Businesses have a responsibility not only to investors, but also to management, employees, customers, suppliers, local communities, society at large, and the environment” (Laloux 2014, 34).

For some time now, there have been movements such as the triple bottom line: social, environmental, and financial. One variant is: people, planet, and profit. There is also a growing interest in the creation of B Corporations that are both socially and environmentally responsible.

PATTERN 9.2: FROM OPPRESSION TO ENABLEMENT

Of particular importance in determining the level of effectiveness of an organizational system are the beliefs that people hold about one another. In this chapter, we explore the views that leaders hold around workers through the Theory X and Theory Y model.

MODEL: THEORY X AND THEORY Y

In the 1950s and 1960s, Douglas McGregor from MIT Sloan School of Management created contrasting models of Theory X and Theory Y for describing worker behavior (McGregor 1960). Table 9.1 contrasts the response from a worker based on various different dimensions of behavior.

LISTEN TO YOUR SYSTEM

This model can be used as a diagnostic tool to understand your current organizational environment by asking the questions: How do workers behave? Are they more like Theory X? Are they more like Theory Y? Does it depend on the individual worker?

Table 9.1: Theory X and Theory Y

WHAT IS YOUR MODEL OF REALITY?

Let’s consider the question: Do Theory X and Theory Y workers exist in the workplace?

Perhaps we experience workers that act in a particular manner at a particular time or in a particular situation and differently in other situations. It may be true that we can assess a particular individual as operating more one way than another—for example, mostly Theory X or mostly Theory Y.

Yet, the answer is no. Theory X and Theory Y are judgments or generalizations made about people. They are labels that simplify and distort the reality of human behavior. It is inaccurate to say workers are Theory X or a particular person is Theory Y. So Theory X and Theory Y are models of possible human behavior. The purpose of exploring them is to examine what the beliefs held by your organizational system are.

OPPRESSION

When leaders in an organization believe people function like Theory X, then they will create organizational structures designed for Theory X workers. They will behave in ways that treat workers like Theory X workers. In turn, this will encourage workers to act like Theory X.

THEORY X EXAMPLE

Let us make a very concrete example of this. It comes to a manager’s attention that different teams are using different technology solutions to solve similar problems. The manager is concerned that the lack of consistency may impact long-term performance. With a Theory X belief set, the manager may convene a group of technical leads and architects to make a decision for which one technology solution will be mandated for all groups to comply with.

ENABLEMENT

When leaders in an organization believe people function like Theory Y, then they will create organizational structures designed for Theory Y workers. They will behave in ways that treat workers like Theory Y workers. This in turn will encourage workers to act like Theory Y.

THEORY Y EXAMPLE

A manager with a Theory Y mindset might notice the same problems and then ask the teams to work together (perhaps through creation of a task force or working group) to find a good balance between the interests and needs of each team. They might also explore the balance between short-term costs and long-term benefits. Out of this, they might publish an architecture decision outlining what the strategy is for using one, or possibly multiple, technology solutions. In some situations, it might turn out that one solution will work well, or it might turn out that multiple solutions are a better option.

Through a single decision or response, we can see how a manager will support the creation of Theory X or Theory Y behaviors.

LEADERSHIP MINDSET SHAPES REALITY

Figure 9.3 shows the mindset or beliefs that leaders hold about workers will shape the reality of what is happening in the organization. As explored in the chapter on reality, we will only see what we expect to see. As such, the expectations or mindsets of the leaders are the hidden foundation of all organizational systems.

PATTERN 9.3: FROM IGNORING CULTURE TO UNDERSTANDING CULTURE

IGNORING CULTURE

Many organizations ignore culture altogether or only provide superficial efforts to effect change. Although the maxim, attributed to Peter Drucker, “culture eats strategy for breakfast” is generally accepted, it is far easier to create progress with strategic activities rather than delve into a topic as nebulous as culture. When culture is ignored, problems never really get solved, and while organizations jump from reorganization to reorganization, transformation program to transformation program, nothing of any real consequence changes.

It is not humanly possible for us to comprehend, quantify, or model something as complex as organizational culture. Many argue that it is a nebulous, real, and very important entity, yet it cannot be seen, measured, or quantified. For example, Google avoided talking about culture and instead shaped it through a weekly all-hands meeting with the founders and other informal mechanisms to establish the Google Way of working.

IS CULTURE INVISIBLE?

There are some business leaders that suggest that culture is invisible—it cannot be directly understood or changed. We present an alternate view: culture can be understood with the right models to see it. Several models are presented throughout this book.

Figure 9.4 depicts the elements of an organizational system. Tactics and strategy are above the waterline. They can be directly observed and analyzed so changes can be readily made. This fits nicely with Traditional thinking.

