High-Performance Culture

Getting It, Keeping It
Most leaders recognize that a high-performing culture is critical to their organization’s success. Yet for a variety of reasons, many struggle with culture change. But culture change is both achievable and feasible, despite the many myths that surround it.

Culture is hot. In our discussions and work with leaders in business, government, and not-for-profit organizations, we have observed a markedly increasing emphasis on culture — for a host of reasons.

Leaders trying to reshape their organization’s culture are asking: How can we break down silos and become more collaborative or innovative? Others, struggling to execute strategy, are wondering: How do we reconnect with our customers or adapt more proactively to the new regulatory environment?

Leaders overseeing a major transformation want to know how to spark the behaviors that will deliver results during the transformation — and sustain them well beyond. Those involved with a postmerger integration grapple with how to align the two cultures with the new operating model — and reap the sought-after synergies. And those simply seeking operating improvements often ask: How can we become more agile? Accelerate decision making? Embed an obsession for continuous improvement throughout the company?

Regardless of the reasons, there’s little debate about what culture is. Most agree that it’s the values and characteristic set of behaviors that define how things get done in an organization. Nor is there any debating culture’s importance. Most leaders recognize how critical a high-performance culture is to their organization’s success. But many are discouraged by the yawning gap between their current and their target culture. Others are frustrated because they don’t know why their culture is broken (or just suboptimal) — or what steps they might take to get and keep a high-performance culture.

Through our work with clients, we have found that culture change is not only achievable but entirely feasible within a reasonable amount of time. Any organization that is willing to make the necessary effort can realize its target culture by implementing change based on the answers to four questions:

· What culture do we need?

· What culture do we have compared with our target culture — and why?

· What aspects of the organizational context should we change to get the behaviors we seek?

· How do we make the change happen?

While these questions seem fairly straightforward, they are often shrouded in myths. These myths create the hurdles that make the goal of a high-performance culture seem so elusive.

What Culture Do We Need?

Some believe that there is one universally “good” culture: a single ideal that every company should aspire to. If only they could encourage employees to behave according to that ideal, their company would have the culture it needs.

Certainly, there are cultural ideals that are universal — for example, having employees who are ambitious and accountable for their actions, and who care about their work. But although these attributes are necessary in any organization, they do not in themselves constitute a high-performance culture.

Take a West Coast–based not-for-profit, whose leaders worked hard to cultivate employee morale and commitment. Their efforts paid off: surveys showed that employees were committed to the organization’s vision, understood their contribution to its long-term success, and considered their career opportunities attractive. Still, performance suffered. Delivery delays were chronic because the different functions insisted on executing tasks in their own way, rather than following distribution processes designed to keep handoffs in sync and workflow on schedule. Employees may have been motivated to do a good job, but the behaviors necessary to fulfill the organization’s strategic needs — in this case, following established processes to maintain on-time deliveries — were lacking. No amount of emphasis on engagement would resolve this problem.

The Reality: A High-Performance Culture Must Be Aligned With Strategy

A high-performance culture requires more than a standard set of attributes. We have found that such cultures, regardless of the organization’s industry or size, share two characteristics:

· A Set of “Good” Behaviors, Manifested as High Employee Engagement. Employees are involved in and committed to their work and the future of the organization, and are willing to go the extra mile.

· A Set of Specific Behaviors That Align with the Company’s Strategy. The way work gets done (by individuals as well as by teams) promotes the organization’s strategic objectives. For example, a high appetite for risk-taking may be essential to the strategy of a design company or a venture capital firm but would be disastrous for a nuclear-power utility.

The not-for-profit organization described above enjoyed high employee engagement, but it needed to look more closely at the behaviors required by its strategy (which emphasized operational excellence) and then foster an environment consistent with that strategy. For example, everyone — from senior leaders to line workers — needed to follow established processes. In addition, the organization needed to set appropriate decision rights at each decision point within those processes. Equally important, it needed a performance management and rewards system that supported the defined processes.

Identifying Your Target Culture

Determining what culture your organization needs first requires having a clearly articulated strategy. The target-setting process involves translating the strategy into the specific capabilities and behaviors required to implement it. The target culture is thus a combination of behaviors related to employee engagement and strategy-specific attributes.

Through our research and client experience, we have concluded that engaged employees have the following attributes: they are ambitious, inspired, achievement oriented, accountable, and supportive. The organization must determine the level of engagement necessary — for example, how much ambition is required — to achieve its goals. (See Exhibit 1.)

Then the organization’s leaders must choose strategy-specific behaviors along the following seven dimensions. (See Exhibit 2.)

