Why change the culture?
Organisational culture is always there, no matter whether leaders take an interest in it or not. And in the same way that a person grows and changes with every interaction, so too does the culture, reacting to internal and external stimuli in a way that is not always obvious. This means that even organisations in which the CEO and the leadership team have taken pains to set a strong culture can suffer from ‘culture creep’ – a slow imperceptible change which degrades the vision and values of the organisation.
Signals that all may not be well on the cultural front are many and varied. We’ve listed some of the most obvious ones below, but in a strong leadership team the best guide that all is not well is that ‘gut feeling’, that sixth sense that says something is awry. Exceptional leaders know that when something feels wrong then it is time to investigate and take action.
Other more obvious signals include:
You don’t want to surround yourself with ‘yes men’, but when two department leaders clash or, worse still, try and score points off each other, then you know that the culture is in need of an overhaul. No department is better or more important than any other and if the implication is to the contrary then the organisational team is not working in the way it should.
We’ve seen it all: the team which regularly goes home at 5 o’clock, leaving others to work late into the night; the team leaders who refuse to bend procedures to help another department because it might put them slightly behind on their own targets; the huddles around the drinks machine which exclude those from other areas of the organisation; bonuses allocated to high profile workers while others get nothing; those who rely on red tape, the jobsworths; the... Well, you get the picture: when the whole team ceases to function as a team, then the culture urgently needs work.
It may be a cliché that every project takes twice as long and costs twice as much to complete as expected, but in a culture which values honesty, realism and co-operation, the delays and additional costs can be kept to a minimum.
Admittedly there may be some external factors over which you have no control, but look at the last project you embarked on. Was there pressure to deliver in an unrealistic time scale; did you agree to try and meet targets simply because it would have affected your bonus or promotion hopes to do otherwise; did departments co-operate; did you work with or against project managers; did some individuals constantly try and interfere by changing scope part way through or by undermining progress? There are hundreds of reasons why projects fail to deliver as expected, and in the vast majority of these it is the underlying culture which is to blame.
Is the customer always right? Well that’s a discussion for another day, but in general when the customer is unhappy that means the organisation is not geared up with a culture of customer care. Product failure, delays in delivery, product not as specified ? it doesn’t really matter what the cause is, unhappy customers equal unhappy culture.
Poor external reputation
Following on from unhappy customers comes a poor external reputation. No matter how forged, it takes seconds to destroy customer confidence and when that happens it can take only a few seconds more for that dissatisfaction to be shared across the world. But it’s not just customers who can scupper the reputation. Disgruntled employees, unhappy suppliers, regulators, the wider media ? all can play their part in sharing failings across social media. Here again, whatever the ostensible cause, the root cause is a culture which doesn’t look outwards and consider the consequences of its actions.
With unhappy customers, internal strife, a poor external reputation and project delays, it’s perhaps not surprising that profits are falling. But there are other reasons for falling levels of profitability which have as much to do with the need to overcome a culture of inertia as anything else. The world is changing and increasingly businesses are looking to a culture of innovation to help them to stay ahead of the game. Some 72 per cent of major UK company directors admit that their organisations are too reliant on fading revenue streams. We saw some major household names go under in the last recession simply because their culture was not geared up to meet the changing marketplace. A culture of complacency is only going one way and that is not forward into profitability.
Worsening relationships with suppliers
A strong culture looks to include suppliers, a weak one excludes. Far too many organisations acknowledge suppliers are necessary, but think that they should be grateful for the custom and therefore are open to cost cutting, late payment and unthinking last-minute orders. Poor culture breeds poor service and, in extreme cases, can lead to services being cut off with little warning as suppliers prioritise those who work with them rather than against them.
Lines of finance dry up
With a failing reputation and falling profits, it’s not surprising that banks and finance houses look more carefully at requests for finance. Credit ratings can be influenced by reputation and lenders are sensitive to any signs of internal strife. A simple visit to the office can speak volumes about the state of the business and when lenders are wary, then credit lines fall away.
Increase in employee absenteeism or turnover
Last, but by no means least, is the effect of culture on employee engagement. Again, engagement is a subject in itself, but suffice it to say that when businesses fail to attract the best candidates, when employee turnover rises even in a tight job market and when sickness and signs of stress are on the increase, then something is very wrong with the culture.
But even when the business is running smoothly, there is no reason to be complacent about the culture. Maintaining regular culture checks, ensuring the business strategy is up to date and aligning beliefs and behaviours with that strategy is the best way of ensuring that the culture stays strong and relevant in a changing business climate. Internal and external trigger points too can give rise to a reappraisal of the culture. Some, including mergers and acquisitions and business growth, will be considered separately in later sections. Other trigger points include
Changes in legislation and regulation
Any legislative change can have a profound impact on the way in which a business approaches its mission. Employment regulation, import and export legislation, sustainability issues ? whatever the regulatory change, it should be a signal for organisations to take a fresh look at their culture and assess whether any changes need to be made.
At the time of writing, we have two prime examples of regulatory change driving culture change. The FRC is leading the way to impose a new order on company reporting to ensure that investors are now provided a clear and concise viewpoint which will enable them to make better informed judgements. At the same time, the FCA is looking for those in the finance sector to move away from the ethics of obedience and towards the ethics of care and of doing right, even when the regulator isn’t watching. Both of these changes potentially require a complete cultural overhaul from a short-term internalised profit culture to one which looks outward and puts customers and investors at the heart of business.
The universality of the internet has resulted in an era in which everyone and every business potentially can access the same level of technology. This means that, no matter how seemingly secure a business is, it can be rapidly overtaken as smaller and more agile organisations develop products and services which are that little bit better or which catch the public imagination a little bit more. Similarly, the pace of change means that no business can afford to be complacent. Some 75 per cent of CEOs say that the pace of change is forcing companies to reinvent themselves faster than ever before and this is leading to a shift in culture, from hidebound and rule-based to agile and innovative.
Movements in external marketplaces
Even setting aside the shift of manufacturing and back office services across the globe, there are a number of other external factors which can cause a reappraisal in business strategy and culture. Currency movements, viruses and conflicts are only the tip of a shifting world view which can catch out the unwary. Just to take one example: there is a worldwide push to cut down on levels of bribery and corruption and this is changing the negotiating and transactional landscape.
Changes in customer expectations
In the section on the importance of organisational culture we looked at the customer dimension and the shift in expectations as Generation Y and Generation Z move to take their place in the business landscape. Customers no longer expect to be ‘sold to.’ The name of the game is exceptional customer experiences and co-creation of products; unless businesses flex their culture to meet these changing expectations they will soon find themselves haemorrhaging customers.