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Culture and Performance-Overcoming the Hidden Barriers to Transformational Change

By John Steidl, Client Solutions

With heightened competition brought about by the globalization of many industries, companies find themselves under increased pressure to continually reassess the way they do business. Management must determine where there is an urgent need for change, what change is required, and how to execute it. They must be able to do this in all their critical business processes. And they must be able to do this not just once, but repeatedly.

However, even when the need for change and the goal of the change are clear, achieving real results is often difficult. Michael Hammer, one of the founders of the management theory of business process reengineering, predicted that up to two-thirds of attempts at major transformation will result in failure. In their book, Reengineering the Corporation: A Manifesto for Business Revolution, Michael Hammer and James Champy wrote:

“Many companies…end their efforts precisely where they began, making no significant changes, achieving no major performance improvements, and fueling employee cynicism with yet another ineffective business improvement program.”

This is not surprising, since most organizations demonstrate an innate tendency to resist change. In fact, the success rate today has not improved over the past ten years. The key question is what causes such strong resistance to change, and how do successful companies deal with it? John Childress and Larry Senn, in their book (In the Eye of the Storm), said that:

“To truly reengineer the corporation, you need to reengineer the culture.”

Put another way, focusing on process is only half the battle of change management; the culture half must be addressed as well. We agree this statement is fundamentally valid. Following, we will examine what the statement means, why it is true, and what companies can do about it.

Culture Defined

The term culture has many different interpretations. In our view, culture is a set of communally held norms and beliefs, as well as certain behaviors that naturally result from those norms and beliefs. We say a culture is strong when many individuals share the norms and beliefs and there is a strong tendency to behave in certain ways. When different behavior is required in a changed environment, as it almost always is, there is no guarantee that the existing culture will support, or even be consistent with, those new modes of behavior.

For example, older manufacturing companies have their cultural roots in an era when labor productivity was critically important. As a result, their mindset, behavior, and performance measurements have historically been focused on managing direct labor efficiently. Fast forward to today, when direct labor may be less than 10% of cost, it would seem obvious that the emphasis needs to change, but many companies in this situation are finding it difficult to make the transition.

Pull systems concepts, where processes link throughput to customer demand have been around for several decades now and provide tremendous advantages in reducing waste and improving responsiveness to customers. But the old focus on labor productivity and overhead absorption continues to get in the way of pull systems implementation in some companies and even whole industries. We also find many companies whose executives still spend just as much time managing the 10% labor component of their business as they do the 90% representing material and overhead.

Pulling the Culture

How do you develop new patterns of behavior and the norms and beliefs that support them? The execution of any major change initiative must include an assessment of the implications of the current culture and the identification of cultural risk factors. Once those risks are defined, the change team then needs to define an appropriate risk management strategy. More often than not, that strategy must involve pulling the culture in a direction that is more consistent with the new behavior that will be required.

Many approaches to culture change start with the assumption that culture is primarily about norms and beliefs and that to change people’s behavior you must first change the way they think. These approaches focus on awareness and education, hoping that new behaviors will result. The track record for such methods by themselves, however, is poor. In fact, it is actually easier to establish new behaviors first. Once those behaviors are put in place, reinforced, and viewed as successful, a new set of supporting norms and beliefs will develop around them.

The fundamental rules for pulling culture rapidly toward new behavior patterns include the following:

