The building blocks of culture

Of course, “putting culture on the agenda” is easy to say and hard to do. Culture is a complex amalgam of social elements. It comprises all of the intangible forces that influence what people do and what they believe, how they act and interact. In a well-known formulation, it determines how people behave when no one is looking. Culture may be reflected in lists of values or in mission statements, but it isn’t defined by them. Nor is it the same as strategy or operating model. Strategy focuses employees on specific outcomes and on the activities necessary to achieve those outcomes. An operating model creates the environment within which work is done; it facilitates (or obstructs) individual and collective accomplishment. Culture infuses them both with the human elements of beliefs, purposes, and values. It directs people’s energy and shapes how they act and interact, individually and collectively, to achieve the desired outcomes.

Cultures are shaped both by what we call the internal compass and by the organizational environment. (Figure 7-1 represents this graphically.) The internal compass comprises a meaningful purpose, winning values, and reinforcing beliefs. In strong cultures, the organizational environment reinforces the internal compass. Organizational environment is a deliberately broad concept: it includes leaders’ actions role-modeling the desired behaviors, a consequence-based reinforcement system to reward those behaviors, and an operating model and talent system that find, develop, and promote the right people and enable them to do the right things. Let’s look at each of these elements in a little more depth.

FIGURE 7-1

Anatomy of a winning culture

A system of shared purpose, values, beliefs, and behaviors that drive superior engagement and performance.

Source: Bain & Company

Purpose. A winning culture begins with a meaningful purpose that the company can translate into individual roles and missions. The purpose is most powerful when it is defined in terms of an ambitious customer or social mission. Some of our favorites include:

• Starbucks—“To inspire and nurture the human spirit—One Person, One Cup and One Neighborhood at a time.”
• Mahindra—“We will challenge conventional thinking and innovatively use all of our resources to drive positive change in the lives of our stakeholders and communities across the world to enable them to Rise.”
• Facebook—“Give people the power to share and make the world more open and connected.”
• Ikea—“Our vision is to create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”

Values and beliefs. A company’s purpose rests on a set of values and on beliefs that reflect these values. In another 2013 study, we tested the importance of nearly twenty distinct values in creating a winning culture. Seven stood out from the pack: innovation, including the courage to take informed risks and learn from mistakes; ambitions, openly seeking and embracing stretch missions; high integrity, with honest communications and a respect for the highest ethical standards; accountability, with a bias toward what is best for the company rather than best for the individual; collaboration, displaying mutual trust and teamwork; agility, expecting and anticipating change; and a people orientation, focused on building human relationships by connecting employees to the company’s mission through a rewarding and engaging work environment, connecting the C-suite to the front line to engage and inspire, and connecting both to the customer and community to reinforce the company’s purpose. We find these values to be universally present in winning cultures.

Reinforcing beliefs have an equally important role to play in creating high-performance behaviors. Unlike values, which are universal, beliefs are a unique articulation of identity and priorities based on things like a company’s heritage, place of origin, social context, or founder’s imprint. The company’s purpose, the seven universal values, and the reinforcing beliefs collectively shape the belief system of the organization—its North Star, so to speak. But the belief system alone isn’t enough to create a winning culture. It must then be translated into a company-specific set of behaviors. That is where culture comes to life, and where it provides power to the organization.

Behaviors. Behavior is where the rubber meets the road. Many companies have business practices and ways of working that are at odds with their stated purpose and values. In this group, cultural forces act like the antibodies we described earlier, rejecting any attempts at change. Other companies bring their purpose and values to life every day through the way they work. Here the effect is the opposite: cultural forces suppress behaviors that contradict the espoused purpose and values. Behaviors come to life and are reinforced both in big, symbolic moments of truth, when all eyes are on leaders as they make major decisions, and in the smaller, more routine moments of truth that characterize daily decisions and interactions.

As we discussed in the previous chapter, the most effective leaders accomplish two objectives: they drive performance and they inspire others. A strong culture has a similar effect, in that it fosters both performance and engagement. Companies that engage employees’ hearts and minds unlock their intrinsic motivations and discretionary energy, fueling agility, speed, and performance. Cultures that drive performance attract individuals who want to make a difference. An environment filled with committed colleagues, like a team with players committed to winning, is inspiring and engaging.

