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Managing a Successful Cultural Transformation
Garry Demarest, Chris Edmonds, and Bob Glaser
Look closely at the operations of any high performing organization, and you are bound to find a strong and distinct culture. While most people have heard the term and it has been written about widely, culture can be a slippery concept to describe.1 As we indicated in Chapter 2, “The Power of Vision,” we define culture as the context in which all practices exist. It is the organization’s personality; it’s “how things are done around here.” When we talk about an organization’s culture, we are referring to the values, attitudes, beliefs, behaviors, and practices of the organizational members.
In our experience, most members of an organization find it difficult to describe their company’s culture, often because they are so immersed in it. They have not thought about the unique elements, symbols, rituals, stories, events, and demonstrated behaviors that make their organization’s culture what it is.
New members of an organization often learn about the culture the hard way, by bumping into it as they attempt to navigate their way through it. Experienced members are quick to correct the newcomers and educate them about the “expected behavior.” For example, when teaching a class at one of American Honda’s manufacturing plants several years ago, one of our consulting partners was reprimanded by a manager for bringing food into the classroom. He was told that associates were not allowed to eat in the classrooms, and he was expected to follow the same rule.
Every organization has a culture; it can be formally defined or evolve entirely by default. The company’s culture will enhance organizational performance and employee passion—or erode it. Culture can be complex. Within an organization, different divisions, regions, or departments can have slightly—or hugely—different cultures. Those intact cultures may, as with the broad organization, help, hinder, or hurt organizational performance and employee passion.
Culture not only underlies all that an organization does. As we learned in the preceding chapter, it also determines the organization’s readiness for change. When organizations seek greatness, they often find aspects of their organizational culture that need change.
Leaders begin to consider a culture change when they know something in their organization is not working or is broken. It may be a single incident that raises eyebrows—or requires a costly recovery—or patterns of behavior that demonstrate a low threshold of trust, respect, and confidence across the organization. Perhaps a series of low scores on employee morale surveys tells leaders the organization is less than healthy.
Gung Ho!: A Starting Point
We have recognized for a long time that culture has a profound effect on the behavior of organizational members, the trust and respect that exist between them, and ultimately the organization’s success. However, we hadn’t spent much time studying culture until after the publication of Ken Blanchard and Sheldon Bowles’s book Gung Ho!: Turn On the People in Any Organization. It was the story of two unlikely characters—Peggy Sinclair, a new top manager, and Andy Longclaw, an often-criticized manager. They went on an unconventional journey to successfully change the culture in their manufacturing plant.2
We received many calls and emails from organizational leaders about their efforts and hopes for putting the Gung Ho! story into practice. Some had attempted to implement the key principles based on the book—needing worthwhile work (the Spirit of the Squirrel), being in control of achieving the goal (the Way of the Beaver), and cheering each other on (the Gift of the Goose). But they found that their changes were not sustainable or didn’t produce the anticipated results. Some who focused on the Gift of the Goose “Cheering Each Other On” principle found that the positive feelings generated were short-lived and didn’t change people’s behavior in the long term.
Interacting with these leaders, we realized that while all three principles are part of any great culture, we had to get smarter about how to create a strong and distinct culture and how to change a culture that was hindering the implementation of a major initiative. Early on, we learned four things. First, there is no one “right” culture. Second, most organizations do not consciously create their culture. Third, senior leaders often don’t understand the impact of culture on performance. Finally, a strong, focused culture starts with a compelling vision.
One “Right” Culture?
There is no “right” or “correct” organizational culture. We’ve seen high performing organizations in a variety of industries around the world. They have slightly different value descriptions, and different behaviors that are expected, but one thing is true among all of them—the culture serves their people, customers, and stakeholders equally.