• The new desired behavior must be clearly defined, and concrete models for the new behavior must be developed and communicated. In many cases the desired behavior change is expressed in terms that are so broad as to be meaningless. Asking people to be more accountable or be more willing to take risks is not enough. People may have a vague idea what you are talking about, but most of them will not be able to translate it into specific, day-to-day changes in the way they do their work. They need concrete examples that they can use as models for their own behavior.
• Educate people on the costs and benefits. People are more willing to change when they see a concrete need. Identifying specific examples of old and new behavior should allow you to point to their costs and benefits (and is a good way to test whether you are dealing with a real issue.) Educating people on these costs and benefits is the fastest way to develop a sense of urgency.
• Management has to lead by example. Too often, management feels that the problem with the culture rests primarily with employees. This is rarely the case. Culture starts at the top, and changing it has to start at the top as well. You can not change the behavior of employees if management’s behavior is business as usual. The tough part is figuring out exactly what you and your team need to do to set the desired example.
• The measurement and performance system has to be revised to be consistent with the desired new behaviors. The measurement and performance system is the single most powerful tool for reinforcing behavior. In fact, some of the behaviors you most want to change are probably strongly supported by the existing performance system. You will never internalize new behaviors if you keep reinforcing the old ones with financial or other incentives.
• Establish accountability and set goals relative to the new performance system. As with all change, accountability for results is a key element. Changing culture is difficult, but it is precisely for this reason that consequences of success and failure must be absolutely clear to all. Without accountability and consequences, too many senior managers will remain in their comfort zone, and the necessary change will never occur.
• Coaching and feedback are critical. Since people are being asked to model new behavior based upon examples that are set for them, they require feedback and coaching on how they are doing. When the existing culture is part of the problem, managers and supervisors steeped in this culture may not be well equipped to do this and may need some feedback and coaching of their own to be successful. In these circumstances hierarchical coaching down through the organization is required.

Real Life Culture Change

The fundamentals of culture change management can be applied to virtually any industry, company, and business environment. Some common examples where the need for culture-change can be applied are included below with top level advice on how to approach change:

• Technology-oriented engineering cultures, where product development teams tend to strive for the most elegant or interesting solution: You do not want to sacrifice your technology edge, but maintaining that edge is not about having the most elegant solution. It is about getting a good, profitable product to the market faster than the competition. Designers need to learn to work within the constraints of defined product architectures, parts re-use and a carefully managed supply chain.
• Entrepreneurial, start-up cultures that need to add more structure and discipline as the company grows: The entrepreneurial side of the culture has many positives, so you are not trying to kill it, but you do need to manage it. You need to stay nimble and flexible to keep ahead of the competition, but you need more consistent, repeatable processes in areas like product development, fulfillment, and customer service. The everybody-does-it-his-own-way approach will not cut it any more.
• Risk-averse, procedure driven cultures (such as utility companies) that need to adapt to the realities of a competitive market: Following the manual makes sense when you are doing high-risk work in a high-reliability environment, but there are times you wish your customer service reps knew when to throw away the manual and just do what is needed to resolve a problem for an important customer on the first call.
• ·Sales oriented cultures where the customer always knows best can be just as bad as a culture where we think we always know best. There is nothing wrong with a focus on delighting your customers, but that does not mean you should take everything they say as gospel. Frequently sales reps focus so much on doing whatever it takes to get the next order that they make decisions that are not in the company’s long-term interests. Getting sales people to think more like business people is challenging, but critical to long term success.
• Classic planning and control cultures. Management develops the annual plan, to a high degree of precision, and then does everything possible to make it happen. This approach may have worked when the pace of business change was glacial, but today it will not cut it. Management has to be able to review plans regularly and be willing to throw them out the window when the environment changes or when the underlying assumptions do not prove out.

Although these cases may all seem different, the same fundamental methods can be applied to pulling the culture. For each:

• Clearly articulate the business goals of the overall change initiative
• Define the critical dimensions of culture that affect the change initiative
• Identify key examples of current and desired behaviors in each case and be sure to include management behavior
• Show people the costs of current behavior and the benefits of the desired behavior
• Adjust individual and process performance measurements to bring them into alignment with the desired behavior
• Establish clear goals, accountability and consequences as part of the new performance system
• Monitor performance and provide feedback

Following this approach will dramatically improve the probability of success and substantially reduce the amount of time needed to implement the desired changes.

