In the last year, dozens of top HR leaders were interviewed and they shared the same message: the war for talent is evolving toward creating victory through organization.
In 2014, culture was the “word of the year” by Merriam Webster. Deloitte human capital trends for 2016 found that organization issues were the top HR issue. CEOs are finding that Peter Drucker’s now famous statement “culture eats strategy for lunch” is true. McKinsey’s growth business is organizational health — specifically their cultural assessment.
Earlier research in labour economics suggests that over time, major competitors will have about the same talent. In the hiring process, you win some and you lose some. Over time, the competitive differentiator is not the talent you have, rather, what you do with your talent once you have it. And that is an organizational issue. In this article, we answer the why, what, and how of culture as an emerging HR agenda.
Why Culture Matters
Individuals can be champions, but it’s teams that win championships. As noted, culture makes the whole greater than the parts. In addition:
- Culture is also more difficult to copy than access to financial capital, implementing a new technology system, or even crafting a strategic plan
- Culture ensures sustainability that outlives any one individual
- Culture ensures that employee engagement is not an isolated event, but a sustained pattern
- Culture does not just eat strategy for breakfast, but it serves strategy as an on-going diet
We all experience an organization’s culture when we go to a restaurant, shop at a store, stay in a hotel, go to work, or even have dinner at a friend’s. Culture is top of mind for CEOs who want to adapt their organization, hire future high-potential employees who are looking for a cultural fit, and even for the Chartered Institute of Auditors who have prepared recent documentation to help auditors monitor culture. Culture is centre stage for business success and is becoming an HR priority.
There are relatively few research studies of the impact of organization versus individuals on firm performance. At the RBL Group we recently conducted research on competencies of HR professionals (individuals) and capabilities of HR departments (organizations) and their relative impact on business performance.
We found that across 1,500 organizations, organization level activities explained twice as much of the variance in business performance than the knowledge and skills of individuals. The impact of key stakeholders based on individual competence versus organization capabilities was even more profound, with the organization level issues explaining three to seven times as much stakeholder value as individual competencies.
HR professionals who help organizations create culture add enormous competitive value to their organization’s long-term success.
What Culture Means
One of the challenges of managing culture is that it has become a Rorschach psychological test for those interested in organizations; there are related concepts, terms and prescriptions that require clarity. Are organizational cultures to be thought of as resources, core competencies, health, climate, processes, values, shared mindsets, organization types or systems? With these confusing concepts it is no wonder HR professionals have difficulty creating competitive organizations. The concept of culture clearly matters, but it seems impossible to articulate or define with any unified precision.
We propose a three-stage evolution of defining what culture means:
“Symbols”: is culture as seen through symbols, rituals, stories and other organization events. We experience or see these cultural artifacts when we enter or join an organization.
“Values”: is culture as seen through how it shapes how people think, behave and feel in the organization. Culture shows up in the values, norms, unwritten rules, emotional responses to, or flows out of how things are done in a company. Most of the above current definitions of culture follow this logic.
“Outside-in” defines culture as the identity of a company. In this phase, culture is the identity of a company in the mind of the best customers, made real to all employees throughout a company.
Each of these phases of cultural definition affect employee engagement. In Phase 1 (symbols), employee affect comes from the organizational events. In Phase 2 (values, beliefs), employee engagement comes from enacting the organization’s values. In Phase 3 (outside-in), employees are engaged in the right things.
By moving to the outside-in, customer centric view of culture, we create a winning culture. The words that are used to describe culture represent categories of behaviours as they are experienced and perceived by observers. In the business setting, customers tend to be the most relevant observers. Thus, Southwest Airlines wants to be known for low price with a fun experience; Marriott for exceptional service; Apple for design and simplicity; Google for innovation. These firm brands or identities should then become infused through the company.