The biggest question everyone faces is, “What is the right culture for our organization?” The answer depends on several factors. What values do you want demonstrated, day in and day out, in your organization? What behaviors will consistently create the desired high performance while enabling strong trust and respect across all employees and customers? What behaviors do star performers consistently demonstrate? How do you want managers and employees to treat each other? What would you like customers to consistently say about your products and services and about their interactions with your staff?
Culture by Design, Not by Default
Our extensive experience with a wide variety of organizations has led us to conclude that most organizations do not consciously create their culture. Their company’s culture simply emerged as the organization’s products and services were developed, purchased by customers, and delivered. Culture, therefore, typically happens by default, not by design.
If your current organizational culture does not serve customers well, maintain passionate employees, and create profits for your enterprise to continue growing and serving, you must consider revising the organization’s way of operating by embracing cultural transformation.
The key question for senior leaders is:
Does your culture serve your organization?
If it doesn’t, it is time to become proactive about building a culture that serves the needs of the entire organization, not just the leaders.
Skepticism about Culture from Senior Leaders
Very often leaders cannot diagnose a sick culture. For example, they attribute low morale or poor performance to poor management skills, inconsistent teamwork, or outside influences. They don’t see that these issues may be a result of a culture that needs attention.
One reason that culture is not at the top of leaders’ minds is the prevailing notion that culture is not relevant to bottom-line business—not linked to an organization’s performance. This belief has been reinforced by the fact that much of the business press continually focuses on increasing organizational performance. Very few books—and even fewer consultants—have focused on the power of culture to positively impact both performance and employee passion. Yet we believe culture drives organizational performance as much as it drives employee passion.
The reason business writers have focused primarily on organizational performance is rational. Most senior leaders will tell you their primary performance metric is organizational performance—sales, productivity, and profits. Financial performance is of critical importance to senior leaders because that’s how they get evaluated and rewarded. Unfortunately, this situation produces a single-minded focus on short-term results at the expense of longer-term outcomes that contribute to and drive performance, such as employee passion, customer service, and consistent quality. These are all things that a high performing culture can impact.
For example, Merck, one of the world’s most successful pharmaceutical companies, experienced a remarkable turnaround in a sales division that embraced the culture change process. The division was one of the poorest performers at the time, and the division vice president had left for another opportunity in the company. This transition presented a “great opportunity to think about the culture we wanted” in the division, related Tim Schmidt, then director of sales training and professional development. The management team internalized, applied, and modeled the culture change process, with emphasis on teamwork, responsibility, and accountability for everyone in the division. Within a year, and still without a vice president at the helm, the division rose to the number-two performer in the country. Senior business director of the division at the time, Janet Crawford, stated that the culture change process had “a direct link to our success.”
A culture change can improve the bottom line—and quickly. Under the guidance of president Mark Deterding and his senior leadership team, Banta Catalog Group’s transformed culture increased employee engagement by 20 percent, increased employee retention by 17 percent, and improved profitability by 36 percent—all within eighteen months.
Bowater Pulp and Paper in Gatineau, Ontario, Canada attributed over $50 million in cost reductions to the culture change process. It noted, among other positive changes, a 40 percent improvement in clarity of work objectives and responsibilities, a 44 percent improvement in managerial follow-up to employee suggestions, and a 24 percent improvement in interdepartmental relations.
The culture change process of Minera El Tesoro, a copper mining operation in Chile, helped the mine generate production levels 29 percent over design capacity by the fourth year. After the culture change, accidents were reduced by 40 percent, and the company was recognized as one of the ten best places to work in Chile.
The Importance of a Compelling Vision
As we discussed in Chapter 2, a strong, focused organizational culture starts with a compelling vision that tells everyone who you are (your purpose), where you’re going (your picture of the future), and what will guide your journey (your values).
