Chapter 13
Managing a Successful Cultural Transformation
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,1 culture can be a slippery concept to describe. 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 typically 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—literally and figuratively—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 no associate was 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 enable 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 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 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 didn’t spend 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 organization 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 the results and 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 their people’s behavior in the long term.
Interacting with these leaders, we realized we had to get smarter about culture—both how to create a strong and distinct culture, and how to change a culture that is 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 principles 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 Default, Not by Design
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, then purchased by customers and delivered by the organization. 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:
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.
Senior Leaders Are Skeptical About Culture
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 over the past twenty years has focused 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.
“Culture Drives Performance”
The reason business writers have focused primarily on organizational performance is completely 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 after a culture change process has been implemented.
For example, Merck, one of the world’s most successful pharmaceutical companies, experienced a remarkable turnaround in a sales division that embraced a 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,” related Tim Schmidt, then director of sales training and professional development. The management team internalized, applied, and modeled a culture change process, with particular 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 their 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 their culture change process. They 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.
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 that 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.
From Gung Ho! to a Proven 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 help them build such a foundation, we created a Gung Ho! culture training program that teaches leaders and managers the best practices of high performing, values-aligned organizations. The program helps leaders identify gaps that exist in their organization’s current culture and take steps to turn their cultural vision into reality. In 2002 the Gung Ho! program was recognized as one of the top ten training programs of the year by HR Executive magazine.3
One of the most important aspects of the Gung Ho! training program was that it helped leaders decide whether they were ready to commit to a full-blown culture change. As with so many corporate initiatives, the training program alone would not generate the traction needed to make long-term culture change happen. True change required a deeper commitment.
Once we analyzed the issues and problems that senior leaders faced in managing a full-blown cultural transformation, the core issue was obvious: most organizational leaders have not experienced successful culture change and didn’t see the impact that the culture was having on performance and results. Fewer still had led successful culture change. We realized that to effectively lead culture change, we needed to build both competence (knowledge and skills) and commitment (motivation and confidence) in these senior leaders. We needed to create structure, educate about steps and phases, and provide ongoing coaching to ensure that senior leaders—who must be the primary drivers and champions of the initiative—keep the process on track. This required a consulting intervention, not just a training program.
Managing a Successful Cultural Transformation
The process we use to help organizations and their leaders successfully manage cultural change was developed before the Leading People Through Change model discussed in the preceding chapter, yet the two approaches are compatible. For example, 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 quick fix is rarely possible. 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.
Keep in mind that people resist change. 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.
The Gung Ho! 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 positive results when these steps are followed—and inconsistent results when the steps are not followed.
Phase One: Discovery
This initial phase allows us to learn about the current organizational culture and understand the issues and opportunities senior leaders are concerned about. During this phase we focus on the present reality. We find out from senior leaders and selected frontline staff what performance outcomes are expected. We discover what values, if any, are defined, known, or acted on. We talk to frontline staff and sometimes even customers to assess the degree of employee passion that exists. And, probably most importantly, we find out what accountability systems are in place to ensure that people’s behavior matches the organization’s values.
At the end of the discovery phase we make specific recommendations that address the organization’s issues and gaps. For example, it is rare to find organizations with clearly defined values, let alone organizations with accountability systems in place to ensure that those values are practiced. In such organizations, it’s not surprising to find that employees lack passion and that performance is lagging. When we point out this dynamic to senior leaders, they’re often amazed that we nailed their issues so quickly. They’re also relieved that we can provide a logical approach to addressing these problems. This often motivates them to continue the culture change process.
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, we will start with their immersion.
The two-day culture process kickoff workshop shows senior leaders how their organization fares on our Purposeful Culture Assessment (PCA). During the kickoff, leaders learn the elements of the culture change process, identify consensus issues to address, and decide whether to move forward with the initiative.
The assessment is a vital tool for the process kickoff workshop. Done as work in advance of the session, the assessment compares best practices of high performing, values-aligned organizations to the practices of the team’s organization. The assessment profile is scored during the workshop and serves as the basis for identifying issues and culture gaps. It also helps senior leaders begin action planning during the session.