A company’s ideal culture should be defined by its desired external firm brand or identity. The collective way of thinking, behaving, and feeling (employee engagement) within the company is the internal cultural manifestation of external (branding) promises. For HR professionals to leverage culture, it is not enough to have or recognize cultural artifacts (Phase 1) or to shape how people feel, think, and act (Phase 2), but to ensure that people feel, think and act consistent with promises made to customers and other key stakeholders. As cultural stewards, HR professionals need to have an outside-in perspective where they make sure that the internal culture and the HR processes through which the ideal culture is created and sustained directly reflect the external brand promise.
How to Create or Change the Culture
Defining culture — from the outside-in and made real to employees — enables HR professionals to audit the extent to which an organization has the right culture that will add to most value. We have identified five steps HR professionals can follow to create and sustain the ideal culture:
STEP 1: DEFINE THE RIGHT CULTURE
HR professionals begin to define the firm’s ideal culture by discussing with the senior leadership team, “What are the top three things we want to be known for by our best customers (or investors) in the future?” They can facilitate clarity for this discussion by referencing quantitative market research data. The key is to ensure unity with the management team (we like to see at least 80% consensus) for the top three answers and then to ensure that these three are consistent with customer and shareholder requirements. Creating unity between those outside the company (customers and shareholders) and those on the inside (members of the senior management team) can be a powerful base from which to define the right — or winning — culture.
STEP 2: CREATE AN INTELLECTUAL AGENDA
Intellectual agendas ensure that managers create a shared culture inside and outside the organization. The intellectual agenda for the ideal culture can be communicated by executives throughout the organization in speeches, town halls, emails and social media. Employees assimilate these messages so they become conceptually engaged to the right message. For Lexus, the pursuit of perfection is not just an advertising tag line, but also an internal employee mantra. At Walmart the pursuit of low costs is repeatedly shared with employees in speeches and executive presentations.
STEP 3: INSTILL A BEHAVIOURAL AGENDA
The ideal culture needs to be translated into specific behavioural descriptions. The issues need to be addressed by answering the following question: “If this were our ideal culture, then how would they behave so that the company’s brand is reinforced in the perceptions of customers and shareholders?” The behavioural agenda shows the extent to which all employees behave consistently with the desired culture.
Employee behavioural engagement increases when behaviours are aligned with the desired culture, when employees are empowered to act consistently with customer expectations, when employees are licensed by senior management to change their daily actions, or when employees are encouraged to offer suggestions on how to make the new culture real to them. As one great leader taught, “we teach people correct principles, we let them govern themselves.”
STEP 4: DESIGN AND DELIVER KEY PROCESSES AND STRUCTURES
Process and structures institutionalize the culture through management and organization practices like staffing, training, promotion, measurement, compensation, organization design, information management, physical arrangements and leadership development. These activities should reinforce that employee actions align with customer expectations. Employee engagement is encouraged and sustained through these processes.
HR professionals can lead the discussion with the senior leadership team that asks the questions: “Which of our processes and structures are most out of alignment with the desired culture and which would have greatest impact if we brought them into alignment?”
STEP 5: DEFINE AND IMPLEMENT A LEADERSHIP BRAND
When intellectual, behavioural and process agendas align around a desired culture, leadership brand follows. Leadership brand occurs when leaders inside a company behave consistently with customer expectations outside the company.
Leadership competency models should overlap with firm brand statements. Leadership brand also occurs when leaders successfully transfer their own customer-centric behaviours to employees and embed them in employees throughout the company.
Defining effective leadership through a customer-focused culture lens ensures that leaders do the right things in the right ways. Embedding the leadership brand originates in the selection, development, evaluation and promotion of leaders who reflect the desired culture. Leadership brand leads to an employee brand where employee engagement becomes the norm.
When organizations create the right culture, it turns external promises into internal employee engagement and organization actions. HR professionals who understand the why, what and how of culture will complement a talent agenda with a more sustainable winning organization. While many companies are 60 to 70% up the “s-curve” on talent, many are just embarking on the value created by building winning organizations.