Of these three key elements, the most impactful one for a high performing culture is values because they should guide behavior and decisions on a daily basis. Most senior leadership teams are not clear about the values and behaviors that are expected of their members. In fact, most organizations have not even defined values, such as “what a good citizen looks like around here.” Yet understanding an organization’s core values is vital to decoding an organization’s culture. Corporate values, if they exist, typically are communicated during a new member’s orientation to the company. Those values may be described in the annual report, posted in the lobby or on hallway walls, or even printed on the backs of business cards. But these espoused or stated values may not be well communicated or understood by employees or visible to customers, as they are in organizations like Southwest Airlines, Disney, and Nordstrom.
Try this test: Ask a few frontline employees if they can recite your company’s values. In many organizations around the globe, you won’t get a confident, clear answer. You’ll get a blank look!
Even if an organization’s desired values are clear, senior leaders typically are not as disciplined in examining the extent to which members of their organization are living these espoused organizational values. If the lived values are not aligned with the espoused values, you will not see desired behaviors demonstrated in the organization. In fact, you’ll see undesirable behaviors that cause you to cringe and undermine your organization’s success and integrity. Enron is an example of an organization whose lived values were inconsistent with its espoused values. Enron’s “integrity” value was displayed for all to see and was even behaviorally defined. However, it was not a lived value—at least in the executive suites—as we so sadly learned.
Managing a Successful Cultural Transformation
If senior leaders are to effectively transform their organization’s culture, they need to create a foundation of clear performance expectations, behaviorally defined values, and accountability for demonstrating both. To make that happen, senior leaders must be the champions of the culture change. They alone have the power to define the desired culture and create or refine systems, policies, and procedures to reinforce that desired culture. They must “walk the talk,” modeling the behavior expected of all organization members.
A training program or quick fix alone will not generate the traction needed to make long-term culture change happen. True change requires a deeper commitment.
It takes years for any organizational culture to reach its current stage. With consistent, focused effort, leaders can expect to spend two to five years successfully transforming their organization’s culture. It took Jack Welch nearly ten years to turn around General Electric in the mid-1980s.
As we discussed in the previous chapter, people resist change. Keep this in mind. Even if the present isn’t fun, people prefer the known to the unknown. Patience and persistence will pay off. Senior leaders need to continually communicate the need for change, celebrate progress, and reinforce the desired behaviors.
If cultural change is to be successful, everyone—senior leaders, managers, supervisors, team leads, frontline staff—should be held accountable for achieving performance and living the organizational values. Remember, organizational culture will change when individuals change their behavior.
Don’t embark on this cultural transformation journey casually. The promise of culture change raises hopes in the hearts and minds of staff members that department silos, unethical behavior, and inconsistent policies will go away. If the senior leadership team does not follow through on declared commitments for transforming the culture, credibility and trust will be eroded. If you’re not certain that this is the right path for your organization, and you’re unwilling to commit to a multiyear initiative, don’t start.
A culture change process has four distinct phases: discovery, immersion, alignment, and refinement. These usually occur in chronological order. However, some overlap occurs as an organization moves into the later phases. This process has been proven over many years. We’ve seen consistent successes when organizations create a culture change team and follow these steps.
As we discuss these four phases below, we’ll use the WD-40 Company as an example. In Chapter 7, “Essential Skills for One-on-One Leadership,” we covered how CEO/President Garry Ridge implemented a major change in his company’s performance review system. However, Garry relates, “To make a significant change in something as important as an organization’s performance review system, [we] first had to focus on the culture…. Impacting the WD-40 Company culture I inherited was not a quick fix.”
Phase One: Discovery
This initial phase allows the culture change team to learn about the current organizational culture and understand the issues and opportunities senior leaders are concerned about. During this phase the culture change team focuses on the present reality. They find out from senior leaders and selected frontline staff what performance outcomes are expected. The team discovers what values, if any, are defined, known, or acted on. They talk to frontline staff and sometimes even customers to assess the degree of employee passion that exists. Finally, they determine what accountability systems are in place to ensure that people’s behavior matches the organization’s values.
At the end of the discovery phase the culture change team makes specific recommendations that address the organization’s issues and gaps.
