Culture - Harnessing the invisible force
Written by Alex Haritou, October 2008
The past decade has borne witness to a string of corporate scandals, from human rights abuses and environmental pollution to fraudulent accounting practices. Several of the worldâ€™s largest companies collapsed, whilst those that survived paid the cost with a sizable dent in profi ts and an even greater battle to turn a tide of negative public opinion back in their favour.
It has been a lesson in corporate culpability, a measure of the need for companies to clean up their act and demonstrate positive moral credentials to a new breed of discerning consumers, meet growing demand for ethical investment and to attract talented employees in a skills-short job market.
Within a governance context, the need to understand the mechanics of organisational culture is vital and, as still more recent cases demonstrate, the design of organisational policy frameworks and processes must pay heed to the personal values and underlying culture that exists amongst the people responsible for following them.
David Edwards, Strategic Manager for integrated human resource solutions provider, Drake International, and former CEO of the Victorian Employers' Chamber of Commerce and Industry (VECCI), CEDA and CPA Australia explains, "Most people would view corporate governance as being about control, a set of rules, systems and processes, but you can't manage all these policies and procedures without acknowledging that culture really defi nes how things are done around here."
Edwards believes that the recent disintegration of the US banking system is attributable to a combination of regulatory fl aws and a subversive element within the ranks of the people working within it, "Our first thought about the failure of the banking system is that it wasn't regulated properly in the US, in other words, that the policies, procedures and processes weren't effective. However I believe that culture is equally important and if those responsible for governance and corporate reputation don't pay equal attention to culture then it doesn't matter what procedures you have in place because people will break the rules," he says.
Conversely, he says rigid conformity to processes, and an aversion to take responsibility and address culture were root causes of the breakdown of National Australia Bank's compliance systems in 2004, the result of a management framework that refused to acknowledge mistakes, "In the end a significant cultural problem was identified; the management at the time had become arrogant and would not accept failure, and bad news was suppressed, even when there were clear warning signs. PricewaterhouseCoopers identified that there was a clear cultural failure of the organisation, and new NAB management have made it a priority to rectify this issue."
Understanding organisational culture
Many of the world's leading management theorists have attempted to present a precise definition of corporate culture; these do provide an initial point of reference for corporate leaders brave enough to take a long, hard and objective look at the reality gap that often exists between carefully crafted corporate mission statements and the real deal happening at the organisation's sharp end. Whilst the exercise might be uncomfortable for some, the consequences of complacency are too significant to be ignored.
Charles W.L. Hill and Gareth R. Jones describe corporate culture as "the specifi c collection of values and norms that are shared by people and groups in an organisation and that control the way they interact with each other and with stakeholders outside the organisation." Whilst this definition implies that shared philosophy is controlled largely by the organisation itself, it does not address the power of what has been called the 'invisible cultural force', an environment far more difficult to define and to a greater extent, control.
Organisational culture is an amalgam of potentially unsanctioned personal values, beliefs and practices, often passed down through the years by a succession of incumbents. Left unchecked, particularly when misaligned with strategic mission, it is unlikely that the organisation that supports or ignores an alternative and unorthodox culture will achieve sustainable competitive advantage. Low productivity, restricted growth and reduced profitability are symptomatic of poorly managed organisational culture.
The effects of culture on employee acquisition and retention
Organisations that have invested in cultural change are reaping the rewards. 'Employers of choice', score higher levels of employee engagement, productivity and stakeholder support, which according to a 2006 ISR Global Engagement study, translated into up to 13.7% net income growth and 27.8% rise in earnings per share.
On a global scale, surveys, such as Fortune's 'Top 100 Best Companies to Work For', place companies like Fedex and Google as leaders of the cultural pack, whilst the annual 'Hewitt Best Employers in Australia and New Zealand' survey, identified ANZ, Deakin University and Seek amongst the country's most admired employer brands.
The Hewitt survey selects customer-focused organisations which successfully align strategy, structure and systems around people as a primary source of sustainable competitive advantage, "The current and emergent successful organisations (in the study) will be those who focus on creating a value proposition for their people that attracts, retains and develops their talent at a time when we are experiencing major changes in people's expectations of work, jobs, careers and the interface with other parts of their lives."
Todayâ€™s jobseekers can afford to be choosy and a critical examination of employer brand, within which, corporate governance, ethics and corporate responsibility are intrinsically linked, forms part of their selection criteria in a employment market in which they, to a large extent, maintain the upper hand. Simply put, an attractive employer brand will exhibit values which a potential employee can relate or aspire to. As one recent survey found, 61 per cent of job seekers would not apply for a job at a company with vision, values and culture they did not agree with and 86 per cent would not work for a company with a poor employer reputation, even if they offered a higher salary than a company with a good reputation.
For brands that fail to deliver employee proposition promises, retribution will be swift, courtesy of the internet and its use as an instantaneous channel for resentful employees to vent their spleen to networked peer groups at the touch of a button. Online blogging, MySpace, Facebook and professional networks such as LinkedIn are not only the domain of demanding Gen Y employees; they represent a PR nightmare and the damage caused through word of mouth between online peer groups is recognised as perhaps the most powerful of decision making influences and one which is almost impossible to control.
Culture v competency
Building and maintaining an employer brand to attract the best talent is just the beginning. Ironically, from an employer perspective it can sometimes be necessary to make a difficult choice between selecting a candidate on their cultural fit, rather than exemplary competency and skills.
