The Evolution of Corporate Culture & Culture 4.0

John Childress
Feb 14, 2019 · 8 min read

“I know corporate culture impacts business performance; but I don’t have a clear understanding of how to manage culture to ensure we achieve the business results we have planned and promised.” ~ a frustrated CEO

Corporate Culture is one of the most talked about topics by business leaders today, and for good reason. The business impact of a weak or misaligned culture has become more pronounced over the last 10 years as company after company, from banking, insurance, airlines, auto manufacturers and energy utilities have experienced billions of dollars in fines and share price declines as a result of issues ultimately stemming from a misaligned or even toxic corporate culture. Culture has a powerful positive or negative impact on business performance, company reputation and brand value.

Consider the banking fraud at Wells Fargo perpetrated by a culture of relentless pressure on staff to meet very aggressive sales quotas. Or the cover up by Volkswagen of fake CO2 emissions data. And recently the toxic culture at Uber allowing its rival, Lyft to gain significant market share. Then there is Equifax covering up the public exposure of millions of private customer records through multiple cyber hacks.

On the other hand, Southwest Airlines and its “culture of LUV” has contributed to 43 straight years of profitability, plus the highest customer satisfaction scores in the airline industry. And the “innovation culture” at Amazon enables it to penetrate and dominate in multiple business sectors by disrupting old business models and revolutionizing the customer experience.

The economics are compelling, manage culture well and your organization can experience growth, brand recognition and financial rewards that attracts and keeps employees and builds customer satisfaction and loyalty. Manage culture poorly and your organization may experience massive fines, customer defections, high employee turnover and loss of brand value.

There is growing consensus among business leaders and academics that culture matters. Corporate culture often provides the key differentiator that elevates performance to the next level. What is not so clear is precisely HOW business leaders can actually MANAGE culture to add value to their brand and capture sustainable industry leading business performance.

The Evolution of Corporate Culture

The evolution of modern business has evolved over the last several centuries in discrete phases, each powered by a significant advance in technology and scientific understanding. The first industrial revolution started in the late 1700’s with the introduction of mechanical production powered by water and steam. In 1784 the first mechanical loom revolutionized weaving and reshaped many early industries. The second industrial revolution arrived in 1870 with the first assembly line, a product of the introduction of division-of-labor and mass production powered by electrical energy.

In 1969 we witnessed the third industrial revolution, the use of electronics and programmable IT systems to further automate tasks and production. And today we are experiencing the fourth industrial revolution, the explosion of disruptive innovations through the digitization of business processes, open access to massive amounts of information, hyper-connectivity, artificial intelligence and the Internet of Things. The evolution of business has led to massive improvements in productivity and speed and added more and more value to the world GDP and to the wellbeing of many people.

In a similar manner, our understanding, application and approach to corporate culture has evolved over the past 70 years. And with each new phase the effectiveness, value and ability to impact business results has increased. In the chart below we summarize our view of the evolution of Corporate Culture.

Culture 1.0 — Defining Corporate Culture: The formal concept of corporate culture began in 1951 with the early academic studies of Elliott Jacques in manufacturing companies. This early introduction of how an organization’s culture could impact performance was followed by further academic studies by Edgar Schein from the MIT Sloan School of Management and others. To better define the concept of corporate culture, two academics from the University of Michigan, Robert Quinn and Kim Cameron developed a 4-quadrant model, called the Organization Culture Assessment Instrument (OACI), which remains as one of the dominant tools to assess and describe culture.

Culture 2.0 — Linking Culture and Business: In 1982 the New York Time best-selling book, In Search of Excellence by Tom Peters and Bob Waterman burst into the boardroom. The book described how so-called excellent companies used vision, values and behaviors to drive superior business performance compared to their peers. Studies by Professor John Kotter of Harvard started to research data on the linkage between culture and business. As a result, between 1982 and 2000 we saw the rise of numerous culture training firms using top down behavioural/culture change workshops for all employees to develop new behaviors more in alignment with new business models and the desired culture.