Culture is like the part of the iceberg—90 percent—that is below the waterline. It is not readily visible, and this makes it more challenging and difficult to observe, understand, and influence.

With 90 percent of the weight, it is a powerful force dominating strategy and tactics. Real, lasting, sustainable shifts in organizational performance can only come from culture. Of course, lasting change requires working at all three levels so the tactics and strategy support the culture. The starting place is organizational culture since it will guide effective strategy and tactics.

THE PERIL OF IGNORING CULTURE

Most change programs for Agile, Digital, Lean, innovation, and so on are, at their root, seeking to create a change in the culture of the organizations through tactics and strategy at the mid and bottom levels of organizations. Culture is outright ignored or given some token treatment. Ignoring culture leads to the very high rate of failure of transformation programs to achieve their desired results—up to 90 percent failure in our experience. Edgar Schein captures the essential role played by culture: “If you do not manage culture, it manages you, and you may not even be aware of the extent to which this is happening” (Schein 2010, 20).

PREREQUISITES FOR EXAMINING CULTURE

For an organization to address culture in a meaningful way, it would need to meet several important preconditions:

1. It is prepared to confront the reality of what its culture is and how it impacts success.

2. It needs to have an understanding of how to investigate culture.

3. It has to take time to really investigate what forces are shaping the culture within the organization.

4. It must have some way of effectively shaping the culture going forward.

The purpose of this pattern is to make clear an understanding of what culture is, while the whole of this book is to investigate and shape culture.

UNDERSTANDING CULTURE

Evolutionary organizations have a high level of awareness of their organizational culture. It is seen as the fabric that holds everything together. Understanding it is the starting place for evolution.

FOUNDATIONS OF ORGA NIZATIONAL CULTURE

How we behave is culture. We dive deeper into the reality of culture. When there is a crisis or emergency, the way an organization responds defines what the culture really is.

A simple and concise definition of culture is by William Schneider: “How we do things around here in order to succeed” (Schneider 1999, 10).

The most detailed and comprehensive explanation and exploration of organizational culture is in Organizational Culture and Leadership (2010) by Edgar Schein. It outlines three levels of culture:

1. Artifacts

2. Espoused beliefs and values

3. Basic underlying assumptions (24)

Schein provides the following guidance on understanding culture: “Unless you dig down to the basic level of assumptions, you cannot really decipher the artifacts, values, and norms. On the other hand, if you find some of those basic assumptions and explore their interrelationship, you are really getting at the essence of the culture and can then explain a great deal of what goes on. This essence can sometimes be analyzed as a paradigm in that some organizations function by virtue of an interlocking, coordinated set of assumptions” (Schein 2010, 53).

The patterns in this book are structured so you can examine the key assumptions and beliefs held within your organization. We offer a detailed map for exploring different aspects of organizational functioning.

MODEL: SHIFT314 CULTURE MODEL

We created a culture model out of the need to not only understand what was happening in organizations, but also how to intervene effectively. Now called the SHIFT314 Culture Model, it is used within the SELF to analysis culture systems.

The view taken in this book follows the perspective of Don Box: “Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful” (Box and Draper 1987, 74).

The SHIFT314 culture model introduced in this book is an abstraction of a complex reality. We have carefully created the model based on its utility in increasing organizational performance. We agree that while culture cannot be quantified or fully understood, we can use models to understand what is happening and to create actions to influence the system in a positive direction.

We offer two definitions of culture in the SHIFT314 Culture Model—a formal one and informal one.

Or the more people-friendly definition:

Consider figure 9.5—organizational culture is the undefined blob in the middle. It cannot be directly described. However, its nature can be determined by triangulation of the elements that form culture. Key elements that shape culture are shown in the diagram. There are, of course, many more elements since culture connects everything.

We know from quantum physics that at the very deepest layer of reality, everything is interconnected by the Higgs-Boson particle. Every element of culture is connected to every other element of culture. The arrows linking the elements illustrate that they are all interrelated and connected. It is a web of cross-linking and supporting elements. The web they weave together defines the organizational culture. The interconnectedness of everything makes changing culture a complex undertaking.

The SHIFT314 Culture Model can be used as a lens to triangulate an understanding of organizational culture. It provides a powerful tool to listen to the voice of the system to understand what is happening inside an organization.

There are two parts in the diagram: consciousness (or mindset) and structure. The structures are easier to understand since they conform to artifacts we can point to in the material world around us.

Structures

The structures of an organization are the tangible elements that are part of the 3D material world. Every element can be examined to discover what the underlying beliefs and assumptions in the culture are (Schein 2010). Below we extend the work of Schein to identify key areas of analysis.

As cultural anthropologists, we could simply observe these elements to infer what the culture of an organization is. For example, we might ask the following questions:

• Organizational structure—Is there a hierarchy that shows importance and power?