WD-40 Company wasn’t broken when Garry stepped into the role of CEO in 1997. It was a brand leader that had produced consistent profits for more than forty years. WD-40 Company’s philosophy and culture were conservative, and that cautious approach had served the company well. Yet that wasn’t good enough for Garry, who sensed greater potential in the organization.
Garry had been in international marketing with WD-40 Company for almost ten years before being named CEO. Coming from inside the company was an advantage to Garry during the discovery phase. Being familiar with the existing culture, he knew where the trouble spots were. He also knew the key people who would be needed to get behind any culture change effort.
Phase Two: Immersion
The immersion phase focuses on giving senior leaders, managers, and supervisors thorough exposure to the best practices of high performing, values-aligned organizational cultures. Because senior leaders are the key players in this initiative and will be the champions and banner carriers throughout, it is important that they immerse themselves in the culture change process. They should conduct an assessment that compares best practices of high performing, values-aligned organizations to the practices of their organization. The results of that assessment can serve as the basis for identifying key issues and culture gaps.
The next step is action planning to formalize the organization’s new vision, purpose, and values. Senior leaders must develop a communication plan that clearly describes the reasons for the culture change and that fully explains the desired values and behaviors. As we discussed in Chapter 2, it is imperative that senior leaders invite everyone to provide thoughts and insights as the new organizational vision, purpose, and values are developed.
As the senior leadership team focuses on these action steps, the culture change process should be cascaded throughout the management hierarchy. In these sessions, managers get feedback about how their teams are functioning compared to best practices. They also get to give feedback on the initial work done by the senior leadership team. The managers’ action plans typically are more tactical and day-to-day in nature than the action plans of the senior leaders, which are usually more strategic and across-the-organization in nature.
During the immersion phase—as the company was formulating WD-40 Company’s new vision, purpose, and values—Garry Ridge encouraged everyone to go beyond a mere business case statement. The company eventually created an inspiring vision that was easy to grasp:
“Our products fix squeaks and get rid of smells and dirt. In essence, we are in the quality-of-life business. By fixing squeaks and getting rid of smells and dirt in an almost magical way, we create positive, lasting memories by solving problems in workshops, factories, and homes around the world.”
Once the vision was set, Garry and his team developed a set of values that would guide the WD-40 Company journey:
Doing the right thing
Creating positive, lasting memories in all our relationships
Making it better than it is today
Succeeding as a team while excelling as individuals
Owning it and passionately acting on it
Sustaining the WD-40 Company economy
Phase Three: Alignment
Alignment is the phase in which structures and systems are reengineered to be consistent with the desired culture expressed by the new vision, purpose, and values. During the alignment phase, people learn to walk the talk and be accountable for the new vision and desired changes. Accountability can happen only when expectations are clear. Everyone must understand what’s expected of them in terms of performance and values. Only after these expectations have been defined and agreed on can coaching, celebrating, or redirecting occur.
During the alignment phase, the senior leadership team must identify key metrics for the culture change initiative, such as performance gains, efficiency, growth, and employee engagement or passion. These metrics need to be measured regularly, with the results published throughout the organization. This will ensure that people know what the targets are and how well they are meeting them.
Leaders need to assess the organization’s systems to ensure that they support performance expectations and desired values. If systems are not aligned, people get confused. Systems that compete with the stated vision, purpose, and values frustrate staff and reduce employee passion.
Senior leaders must be democratic about the alignment process, inviting thoughts, ideas, and insights from people across the organization. Inviting everyone to chime in creates buy-in. It usually takes two to three months to finalize the initial draft of the values and behaviors on which the values survey will be based.3
When Garry Ridge stepped into his leadership role at WD-40 Company, he knew that people hoarded knowledge, knowing that it gave them power. This competed with the new stated value of “succeeding as a team while excelling as individuals.” During the alignment phase of the culture change process, Garry led the charge in breaking up the knowledge silos into what he called “fields of learning.” People were incentivized to share knowledge and encourage ongoing learning. Mistakes were reframed as “Learning Moments,” so knowledge hoarding lost its power.