Many companies try to initiate a cultural transformation whenever they reinvent their business model. Some work hard to instill a performance orientation. Others focus on building engagement through a better working environment and employee value proposition. These two endeavors often end up as separate tracks of work. For example, a company might attempt to boost accountability as part of strengthening its performance orientation. It might translate its business goals into individual objectives and establish specific outcome-based metrics and incentives. It might even install a new management dashboard and a related monthly operations review process to measure these key performance indicators. All that can be very powerful, but if you do it without also empowering teams and individuals to achieve their objectives, you can end up micromanaging and micromeasuring outcomes, thus destroying the very engagement and accountability you are trying to create. To succeed, cultural renewal has to address both components simultaneously, linking the performance and engagement interventions so that they reinforce rather than contradict one another.

Let’s bring this rather abstract discussion of culture to life with an example.

Restoring a high-performance culture: the case of AB InBev

We promised at the beginning of this chapter that we would discuss everyday companies—the established incumbents of the corporate world—not just the upstarts and acknowledged culture heroes. We did so because we believe it is possible for incumbent companies to be every bit as dynamic, as high performing, and as involving for employees as the founder-led upstarts. If you don’t believe that, consider the story of the company now known as Anheuser-Busch InBev (AB InBev).

AB InBev traces its roots to a tiny beer company in Brazil, originally known as Companhia Cervejaria Brahma, which was bought by the 3G Capital founders in the late 1980s for about $60 million. That company was successful, and it expanded throughout Brazil and South America, eventually emerging as AmBev after a merger with Antarctica in 1999. AmBev then merged with Interbrew, a Belgium-based brewer, and the combination later bought out Anheuser-Busch, at that point the biggest beer company in the United States. The 2016 combination of AB InBev and SAB Miller united two of the top five global players in the industry.

Brewing is an old, mature industry, and many of the companies that make up AB InBev were founded centuries ago. Our colleagues Chris Zook and James Allen have written extensively about the power of a “founder’s mentality” as an animating force within great companies and as an owner’s repair manual to help companies that have lost their entrepreneurial energy.³ In some sense, AB InBev has had two sets of founders: the original founders and the new founders, who acquired these companies. In most cases, the spirit of the original founders was long gone. But the new founders have instilled an ownership-infused, performance-oriented culture into the large companies they acquired. In the process, they created an enterprise that inspires its employees to achieve remarkable results.⁴

AB InBev describes three factors at the heart of its model: dream, people, and culture.

Dream big and set a bold ambition. AB InBev calls its ambition the “dream.” As CEO Carlos Brito is fond of saying, “dreaming big or small takes the same amount of energy, so why not dream big?” AB InBev says its dream is to be the best beer company “bringing people together for a better world.” Being the best means that no one can afford to be complacent. AB InBev typically sets an ambition, makes progress toward achieving it, and then sets a new one—“opening and closing the gap,” in company language. It applies this process at every level of the organization.

Simplify the operating model. This is where “people” come in. When 3G or AB InBev acquires a company, one of the first actions executives take is to examine the acquired entity’s organizational structure and operating model. They immediately eliminate duplicate responsibilities and eradicate any ambiguities in accountabilities. AB InBev aspires to build an organization with no more than five layers and with fixed spans of control dictated by a clear blueprint. This significant delayering of the organization collapses the distance between the leadership team and the front line. It helps the company spend its dollars wisely, and it reinforces a culture where everyone is a “doer” rather than an overseer. AB InBev establishes a leadership profile—a behavioral signature—that indicates the kind of people it is looking for: hungry to make a difference, frugal, never satisfied, results focused, hard working, data-driven, deeply connected to the front line and to customers with a deep, pragmatic knowledge of their business area or discipline.

Embed ownership values into ways of working. The sidebar “AB InBev’s 10 Principles” shows the ten principles that inform AB InBev’s approach; seven of the ten are devoted to culture. Just as in our model of a winning culture—behaviors informed by universal values and company-specific beliefs—AB InBev’s principles contain a mix. Some are universal values, such as accountability (principle #6) and integrity (principle #10). Others articulate highly specific beliefs that are deeply rooted in the company, such as a strong bias against unnecessary complexity and costs as captured in principles #7 and #8. Many people who work at AB InBev make a point of saying that these are not just words on a page; they inform everything the company does and are deeply embedded in its ways of working. Some examples will illustrate.