• Roles—Do people have clearly defined roles that limit how they can contribute? Can people easily create new roles to meet new business needs?

• Systems—Are these chosen to serve business needs or to reduce costs and standardize? Do they enforce behaviors or foster innovation?

• Policies—What rules do we have for people? Are they seen as Theory X or Theory Y?

• Processes—Are our processes designed to support the needs of customers and staff? How much process do we need? In what areas? Do they follow modern management or foster knowledge workers?

• Decision making—How are decisions made? What kinds of decisions can people make without approval?

For example, the policy for purchasing and expenses is revealing of the underlying assumptions in the organization. In most organizations, people are not allowed to spend any money without approval from their manager. Not even one penny. This indicates that employees are not trusted to make even small financial decisions.

Consciousness

The Consciousness aspect of the SHIFT314 Culture model represents the energetic and less tangible elements of culture. It could alternatively be referred to as the mindset or worldview. One might understand this as the feel or vibe of an organization. It’s all about the people and how things flow. Consciousness is a reflection of both conscious and subconscious aspects of a human being.

Elements that reveal the consciousness of an organization are:

• Organizational purpose—Is there one? Do people feel connected to it?

• Safety—How much psychological safety is there for people?

• Trust—How much are people trusted? In what areas?

• People—To what extent are people valued as human beings with intrinsic value?

• Unwritten rules and norms—What are the sacred cows and taboo subjects? What is acceptable behavior?

The most important element is the people. The consciousness of each individual contributes to the overall consciousness of the organization. We introduce an adaptation of Dilts’s logical levels to capture the essence of people in the context of culture (Dilts, Hallbom, and Smith 2012). Namely:

• Identity—How do we see ourselves as people?

• Values—What are our values?

• Beliefs—What do we believe to be true about our organizations, work in general, how we are seen, and so on?

• Behavior—What we say and do is the most concrete manifestation of culture. How we think about ourselves and our organizations will show up in every single meeting. Not only in how it is conducted but in what is noticed and what people choose to say (or more importantly not say). Are people showing up as Theory X or Theory Y? It’s about the People

Culture is such an important topic that we now offer a third and overlapping definition of culture:

Culture is ultimately about the people. At the end of the day, when we reduce a system to its essence, it is about how people behave. It’s about conscious and unconscious behaviors that together shape expectations and promises of the future.

Using the SHIFT314 Culture Model

Figure 9.6, the SHIFT314 Culture Model, is used to provide a bird’s-eye view of the elements that shape culture in an organization. Some organizations are very focused on consciousness and use these elements as the primary way to shape functioning in the organization, as in people-centric. Other organizations focus on the structures as the primary way of understanding and running the organization, as in process-centric. We offer an integrated balanced view of culture.

PATTERN 9.4: FROM VALUES ON POSTERS TO “CULTURE FOLLOWS LEADERSHIP”

VALUES ON POSTERS

Values programs constitute one of the gravest challenges to the evolution of organizations today. It’s not that focusing on values is a challenge per se, it’s the business-as-usual mindset that is used to define and promote them. The first key challenge is that they usually fail to achieve their objectives in any material way. The second key challenge is that it then gives the pretense that the culture problem is actually being addressed and prevents effective action.

As can be seen from the patterns of discovering reality and understanding culture, the starting place for evolving organizational culture requires a thorough investigation and understanding of the current situation. Once one has an understanding of the root causes and an understanding of the laws of organizational dynamics, it is highly unlikely that a values program would be an appropriate early game move.

The word hypocrite is used for someone who asks someone else to do something that they themselves do not do. When leaders in organizations ask subordinates to follow values that they do not fully embody themselves, the essential trust and respect needed for an organization to function is lost. We would argue that most values programs in organizations are solidly in this trap.

CULTURE FOLLOWS LEADERSHIP

Let us consider the relationship between the culture of an organization and its leadership. In particular, what role does the management of an organization have to play in terms of the level of performance of an organization? Management by definition has the ownership and accountability of the organizational performance. They are 100 percent fully responsible and accountable for the organizational culture. As such, the organizational culture is ultimately a reflection of the management of an organization.

HOW LEADERS IMPACT CULTURE

To fully understand the impact that leaders have on organizational culture, it is helpful to understand what Schein refers to as the “primary embedding mechanisms” for organizational culture:

• What leaders pay attention to, measure, and control on a regular basis

• How leaders react to critical incidents and organizational crises

• How leaders allocate resources

• Deliberate role modeling, teaching, and coaching

• How leaders allocate rewards and status

• How leaders recruit, select, promote, and excommunicate (Schein 2010, 236)

The above list is helpful for creating awareness of how culture is influenced. Of course, the primary interest of this work is the leadership behaviors that will lead to high-performance culture. The importance of leadership behaviors is clearly articulated in the quote by Schein: “The only thing of real importance that leaders do is to create and manage culture” (2).