Toward an Adaptive Culture

For the many companies that are in continual change management mode, they need to find ways to reduce the inherent cultural resistance to change, so that they can accelerate all future change initiatives. This is accomplished by pulling the organization toward a culture that is fundamentally more open to change–an adaptive culture. What kind of values make for an adaptive culture, and how are they instilled in an organization?

Many cultural attributes can be defined along a continuum between two extremes. In some cases, these extremes are clearly black and white. For example, there is no question of finding a proper balance between trust and suspicion. If everyone is on the same team, working toward the same goal, trust among team members is clearly better. The following are some of the most powerful positive and negative business culture values.

These values, taken together, have a huge impact on an organization’s inherent level of resistance to change. The more negative an organization, the more resistant it will be to change. This occurs because organizations with too many negative attributes are inherently dangerous places to work. People develop protection mechanisms to keep themselves out of trouble, and those protection mechanisms are not conducive to taking risks or talking openly about problems–two critical requirements for an adaptive culture.

Clearly, adaptive culture is not consistent with these negative values, and, to the extent that one or more of them is prevalent, adaptive culture cannot be bred. The good news is that the prior methods described for pulling culture apply here. Each of these values has certain types of behavior associated with it. By identifying specific examples of both existing and desired behavior and then applying the fundamental techniques for pulling the culture toward the new behaviors change can be achieved.

Other dimensions of culture are not a matter of black and white, but rather of finding a balance that is appropriate to the environment in which the organization must operate and be successful. While there are many such dimensions, we find two of them particularly important for adaptive culture, both of these are discussed extensively by K. S. Cameron and R.E. Quinn in Diagnosing and Changing Organizational Culture and Shona Brown and Kathleen Eisenhardt in Competing on the Edge.

Flexibility vs. Structure and Control

All companies find some balance between flexibility and structure, with the point of balance being a function of industry and maturity, among other things. Utilities, for example, tend to be structure and control oriented for a reason. Start-ups tend to need a lot of flexibility, while mature companies usually need more structure. This balance is also closely linked to risk. Flexible organizations are generally more willing to take on risk, while highly structured organizations are usually more risk averse.

What is the implication of this for managing cultural change? More flexible, risk-taking cultures generally have the advantage. They find it easier to define a new vision, identify new behaviors, and move from where they are to where they need to be. If you are managing a control-oriented organization suddenly needing to make rapid changes, you are going to need to pull the culture toward more flexibility and risk taking to be successful.

Internal vs. External Focus or Execution vs. Innovation

This refers to how companies tend to spend their time and energy. Internally focused companies spend more effort optimizing the performance of their operations to achieve consistently superior execution. Externally focused companies are more concerned with innovating and seeking out new products and customers in response to market pressures.

Every company is at a different point on the continuum, and the balance point is usually a function of the industry and its competitive environment. What are the implications for managing cultural change? Companies that are more externally focused are often faster to identify the need to change, because the pressure for change usually comes from the external environment. If you are managing a company that has traditionally been focused on superior execution, in an industry with a slow rate of change, you will likely need to pull the culture toward a more external focus if you do not want to get stuck as a follower on the change curve.

In order to move toward a more adaptive culture, you need to assess your cultural baseline for these critical values, determine what changes need to be made, and follow the basic steps to pull your culture in the direction needed.

Summary

Overcoming the hidden barriers to transformational change is not easy, but can be achieved. When undertaking transformational change, keep the following guidelines in mind:

• Performance improvement has two critical dimensions–process and culture.
• It is almost impossible to make significant changes if you ignore the cultural dimension.
• Changing culture in a meaningful way is really about changing behavior.
• A cultural assessment is important to getting a handle on your cultural baseline before starting a major change initiative.
• There are proven techniques for pulling your culture toward the desired behavior.
• An adaptive culture promotes rapid, effective change.
• Adaptive culture requires a positive environment in several critical value dimensions. These can be put in place by following the basic methods for pulling the culture.

Used properly, the techniques outlined here can make the difference between success and failure of almost any major change initiative.

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