When InBev merged with Anheuser-Busch in 2008, Anheuser’s headquarters were in a large low-rise building in St. Louis, Missouri. The top floor housed the office of the CEO and a few of his direct reports. The furnishings were elegant, with turn-of-the-century oil paintings and a grand boardroom. Four massive corner offices, each with a private bathroom, were surrounded by desks for the executives’ assistants.

AB InBev’s culture values openness and abhors the trappings of hierarchy, so one of the first moves the company made was to demolish the top-floor space and create an open-floor plan. All this took place in 2008, at the height of the financial crisis, when InBev had just paid $52 billion for Anheuser-Busch and had taken on billions of dollars in debt to finance the deal. Even though budgets were tight, the symbolic and cultural importance of opening up the space was worth far more than the modest amount of money required to remodel it. And that wasn’t the only example of taking quick action to restore an ownership mindset. For instance, Anheuser-Busch had a small fleet of planes and more than a dozen pilots on staff. The decision to sell the planes and furlough the pilots was easy.

While these symbolic actions sent strong messages to employees about AB InBev’s values, the most powerful changes have come in the form of new ways of working. Anheuser-Busch’s dress code went out the window; jeans came in. (Brito says, “Our customers don’t wear suits and ties, so why should we?”) Brito and his leadership team work around a shared table, lowering the barriers to informal, one-on-one discussion and decision making. As we noted earlier, people have easy access to the data they need for decisions; the culture encourages face-to-face communications and meetings structured for discussion rather than for presentations.

The idea of spending every company dollar like your own comes to life in the routines and rituals surrounding AB InBev’s much-discussed zero-based budgeting (ZBB) process. World-class cost management systems create highly detailed views of costs and cost drivers. Managers armed with this information and with AB InBev’s bold ambitions scrutinize the data, figuring out how to do more with less. In truth, however, the power of this process depends only partly on the tools that are used; other companies have attempted to implement ZBB and typically struggle to get even half the benefit. (Recently, another consumer packaged goods company announced that it, too, was adopting ZBB; a skeptical analyst who examined its targets quipped that it felt more like “1G.”) The reasons are cultural: most companies don’t have the appetite for the disruption that is required, and they lack both the ambitious dream and the “opening and closing the gap” mindset. Nor do they embrace the daily, weekly, and monthly routines and rituals that bring discipline to cost management, or link their cost ambitions to an objective performance-management and incentive system.

Interventions to reactivate a performance culture

AB InBev is hardly alone in transforming the culture of a once-stodgy business. Alan Mulally reshaped the culture of Ford Motor Company and effected a remarkable turnaround. Peter Coleman led a revival of Woodside, the Australian oil and gas company. Howard Schultz returned to Starbucks, the company he had founded, and brought that iconic company’s culture back to life. When you look closely at such experiences, you find that they all involve the three sorts of interventions captured in figure 7-2. The new leaders raise the company’s strategic ambitions and recenter its purpose in a bold customer or social mission. They reawaken the ownership mindset and an orientation to performance through “constructive disruptions” at specific moments of truth, both the symbolic and the routine, reinforcing the behaviors they want to see with feedback systems and with consequence-based performance-management systems. They also reset the company’s operating model, especially its ways of working, to embed the change, at the same time renewing their talent-management systems to attract difference makers and engage the workforce.

FIGURE 7-2

Three interventions to activate a performance culture

Source: Bain & Company

Intervention 1: Raise the strategic ambition and recenter the company’s purpose. In Bain’s 2013 study of cultural transformations, survey respondents said the single most important act a company can undertake to galvanize change is creating a bold ambition and compelling vision. That means defining the purpose, values, and behaviors that shape how people work and that provide context for the mission of individuals and teams. The process normally starts with the senior leadership team, but it also requires a thoughtful plan for engaging and enrolling the rest of the organization.

This is essentially what Kent Thiry had to do when he took the reins of DaVita, the kidney-dialysis company we mentioned in the prologue. At that time—it was 1999—the company was known as Total Renal Care. It had expanded rapidly during the previous decade, including an acquisition of Renal Treatment Centers valued at more than a billion dollars, but it was now in serious trouble. It had “460 [treatment] centers doing things 460 different ways,” according to one observer. Patient outcomes were poor relative to industry standards, and employee turnover was high. Shareholders had mounted a lawsuit against the company; the government was investigating its practices; and it was losing more than $60 million a year. “Total Renal Care was a disaster of a company,” wrote a Bank of America analyst. “All they did was buy things instead of focus on running the company.”