PRINCIPLE: CULTURE FOLLOWS LEADERSHIP

While the culture of an organization is arguably the cocreation of all the people working together, it is ultimately the responsibility of leadership. Schein argues that “culture is ultimately created, embedded, evolved, and ultimately manipulated by leaders. These dynamic processes of culture and management are the essence of leadership and make you realize that leadership and culture are two sides of the same coin” (Schein 2010, 3).

PRINCIPLE: CULTURE INFLUENCE VARIES WITH POWER

Culture of an organization is the integrated sum of all the individuals. But due to differences in power, people will have a different impact on the culture based on their level in the hierarchy. The more senior the person, the greater their impact on the overall culture. So mathematically, the formula would be more like a weighted sum where we multiply each person by 10^L where L is the level of the manager. In figure 9.7, you will see that the number assigned to the level of influence varies based on level and power.

MODEL: CULTURE IS A FRACTAL

Figure 9.8 illustrates a typical organization. Each small triangle represents a person in the organization, while the large triangle represents the output or performance of the organization. The output is a collective result of the actions of all the people in the organization—both workers and managers. We can see how the collective behavior or culture shapes the organization’s results and ability to function.

When asked who is responsible for the success and achievements of the organization, most managers will happily take credit. When asked who is ultimately responsible for the existing challenges, most managers will acknowledge that at the end of the day, they hold ultimate responsibility. Although, at this point most will highlight circumstances beyond their control that excuse them from full responsibility.

Glenda Eoyang, one of the founders of Human System Dynamics, observed that organizational systems are fractal: when we zoom in to see what is happening at one scale, it is just a fractal of what is happening on a broader scale. The culture we see at the bottom of the organization through productivity and worker behavior is a reflection of the behavior of management. To create high-performance behaviors at the bottom of an organization, we need high-performance behaviors at the top of the organization. To create a high-performance culture at the bottom of an organization, we need high-performance culture at the top of the organization.

PRINCIPLE: THE CONSCIOUSNESS OF THE LEADER IS THE LIMIT OF AN ORGAN IZATION

When Michael was working as a consultant, he noticed a pattern with leaders. The limit for his success helping the organization move to higher levels of productivity was ultimately limited by the consciousness or mindset of the most senior leader involved in the change effort. This pattern applies at any and all levels of the organization.

When observing Teal organizations, Laloux noticed a pattern and shares the insight shown in figure 9.9.

As such, the level of performance of an organization is a reflection of the level of consciousness of the leadership. It is not possible for a leader who is operating from a low level of consciousness to create an organization that operates from a higher level of consciousness. Leaders can support the evolution, or they can downgrade or devolve an organizational system: “The pull of leaders toward their stage of consciousness goes in two directions: they can pull ‘back’ practices from later stages, but they can also exert a strong pull ‘forward’” (Laloux 2014, 41).

In a similar vein, Robert J. Anderson and William A. Adams argue, “The leadership system is the central organizing system that determines org performance” (Anderson and Adams 2015, 115). They see leadership culture as the core generator of the organization’s culture.

IT’S NOT ANYONE’S FAULT

One might understand the purpose of this book as a means to support leaders in understanding the ways in which they are inadvertently promoting a regressive, low-performance culture. We do not see the gap as a failure of the people in management positions in organizations.

Ninety percent of what happens in an organization is a reflection of the system. When we take good people and put them in a business-as-usual environment, low-performance traits are developed and encouraged. Our invitation is to have compassion for yourself and other leaders. It’s not any one person’s fault that things are the way they are. We invite you to make a different choice for your own leadership.

VALUES PROGRAMS REQUIRE MODELING

Values programs will only work to the extent that all the leadership of the organization actually role model the values.

The only thing that really matters is that the top management leads by example with respect to a set of values. When they are able to act as a model, they may then invite their direct reports to follow suit or explore what shared values they see as important to create success.

Tool: Cocreate Values for Yourself

One successful way to use values is for a group of leaders to cocreate a set of values for themselves—not for anyone else. This will support the leaders to grow themselves to be exemplary in how they model the values. Leaders may then also call each other out to rise to their best selves. It is best if the leaders keep this as private work for themselves rather than broadcast the values. As leaders “walk the talk” with new behaviors and exemplify the values of the organization, people will automatically start to follow them.

Of course, a set of values that are cocreated by a group of people create a powerful attractor for those people to orient their behavior. It is helpful for a group of people to hold shared values, as this will support organizational coherence. This practice is illustrated in the Increasing Freedom pattern through the example of cocreating house rules. Zappos is a great case study illustrating how values can be co-created in an organization (Hsieh 2010).