Culture 3.0 — HR Technology and Culture-by-Design: The rise of technology and digitization has impacted approaches to understand corporate culture over the last decade, with new digital assessment and survey tools in an attempt to measure employee engagement. Following the phenomenal rise of Zappos.com, which went from zero to $1 billion in revenues in just 10 years due to its fanatical focus on a culture of service and high employee engagement, many technology-based start-ups, like Google and Amazon set out to build strong cultures of employee engagement as a way to drive growth and performance. Sensing a business opportunity many consulting firms have begun developing and selling ways to measure employee engagement as a proxy for corporate culture. Today there are many survey applications being offered to measure employee engagement, attitudes and compliance. These survey applications provide good information on employee behaviour and provide a way for employees to engage with their organization. However, employee behavior only represents one aspect of culture. Although a narrow view of culture, measuring employee engagement through technology has helped companies begin to take corporate culture more seriously.

Culture 4.0 — Corporate Culture as a Business System: Up till now, culture has been defined, assessed, measured and managed primarily as a collective set of beliefs, mindsets and behaviors, using surveys as a way to determine the gap between the current culture and the desired culture. And these culture assessments, for the most part, are a reaction to a perceived culture problem and performed periodically, usually on an annual schedule. Trying to improve culture reactively and periodically only takes an organization so far and has currently created a growing cynicism among Boards, CEOs and business leaders as mostly an “HR thing” and not very useful for running the business. And this at a time when more senior leaders are seeing and understanding the economic imperative for actively managing culture!

Culture-as-a-Business-System

The recent publication of John R. Childress’s ground-breaking business book, Culture Rules! in late 2017 introduced a radical idea concerning corporate culture. What if we looked at culture as a business system? A system which contains multiple drivers that interact with each other, like the elements in an ecosystem, to determine the “way we do things around here”. It is the dynamic interactions between the drivers within the culture system that influence the collective attitudes and behaviors of employees and subsequently, business results.

Corporate culture reflects the complex interactions between business strategy, processes, structures, technology, policies and people. These interrelated culture drivers form an end-to-end system, the corporate culture system. Although leadership behaviors and values are some of the most written and talked about drivers of corporate culture, those two ingredients alone are insufficient to fully understand and manage corporate culture to improve business performance.

“If you can’t describe what you are doing as a process,

you don’t know what you are doing.” -W. Edwards Deming

Seeing culture as a business system allows one to better understand not only the drivers of culture but more importantly where they reside in the company. Those familiar with extended supply chains will understand the value of mapping how materials flow from multiple suppliers in diverse locations into the company warehouse, onto the manufacturing floor and into the final product. Corporate culture can also be viewed as a system, or flow process. The drivers inside such a system provide the meaning and context for what we see as cultural behaviors and habitual work practices, often described by current employees as “how we do things around here.”

“Wells Fargo designed a system that produced bad behavior. When you find that out, you must do something about it. The big mistake was they didn’t do something about it.” -Warren Buffet

Summary: Mapping and Managing Corporate Culture

Corporate culture is a business system with multiple culture drivers.

Manage the drivers and you can manage the culture.

An in-depth understanding of corporate culture requires seeing it as an end-to-end business system, which begins with vision and strategy, linked to the major drivers of culture and ends with business performance outcomes. By constructing an end-to-end culture system map and then stepping back, it is much easier to see the many culture drivers that exist and their link to business performance. With this knowledge, a savvy leadership team can use a Culture-System-MapÔ to better align the culture drivers with their business model and strategic objectives and make better business decisions.

Several useful insights emerge when corporate culture is viewed as a business system. With this point of view, not only are the real drivers that shape, build and sustain the culture more easily identified and clearly defined, but a systems map of culture also makes it possible to identify the culture drivers that most impact business performance.

About CulturSys, Inc.

CulturSys, Inc. is a Culture Management Technology & Consulting Solutions company founded by three former CEO’s with a passion for building better businesses and improving the lives of people and the spirit and performance of their organizations in the Energy, Utilities and Financial Services Industries.

CulturSys, Inc. is built upon 35 years of hands-on consulting experience with Boards, CEOs and Senior Teams on shaping corporate culture for improved business performance and risk management. Using culture mapping, proprietary algorithms, big data, artificial intelligence, employee involvement and third-party assurance we deliver insights, systems and processes to manage the culture drivers that impact business performance and business risk.

Chairman at CulturSys, Inc.: https://cultursys.com/

Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid

e: john@johnrchildress.com
Twitter @bizjrchildress

John Childress

Written by

Author of 11 books on corporate culture and the Chairman of CulturSys, Inc. an innovation disruptor in the field of organizational culture and leadership

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