“Culture is the flexible muscle strength around the strategy spine”
Peter Drucker said: “culture -no matter how defined- is singularly persistent”. In other words: The health of a culture defines whether the strategy will be executed or undermined. Only people can execute a strategy. When Vodafone and Ziggo merged in the Netherlands in 2017, they effectively merged their cultures. The key question when thinking about the new joint culture was a question about the great qualities of the different cultures and the question: what culture builds on these qualities AND fully supports the newly set strategy. The values (open up, team up & step up) became culture anchors that eventually outlived: “this is how we did it at Vodafone or at Ziggo”.
The business case in this example is hard to isolate in terms of the impact of culture alone. It is the combination of a sound business case to start with, a compelling strategy AND a thriving culture that have created seven years of good business results. They started defining their purpose: ‘Enjoyment & progress with every connection’. The investment in culture was an investment in a range of congruent initiatives: selection of the right executive team and senior management team, core values, leadership development, organization design to merge the best capabilities of both companies & continuous HR Business Partner support to nourish and cultivate the sensitive culture process of two companies coming together.
Sustainability and agility
A thriving culture enables organizations to navigate mergers, transformations, and crises with agility. When employees share a common set of values and norms, they adapt more readily to changing circumstances. At Frisse Blikken, a 13-year-old consultancy company, the directors had no reference for their decision making at the start of the Corona period and lock down when 70% of client assignments were put on hold. “The only anchor we had were our values”, said Mathijs van Duurling, Director.
The business case for sustainability & agility comes from our practice working with companies moving into becoming a mid-sized company. Up until 80 – 120 people, companies can get away simple almost personalized business processes and phenomenal efforts of people. At some point these processes become cumbersome, expensive and inefficient. Structures do not work anymore and pressure on the operation grows. The need to professionalize processes, people and leadership grows as a result. We observe that this is often managed top down by the original entrepreneurs or their successors. Operational mistakes, failures, or poor performance are met with more control. As the idea develops, it becomes clear that senior managers from outside need to be recruited to “clean up the mess”. We saw one company grow their management team from 3 to 8 senior managers, including two directors for support functions. These managers all started their well-intended projects to professionalize the company. It just increased the pressure on existing group of people: more targets to focus on. Less opportunities for growth for internal people and more investment in systems than helping internal people grow and professionalize. Hiring five more senior managers means an increased OPEX pressure of at least €500k per year. That is without all the projects that will be started. We would argue to invest €500k annually to increase expertise and professionalism among internal people and managers first. Bringing in senior managers more selectively and only after internal selection and qualification have shown that no one internally is motivated and qualified to step into this new role. Secondly, focused investments in the scalability of the operation are needed. Digitalization, agile and or lean to improve the customer and employee experience, will enable the growth of the company. The choices which projects to invest in should be part of a strategy process. That ensures that everyone understands the need for these projects and how they are sourced. This will determine the spirit and engagement of people to make these projects a success.
Leveraging diversity
An inclusive culture that celebrates diversity, fosters innovation and growth. When employees from different backgrounds collaborate, they bring fresh perspectives and ideas to the table. Nowadays many organizations start to understand and believe this and start recruiting for diversity. But diversity does require better leadership that surfaces these differences and builds understanding for the differences. So that everybody understands how these differences can be leveraged for the organization.
We have seen numerous organizations who were bringing more female senior leaders on board, without knowing how to support these female colleagues. If the unconscious biases for male ways of getting things done do not get surfaced and addressed, all good intentions to diversify at the top get killed early on. This leads to early dismissals rather than courageous conversations about how to leverage the female leadership quality for the organization. We calculated the losses of two early female dismissals at executive level in two companies. On both occasions we found an average bottom line loss of €500k per dismissal. These costs consisted of forced dismissal agreement, garden leave, sick leave, lawyers’ cost, entropy1, disengagement and misalignment and replacement hiring fees. In one of these toxic environments a succeeding female executive sent a message to her predecessor: “The same is happening to me, I am glad you landed on your feet, I hope I will do so to.”
External perception
A positive culture attracts customers and employees. Organizations with a reputation for a healthy work environment become magnets for top talent. “Our culture is in the top 3 reasons to come and stay”, HR executives share with us.
In one travel company they ran a ‘tell a friend’ policy. Employees who recommended the companies holidays to their friends and family, could offer their ‘friends’ a 10% discount. In the year after the start of the culture program whereby employee engagement (e-NPS) increased from 6 to 25, there was a 22% growth of travelers instead of the 8-9 % from previous years. The ‘tell a friend’ option was used by 42% of all employees, compared to 8% prior to the culture change program. Another program for the referral of employees had similarly astonishing results: In the same period the cost per hire fell from €11k to €5,5k through positive referrals from existing employees.
Enhanced productivity
A culture that minimizes entropy and energy loss leads to higher productivity. When employees feel psychologically safe, they’re more likely to take risks and contribute their best work. “Our entropy (energy loss) dropped from 22% to 11% in 18 months’ time while running our culture program. If you take that 11% percentage gap of the total annual salary sum of €30m, you save between €3.3m per year” says Marlise Mahieu about the business rational behind their culture program. Heleen Cocu divides the total salary sum by the Kilowatt hours of energy transported and monitors that productivity norm as a measure of the culture health at Alliander.
As the Culture Entropy score increases, the level of trust and internal cohesion decreases. This score is a valuable and confronting part of the Barrett Values assessment, which we use to put numbers to culture and hearing the voice of all employees.
Psychological safety and decision-making
Cultures that encourage open dialogue and inclusivity empower employees to participate in decision-making. When people feel safe to express their opinions, organizations benefit from their diverse viewpoints. We see small teams of 4 – 7 people perform much better than large teams (10+) for these reasons. It is much harder to create safety in large teams and give everyone a voice. Large teams are a draining factor in many organizations. It is possible to accelerate the speed and quality of decision making in teams through team development. Becoming aware of the strengths, drivers and needs of all team members, team members become better equipped to bring out the best in their team: increase participation and different views, ownership and speed to come to decisions and better results. One executive team with good team relationships to begin with, changed their acquisition strategy 180 degrees during a team development off site. They noticed their patterns and the same people talking in meetings. They then decided to let the 4 people of their team who were normally quiet about this topic, have the discussion about their acquisition strategy. These four summarized and concluded eight months of conversations in 30 minutes to great satisfaction of the four closest involved. They asked each other almost in disbelief: did we just change our acquisition strategy? They closed their first buy within 2 years.
Footnotes
- Entropy reveals the degree of dysfunction within the organization as a result of friction, frustration, fear, and self-serving actions of leaders leading to energy loss of all employees.