Thiry and his mostly new management team took quick action to stabilize the business, including addressing the lawsuit, the investigation, and the continuing losses. But then he began the cultural turnaround. He flew seven hundred leaders to Phoenix to talk about the company’s mission and values. He engaged the entire population of employees in a seven-month exercise to choose its new name. (DaVita derives from an Italian phrase meaning “he who gives life.”) He completely raised the company strategic ambition and reset its purpose. “Our vision for DaVita was to be more than just a dialysis company,” he wrote. “It was to be a community that just happens to be organized in the form of a company. DaVita does dialysis, but is not about dialysis. DaVita is about life … When we succeed in creating a special working environment for our teammates, they in turn create a special clinical and caring environment for our patients and their families.” Over time, he led the creation of a company that is inspiring in its commitment to patients, transparent and highly democratic in its operations, and a magnet for talented people who want to work in health care. Employee retention has improved dramatically. Patient outcomes are significantly better than before, and better than those of DaVita’s competitors. Financially, the company has created billions of dollars in value for shareholders since Thiry’s arrival.

Intervention 2: Reawaken the ownership mindset. Once you have defined or redefined the purpose, values, and behaviors you want to see, you need to pick a handful of the most important behavior changes and concentrate on embedding them. This often requires purposeful and constructive disruption of established behaviors and culture-weakening routines, and it typically involves two key activities: identifying the leadership actions and triggers that precede the desired behavior, and designing a robust set of consequences (positive and negative) to send reinforcing or correcting signals. The most successful leaders focus on moments of truth—those times when an employee must make a critical decision about how to behave—and pick only one or two of the most important elements to change. Three quick vignettes will help demonstrate what we mean.

• When Paul O’Neill became CEO of Alcoa in 1987, he knew that he needed to focus the company on workplace safety. To show his commitment to the goal, he required that he be notified of all safety incidents within twenty-four hours. Safety improved dramatically, to the point where Alcoa’s worker injury rate fell to 25 percent of the US average.
• When Howard Schultz returned to Starbucks as CEO after a nearly eight-year hiatus, he realized that Starbucks’s unique customer-focused coffee experience was now in the backseat. In the front seat were automation and diversification, both implemented in pursuit of throughput and growth. Schultz took swift action to change the company’s direction; he even shut down 7,100 US stores for three hours on February 26, 2008, to retrain the baristas in the art of making espresso. In this highly symbolic move, he left no doubt about his intentions—and about what he thought it would take to make Starbucks great again.
• When Alan Mulally came to Ford in 2006 to help turn around the business, he took bold actions to change the way the company operated. In one highly visible moment, he applauded Mark Fields (who would eventually become his successor) for admitting to a failure in an executive meeting. That was pretty much unheard of at Ford, and it set the tone for the open and honest communications required for a new culture at the company.

Cultural change often involves leadership change, as in all three of the vignettes. Many activist investors subscribe to the belief that the best formula for managing change is to change management. Further, employees are often reluctant to embrace cultural renewal programs if they believe that the organization will eventually return to the same old culture-weakening patterns because nothing has changed at the top of the house. In our experience, cultural transformations can be effected without complete leadership swap-outs, but they require more sustained effort.

Whether or not there is a change of leadership, an organization trying to change must address culture-strengthening and culture-weakening routines and behaviors. Broad, diffuse efforts are doomed to failure. Let’s go back and look at the seven universal values we listed as part of a high-performance culture, and at the specific actions a company might take atmoments of truth to strengthen or weaken them (see table 7-1).

TABLE 7-1

Seven universal values

One powerful idea for reawakening a mature company’s entrepreneurial spirit and energy emerged from research our colleagues Chris Zook and James Allen undertook for their book The Founder’s Mentality. They label the idea a “micro battle.” A micro battle is a carefully defined competitive arena, typically at the intersection of a specific customer segment in a specific geographic region, and involving a specific set of competitors. Such battles lie at the heart of a company’s repeatable model for value creation; winning them is critical to defending a company’s core areas and to opening up new ones. The genius of the idea is not so much in identifying micro battles as in fighting them: companies typically unleash several entrepreneurial cross-functional teams to execute missions in a series of fast, sharp, closed-loop efforts. Such moves boost the company’s heart rate and get the organizational blood flowing. They also can develop internal entrepreneurs who act as catalysts to help the company reawaken its insurgent mission.