Once they’ve completed the culture process workshop, senior leadership teams typically agree that they have some clear gaps to address, short-term and long-term. Yet before those action plans can be created or prioritized, the senior leaders must decide if they are ready to move forward with this initiative. The time commitment and scrutiny they will undergo are heavy burdens. In some cases, either the team or the organization is not ready to take the steps necessary for the change.
A quick word about the scrutiny the senior leaders will face: As this team takes the lead on defining the values and behaviors the new culture will require, the individual members immediately will be held to those standards. The employee expectation of senior leaders will be “If they declare these values, they’d better live by them!” How senior leaders live their lives will be watched closely. If they run a red light driving home from work one night, that might be perceived as “not living the company values.” This scrutiny is natural and will diminish as leaders model the values consistently and credibly as the initiative builds.
Several other action items come out of the culture kickoff session. Now the senior leadership team must agree on a process for formalizing the organization’s new vision, purpose, and values. They must decide how to manage performance with greater discipline, with clear goal agreements and accountability for performance. They must manage values with greater discipline as well, describing what it will look like when people are living the new values and how people will be held accountable when they don’t live up to those values. They must develop a communication plan that clearly describes the reasons for the change initiative and that fully explains the desired values and behaviors. They must invite staff members 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 process kickoff sessions are 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.
Some companies are highly creative about the immersion process. For example, ASDA, a successful supermarket chain across the UK, transformed the grounds of a conference center into a retreat, featuring the elements of the Gung Ho! story. The interior of the main tent looked like a forest, with a set that included a beaver dam and lake, with geese flying across the ceiling. Beanbag chairs represented rocks, and the ASDA mission and values were carved in stone. Additional tents were set up like log cabins around a forest lake, with each cabin housing three session participants. Participants were literally immersed in the culture story. Cabin groups were paired throughout the three-day event, cooking and serving dinner to their cabinmates each evening and learning servant leadership along the way.
“The approach seemed slightly off the wall to the reserved Brits,” said ASDA president and project leader Philip Horn.
The event had a long-lasting effect. Graduates of the program took the Gung Ho! principles back to their business units and inspired employees to build high performing, values-aligned teams in their workplaces. In 2004, ASDA was named Britain’s number-one employer of choice. Horn and his team believe this could not have happened without immersing the company in the culture change.
Phase Three: Alignment
Alignment is the phase in which structures and systems in the organization are reengineered to be consistent with the new culture. Without this phase, it’s impossible for members of an organization to walk the talk and be held accountable for the new vision and desired changes. Accountability can happen only when expectations are clear. All staff members 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. These are often items such as performance gains, efficiency, growth, and employee engagement or passion. These metrics need to be published and measured regularly—monthly is best—with the results published throughout the organization. Everyone needs to know what the targets are and how well they are meeting them.
One of the bindery supervisors at the Banta Catalog Group created a simple graph of each team’s (and each shift’s) targets and progress. This graph became the bindery “dashboard” referred to in team meetings and during team huddles at the start of each shift. That graph proved so valuable that when the team was able to purchase a computerized system to display these key metrics, the dashboard elements were displayed exactly as the original graph had displayed them.
Systems need to be assessed for needed modifications to ensure that staff members are delivering on performance expectations and are demonstrating desired values. If systems are not aligned, people get confused. Competing systems and procedures frustrate staff and reduce employee passion.
One example of the power of alignment came from an all company meeting facilitated by Mark Deterding, the president of Banta Catalog Group. The senior leaders had done a great job of seeking feedback and input on the proposed plant values and valued behaviors. Mark reviewed the final draft of the values for all staff in this meeting and made a statement that shocked the attendees. “From this day forward, I am no longer the boss around here. These values and behaviors are the boss!” Mark invited everyone in attendance to hold him accountable for modeling these values and to do the same with their managers and supervisors. That commitment made a strong impression on the plant staff about how important the values were to Mark and his team.