Edwards, who led many successful change programs during his tenure at VECCI, describes an experience that led him to reassess recruitment decision-making on a deeper emotional level, "We had a team culture in VECCI and the worse thing I could do was hire someone who didn't agree with that type of culture", he says, "I employed a real star performer in a senior position; he had great knowledge, worked well with stakeholders, and companies liked him but it became clear he was not a team player. He was there for six months before I found that other staff were beginning to copy him because he was so successful. After that I learned that it doesn't matter how good someone is, if their culture and values are incompatible with the organisations values then you have to make a tough decision, because it is very difficult to change someone's values."
Today he uses a Drake matrix model to demonstrate cultural and competency matching and is an advocate of psychometric testing as part of the hiring process; a system which Drake has successfully developed to help to remove selection subjectivity and reduce hiring risk for clients.
Assessing, developing and maintaining organisational culture
Edwards summarises the steps that organisations must take in order to build or nurture a strategically advantageous organisational culture, all of which, he says, are supported by Drake International's highly experienced consulting and business solutions teams.
Building strategically aligned organisational culture
- Formulate a clear strategic vision that includes a definition of the shared values and behaviours that will drive the organisation toward achieving its goals
- Gain commitment for change from the top down
- Define and benchmark where the organisation is now, including staff engagement levels and what employees consider to be important, using employee engagement surveys, focus groups and exit interview information
- Assess the cultural impact of current structure, processes, policies and procedures
- Conduct workshops to identify the strategic / cultural gap
- Implement change programs - people, process and policies supported by champions and ambassadors throughout the organisation
- Adapt HR policies to support the desired cultural direction, for example, employee incentives, recruitment practices, performance management, training and diversity strategies
- Celebrate success to build momentum
- Continual assessment and monitoring
- Communicate, communicate, communicate
Drake's own talent acquisition program includes the appointment of Pete Jensen, who has an extensive background in leadership development and was part of the facilitation team responsible for delivering the ANZ Breakout culture transformation program. Pete heads up the Drake WorkWise organisational consulting division with a primary focus on maximising the energy and performance of individuals, teams and organisations.
Drake WorkWise specialises in customised intervention programs for performance improvement, culture transformation and change management, providing a range of cultural assessment and transformation tools such as employee surveys and focus groups, exit interviews and performance appraisal systems; complemented by Drake's Six Sigma business process improvement team.
Once you do embark on the path to cultural enlightenment, Edwards stresses the importance of implementing an effective monitoring program to measure success, "You have to take a systematic and on-going approach to managing culture. From a Drake perspective that means linking culture to the employer brand to communicate it outside of the organisation to help attract the people you want and make it easier to recruit. From an internal retention aspect it means consistently communicating the brand and regularly surveying staff to ensure that the right culture is at work in the organisation. It's a journey rather than a destination."
Leading from the top
The charismatic qualities of Bill Gates, Richard Branson and Steve Jobs are intrinsically linked to the success of their respective organisations, all of which display positive cultures nurtured through the strength and conviction of their leaders' personal values and beliefs. Although they might be considered exceptions to the norm of lower profi le leaders, they do illustrate the value of guiding culture from the top down, by leaders who authentically 'walk the talk' of their chosen strategic and cultural direction.
Just like any tangible brand symbol, from logo to office design; leadership behaviour and even appearance, are extensions of organisational brand values. Jobs and his 'corporate casual' dress code, for example, supports a culture where traditional corporate rules are relaxed to inspire innovation. This style, emulated by contemporaries in the technology, music and entertainment industries, removes creative boundaries and demonstrates belonging within this creative 'inside' clique.
"It can be more difficult in public companies for a paid executive to influence culture in the same kind of way as the owner can. But what leaders talk about and what they find important will have a great impact on organisational culture," Edwards argues, using occupational health and safety as an example. "I think the breakthrough occurred when OH&S became something that leaders wanted to discuss and the Board started to look at. I don't think it changed the policies that were in place, but it did impact culture in that everyone realised the issue was important because the boss was interested."
Edwards warns of the dangers of leaders failing to live the brand, and mentions a top female executive who, though publicly extolling the virtues of a corporate culture that embraced work/life balance, was viewed as a workaholic by employees who were expected to show the same level of commitment, "The more up front you are in the public arena when talking about culture the better. If your message is not consistent with your practices, then you will be found out very quickly."
The culture of the future
Tighter control and regulation of the financial industry and even greater environmental concerns will shape the way corporate governance is implemented and reported in the future. ASIC has warned public companies that it will be closely scrutinising green reports, indicating that companies can no longer hide behind corporate rhetoric and empty mission statements and will be asked to provide evidence that they practice what they preach.
Fostering a culture that gains support from all of its staff should be the goal of every company today. "It's not just a job for the HR department to manage culture or the marketing department to manage communications. Individuals from all over the organisation will be responsible for driving change and maintaining the organisation's desired cultural dimension," explains Edwards, "For example, how companies approach climate change is not going to be just about policy and procedural change, its going to require a cultural shift," he says, "All business units will have responsibility for dealing with climate change or corporate social responsibility policies that also address a new balance in workforce structure, such as a greater need for diversity and the retention of mature-age workers."
Drake Executive has recently focused its energies on delivering recruitment services into the Environmental and Carbon markets. This is to meet the rising demand for 'green' skills and in recognition of the need for recruiters to attract 'cultural change agents' within their organisation.
According to David Edwards, it is a strategy that has already been adopted by many of the country's leading mining companies, "Smart companies realise that to change they will have to bring in people from different cultures. The mining companies were early in recruiting people from a conservation background, but what they said to them is that we are hiring you not to comply with our current culture, but to help us to change it. Rio Tinto was a leader in recruiting people to help them embrace culture change," he explains, "But if you go out and recruit a 'green' expert and tell them 'this is the way we work', then you are going to have serious problems."
Organisational culture can grow and mutate, and can be a company killer or the differentiator that provides competitive advantage. What is clear is that management can and must influence culture to ensure strategic alignment.