Intervention 3: Reset ways of working and talent plan. It’s not enough just to disrupt normal routines. As the saying goes, organizations don’t change, people change. In other words, people have to modify how they behave, and changing behaviors is hard work. Most of us even have trouble altering our own behavior and sustaining the change—witness the fact that health clubs are crowded in early January and empty by late February. An organization that asks its people to change will run into the same obstacles and will have to reinforce the message over and over again.

Systematically working through each element of your operating model and talent system with an eye toward bolstering culture-strengthening attributes and eliminating culture-weakening attributes is a powerful way of ensuring that the actions you take will actually drive engagement and inspiration. The list of actions is likely to include powerful steps like the following:

• Don’t let the matrix obscure accountability. Make sure every business outcome is owned by a single individual or team with the resources, accountability, and authority to deliver the planned result.
• Collapse the distance from the C-suite to the front line. The secret here is radical delayering, which empowers everyone in the chain of command to take more responsibility.
• Tear down the walls. Change the physical work environment to create more intimate workspaces. Lower the barriers to collaboration; connect senior management more directly to the rest of the organization.
• Get face-to-face when it is necessary. Too much remote work or too many virtual meetings leads to loss of connectivity and a weakening of the culture over time.
• Discussions, not presentations. Stop for a moment and look at the last PowerPoint presentation you received. People often number their decks to maintain version control. What version is it on now? (Our guess is double digits.) How many thousands of person hours were spent building this presentation—and was it worth it? Discussion with informed individuals who are close to the customer and the front line is usually more valuable than any number of PowerPoint slides.
• “I don’t know” is OK. At some companies, the biggest sin a manager can commit is not knowing the answer to a boss’s question. So everyone naturally overprepares for every meeting, wasting thousands of hours anticipating the questions never asked.
• Celebrate calculated risk taking, so long as the company learns from the experiment. Learn from the book Superforecasting about the principles of good risk management.⁵ Use data and logic rather than sentiment and intuition. Keep track of where you and others came to right or wrong conclusions. Think in terms of probabilities, and test your assumptions rigorously. When you can, use test-and-learn approaches to eliminate unknowns and reduce the uncertainty.
• Modify your talent systems to find, develop, and promote people who live—and who inspire—behaviors like these. “A company’s actual values,” says the famous Netflix HR playbook, “are shown by who gets rewarded, promoted, or let go.” Defining the behavioral signature you want (see chapter 4) is an essential part of such a system.

___________

Throughout this book, we have argued that organizations must bring about change on both the enterprise and individual levels. Individuals affect organizations and organizations shape individuals. This is especially true of culture. Culture emerges from the cumulative behaviors of individuals, but that behavior is greatly influenced by a company’s purpose, values, beliefs, and customary ways of working. The prescriptions in this chapter for building a high-performance, high-engagement culture require a great deal of interpretation and adaptation to the unique circumstances and strategy of your company. They also must be adapted to the mix of people who make up your organization.

But the need for tailoring shouldn’t obscure the fundamental message. Chances are, an ownership mindset and a hunger for engagement are lying dormant under your organization’s bureaucracies and management layers. Build a culture that fosters this mindset and satisfies this hunger, and you will be repaid a hundred times over by the discretionary energy and enthusiasm that you unleash.

THREE WAYS TO BUILD OR RESTORE A WINNING CULTURE

• Raise the strategic ambition and recenter your company’s purpose in a customer- or socially focused mission. Ask yourself whether you can see your company’s purpose come to life every day in your employees’ actions.
• Reawaken the ownership mindset and performance orientation through “constructive disruptions” at moments of truth, both the symbolic and the routine. Reinforce the behaviors you want with feedback systems and consequence-based performance-management systems.
• Reset the company’s operating model, especially its ways of working and talent systems, to embed the change. Renew your talent acquisition strategy, leadership behavioral signature, and talent-management systems to attract difference makers. Ask yourself whether you are encouraging culture-strengthening or culture-weakening behaviors.