To support the new culture, people throughout the organization were asked to think of WD-40 Company as a tribe rather than a team to open their minds to the new “Don’t Mark My Paper, Help Me Get an A” performance review philosophy and to open up communication in general.
The Employee Survey
To ensure that the culture stays aligned with the vision, purpose, and values, the employee survey is an invaluable tool. These surveys can be customized to each organization’s unique culture.
Once survey responses have been received, senior leadership team members must analyze the results for gaps in values alignment and develop tactical plans for quickly addressing the gaps. It is of the utmost importance that leaders share the resulting data, refine their behavior, and fix broken systems as soon as possible.
After each round, a summary of successes and gaps should be published, and staff members should be made aware of what is being done to address those gaps.
WD-40 Company surveys its global employees annually and publishes the results on its public website. Responses to statements such as “I feel I am a valued member of WD-40 Company” and “I would recommend WD-40 Company to my friends as a good place to work” are tallied. At the time of this printing, every measure of employee engagement was above the 92nd percentile.
Phase Four: Refinement
The refinement phase is an ongoing project. To reinforce the desired behavior and values, senior leaders must continue to refine systems and policies—and at times even “refine” staff members, or as Garry Ridge says, “share them with the competition.” During refinement, leaders should continue to monitor key metrics through surveys and provide feedback, ideally featuring grand celebrations of accomplishments. Additional leadership training should be scheduled to refine the skills needed to keep the cultural change alive. The organization should create a new employee orientation process to include the newly clarified purpose, values, and performance expectations.
At WD-40 Company, “constantly evolving” was identified as a key aspect of the new tribal culture. Tribe members didn’t want to stagnate. In their terms:
“If our lake is drying up—a product’s sales are going south because of new technology or innovative, competitive products—our roles as tribe members are to make sure we’re moving on to another pond.”
Since implementing the new culture, WD-40 Company has grown from $100 million—with only 30 percent coming from domestic sales—to more than $380 million in 2017—with a more balanced 53 percent coming from sales outside the United States. It is notable that the company was able to achieve these results while maintaining an outstanding employee engagement metric.
Critical Success Factors for Cultural Transformation
As was revealed in our discussion of the four phases of an effective cultural change process—and highlighted by the WD-40 Company case study—high performing, values-aligned cultures share five critical success factors:
The senior leadership team demonstrates commitment to the long-term process. The culture change process must be embraced and championed by the senior leadership team. They will be held to high standards as the values are defined and communicated. Cultural transformation is an ongoing project that will never go away.
Values are defined in behavioral terms. This is the only approach that makes your desired behaviors observable, tangible, and measurable.
Accountability for delivering promised performance and demonstrating valued behaviors is paramount. Consequences must be swift and consistent. Positive consequences for meeting performance and values expectations must be described and demonstrated, and agreed-upon negative consequences must be applied when performance is below standards or valued behaviors are not demonstrated.
All staff members are involved in and buy into the culture transformation at every phase. This process is not about “managing by announcements,” where leaders tell everyone what the new expectations are but don’t invite thoughts or hold people—including themselves—consistently accountable. For everyone to embrace the desired culture, they must be included in the process. They must help define and commit to what the new culture will demand of them in their roles.
The elephant is eaten one bite at a time. Find a manageable scope for the change initiative. Don’t try to change everything at once. Start with one aspect of the culture change at a time and see how it goes. Then, with learnings clearly in mind, select another aspect of the culture change, and continue the process until you’ve digested the entire elephant.
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A happy organizational culture produces happy people, and happy people treat customers right—which leads to happy customers and a healthy bottom line. In the next chapter we’ll drill down into how to treat customers right by delivering legendary service.