The benefits and outcomes of the alignment phase cannot be underestimated. It is during this time that positive cultural changes begin to appear. For example, after we worked with Aetna Production Services to help guide a department-wide culture change initiative, the company found significant improvement not only in productivity and service levels but also in corporate employee morale. For example, 84 percent of the staff scored their unit as a good place to work—39 percent better than the overall national score for the company. Ninety-two percent scored their job satisfaction as favorable—26 percent higher than the national score. Ninety-two percent also ranked the appropriate use of rewards and recognition (other than money) as favorable—46 percent better than the national score.
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 initial4 draft of the values and behaviors on which the values survey will be based.
The Employee Survey
Once the values and behaviors have been formulated and blessed by the entire workforce, accountability systems must be created and tested. The single most effective tool for values accountability is the employee survey, preferably one that’s been customized to the organization’s unique values definitions and observable valued behaviors.
In the first run of the survey, employees are asked to assess the degree to which organizational senior leaders, managers, and supervisors demonstrate the valued behaviors. Employee perceptions of how well they and their peers demonstrate these valued behaviors are measured in successive runs of the survey.
It is important to assess employee perceptions with the initial values survey within six months of finalizing the draft vision, purpose, and values. The survey should be distributed to all employees with an invitation for them to complete the survey. Making the survey mandatory will skew employee attitudes about the survey and even about the culture change.
Once survey responses have been submitted, senior leadership team members must analyze the results for gaps in values alignment and develop tactical plans for quickly addressing the gaps. Employees might identify gaps in systems and procedures, providing insights into specific supervisors or managers who may not consistently demonstrate the desired valued behaviors. It is of the utmost importance to share the resulting data, coach leaders to refine their behavior, and fix broken systems as soon as possible after the first survey is completed.
The second run of the survey—and all successive runs—should invite employees to assess not only the organization’s leaders but also their peers and themselves. The survey process is ongoing; once you start, you never stop. Best practices for values suggest surveying the employee community every six months. 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.
The final element of this alignment phase is exposing frontline staff to the culture change workshop. Because most frontline employees cannot be pulled off their jobs for a two-day session, team members and supervisors go through modular sessions lasting about two hours each. These sessions allow frontline staff members to clarify and formalize their team’s purpose and refine the organization’s values into team norms that are relevant to their work and customers.
Phase Four: Refinement
The refinement phase is in essence an ongoing project. Senior leaders must continue to refine systems and policies—and at times even “refine” staff members—to reinforce the desired behavior and values. Through surveys and feedback, monitoring of key metrics continues, ideally featuring grand celebrations of accomplishments. This is also the time when additional leadership training is scheduled to continue building the skills to keep the cultural change alive and breathing. The organization should create a new employee orientation process to include the newly clarified purpose, values, and performance expectations.
As we noted earlier, it is likely that you will need to refine the organizational values and valued behaviors over time. As you experience how your valued behaviors are embraced or tested, some tweaking will help ensure that the day-to-day culture continues to reflect the desired vision.
Critical Success Factors for Cultural Transformation
Organizations that successfully create high performing, values-aligned cultures share five critical success factors:
• The senior leadership team must demonstrate 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 must be 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-to negative consequences must be applied when performance is below standards or valued behaviors are not demonstrated.
• It is vital that all staff 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 must be eaten one bite at a time. Find a manageable scope for the change initiative. Don’t try to change the entire organization at once. Start with a distinct part of the organization—a department, division, plant, or regional office—to learn how the process flows. Then, with learnings clearly in mind, select another distinct part of the organization, and begin the change process there. Continue until you’ve digested the entire elephant.
Changing an organizational culture is not easy. Leaders whose motto is “My way or the highway” will have trouble getting buy-in throughout the organization. The most successful culture changes we’ve seen are those in which the top managers are servant leaders. They help establish a compelling vision and clear goals and then become the head cheerleaders for helping everyone live the dream. The next section discusses the right kind of leadership.