Driving business performance through the alignment of people, strategy and culture
Leaders increasingly recognize that cultural dysfunction can impede business performance, and that poor cultural fit is the most common reason why newly hired executives fail in their first year.
For many leaders, culture feels “soft” and ambiguous. As a result, leaders don’t know where to start and often define culture by the outcomes they hope to achieve — a customer-oriented culture or a results-oriented culture, for example. But culture is not outcomes. Rather, culture is the mindsets, assumptions and behaviors that produce those outcomes. Different cultures can produce similar outcomes.
Culture is often mistaken for formalized company values (the ones that show up on the website) or employee engagement levels.
Defining culture: the need and challenge
Unlike a company’s vision, mission and strategy, which are explicitly articulated by leaders with the goal of guiding the organization’s activities, culture is pervasive and invisible, working silently in the background to direct how people throughout the organization think, make decisions and actually behave. Culture represents the “unwritten rules” for how things really work in the organization: It is the manifestation of the shared values, beliefs and hidden assumptions that shape how work gets done and how people respond to one another and to marketplace developments.
On one hand, research has shown that the extent to which employees align with an organization’s culture has a significant impact on company performance, explaining as much as 25 percent of performance variance.
On the other hand, an unhealthy or misaligned culture can impede strategic initiatives, erode business performance, diminish customer loyalty and discourage employee engagement. Lack of culture fit is responsible for as many as 68 percent of executive new hire failures, research has found.
Furthermore, culture has staying power. Once it’s established, it can be hard to change. That’s why it is so vital to diagnose the underlying drivers of the culture — not just the visible behaviors and outcomes — when assessing how the culture aligns with the business strategy.
A framework for thinking about culture
A company’s culture determines and is defined by how the organization responds to the external environment and how individuals within the company interact and coordinate to accomplish their work. To really understand an organization’s culture, then, the most important dimensions to consider are how the organization responds to change — particularly in the environment (“orientation toward change”) — and whether it tends to think of its people as individuals or groups (“orientation toward people”).
In practice, an organization’s orientation toward people will fall on a spectrum from highly individualistic to highly collectivistic. Cultures can be more independence-focused or more group-focused.
Similarly, an organization will be more or less open to change. People and cultures can be more comfortable with stability — focused on maintaining consistency and predictability and controlling exposure to the external environment — or flexibility, where being adaptable is emphasized. Cultures that favor change tend to value innovation, openness and a longer- term perspective. Those that favor stability tend to follow rules, build control structures and prefer hierarchy.
Applying this fundamental insight and observations from more than 120 of the best, most recognized socio-cultural models, we have identified eight distinct socio-cultural styles or “basic assumptions,” which apply to cultures and leaders. Together, these styles can be used to describe and diagnose highly complex and diverse behavioral patterns in a culture and understand how an individual executive is likely to align with and shape that culture.
Each style represents a distinct and valid way to view the world, solve problems and be successful, both as individuals and as organizations. While no single style can fully depict a culture or personal style, individual styles and organizational cultures tend to be more heavily weighted in two to three styles that reflect their orientation toward people and change. A culture that emphasizes learning and enjoyment, for example, will be characterized by a greater tolerance for risk-taking and exploration, and individuals who thrive there will value their autonomy and constantly seek the next new thing. By contrast, a culture that emphasizes safety and order will prioritize risk management, efficiency and stability, and the individuals who thrive there will be careful and concerned about how their actions affect the company and their co-workers.
How top leaders shape culture: translating insights into action
There is no one “right” culture. Ideally, the culture will allow the organization to both respond to the opportunities and threats it faces in its environment and support the internal requirements of the organization itself, such as engaging people, motivating the right behavior, and aligning with the strategy and organizational structure.
An organization’s culture is not simply the sum of the styles of all of its employees. In most companies, the CEO and other top leaders have a disproportionate influence on the culture through what they emphasize and the examples they set.
For this reason, applying insights about culture to critical leadership decisions is one of the most effective ways to reinforce the elements of culture that are working well and evolve those that are not.
CEO succession and talent development
In most organizations, no one has as much influence on the culture as the CEO. The style of the CEO, the way she behaves and communicates, what he underscores in speeches and meetings, and the executives whom he recognizes and promotes, all send signals to the rest.
The way a company identifies, promotes and develops future leaders communicates a lot about the culture an executive team is trying to build, so the board and CEO should think carefully about how the company is developing and promoting emerging talent, especially those who may be contenders for the CEO role. To make sure that the next generation of executive talent aligns with the culture that the company wants for the future, talent management and development programs and employee evaluations must reflect the mindsets, behaviors and capabilities that will be needed.
Leadership selection, hiring and onboarding
Leaders both shape and are shaped by the culture, so it’s important to understand how candidates for top roles align with the current or ideal culture. Clarity about the culture can enable smarter hiring, reducing tissue rejection in organizations where the culture is a strength or aiding in the selection of new leaders who might serve as change agents where the culture needs to evolve.
When strategic or cultural change is on the agenda, companies can hire and promote leaders who will serve as catalysts for change. These leaders should possess the style preferences of the ideal culture, but also have the influencing skills to model and bring along others in the organization. The ability of individuals to influence cultural change also depends on the structure of the organization and how established the culture is.
In healthy, well-aligned cultures, understanding how a new hire’s style does and does not reflect the culture can help shape onboarding plans by illuminating how his or her strengths may complement the culture of the existing team and the organization as a whole — and flagging how certain actions could be perceived negatively by others. An executive who tends toward risk-taking and flexibility joining a team that is orderly and planful may find that the team appreciates his or her new ideas but becomes frustrated at what they view as a lack of planning. Meanwhile, the new leader may become frustrated by how careful and slow-moving the team is.
Culture has a powerful effect on business results, helping to make or break even the most insightful strategy or the most experienced executives. It can encourage innovation, growth, market leadership, ethical behavior and customer satisfaction. On the other hand, a misaligned or toxic culture can erode business performance, diminish customer satisfaction and loyalty, and deflate employee engagement.
Bertrand Richard, Co-Head of the Board CEO Succession Practice Spencer Stuart