· Structured Versus Flexible: How specifically are processes and acceptable behaviors defined? How closely are they followed in practice?

· Controlling Versus Delegating: To what extent is power and decision making concentrated at the top or diffused throughout the organization?

· Cautious Versus Risk Permitting: How much does the organization support risk taking?

· Thinking Versus Doing: To what degree do people spend time developing ideas versus actually executing them?

· Diplomatic Versus Direct: How transparent are interactions and communications between coworkers and managers?

· Individualistic Versus Collaborative: To what extent are employees concerned with their own individual performance versus shared goals?

· Internal Versus External: To what extent are processes and behaviors oriented toward the outside world versus the internal environment?

Leaders make these choices by translating the organization’s strategy into the set of capabilities and behaviors required to deliver it. The strategy thus governs where employees’ behaviors should fall along each of the seven dimensions. Translating strategy into business objectives, and identifying the capabilities and behaviors needed to achieve those objectives, are best accomplished through workshops. Here senior management can identify the metrics associated with each business objective — metrics that will indicate whether the culture is truly supporting the strategy. (Workshops are also the right place to ensure appropriate target-setting for units that require their own subculture; the strategy group, for instance, should probably embrace risk-taking more than the finance group.)

To illustrate the culture target-setting process for a company that has shifted its strategy, consider the example of a European bank. The bank had just crafted a new, three-pronged strategy: to become the preferred partner for a select set of customers for the European business; to compete with market leaders by cross-selling, retaining key clients, and winning more RFPs; and to grow revenues each year over the next five years without raising costs. In two workshops, company leaders scrutinized the requirements of the new strategy in order to translate it into the necessary supporting capabilities and behaviors. One supporting goal — upgrading to the market standard — required the ability to be execution focused. This, in turn, called for such behaviors as adhering to decisions and informing others early on when things went wrong.

After crystallizing the behaviors needed for each key capability, the leaders mapped them along the relevant dimensions. For example, sticking with a decision once it has been made requires more structured processes and behaviors, and informing others at an early stage when things go wrong requires more direct communications.

What Culture Do We Have — and Why?

Another myth is that culture is primarily determined by mindsets, which you must understand in order to understand why people do what they do. This misconception is supported by culture assessment approaches that use pseudodiagnostics to characterize employees: for example, engineers favor technology over process solutions, or customer representatives lack curiosity, or IT people are inflexible. Such a simplistic, stereotype-based approach is ineffective because it ignores the influences that encourage or discourage specific behaviors, whether intentionally or unintentionally.

The Reality: Culture Is Primarily Determined by Organizational Context

In many companies, leaders may simply be unaware of the effect that the organization’s leaders, structure, systems, and incentives have on people as individuals and in teams. It is this organizational context, and not mindsets, that drives and sustains culture. Desired behaviors can emerge spontaneously when the context changes. Mindsets, values, and culture will follow. (See Exhibit 3.)

Diagnosing Culture

To diagnose why you have the culture you’ve got, you need to identify employees’ behaviors and uncover their underlying causes.

Assess behaviors. Using a set of key culture attributes, a company can conduct a survey (as well as interviews and focus groups) to identify the main behaviors that characterize its culture — the dominant one, as well as any subcultures that may exist within the organization. It can then map these behaviors along the seven dimensions described above. (See Exhibit 4.) The resulting picture will allow the company to portray its existing culture and compare it with the one it wants. By identifying concrete behaviors, companies can clarify whether current behaviors match those that the organization’s strategy requires.

Examine why people behave the way they do. The latest research in organizational sociology offers many ways of analyzing the root causes of peoples’ behavior. Each approach has different strengths, so it’s helpful to use multiple lenses. One such lens is goals–resources–constraints analysis, which seeks to identify the environmental elements (both hard and soft) that trigger behaviors. This can help a company understand what interventions are needed to bring its culture in line. (To see how goals–resources–constraints analysis applies in a real-world situation, see the sidebar “Why Do We Have the Culture We Have? When Organizational Context Reinforces the Wrong Behavior.”) Whatever analytic framework you choose, be sure to use observations and document reviews to supplement the analysis.

What Aspects of Organizational Context Should We Change to Realize Our Target Culture?

The third myth is that it is difficult to know how and where to intervene in order to change employees’ behavior. There are too many factors, and the relationships between them and the organization’s culture are too complex.

The Reality: Learning What to Change Is a Logical — and an Entirely Feasible — Process

Certainly an organization is a dynamic behavior system, and dynamic systems are inherently complex. But that does not make them undecipherable. The elements of organizational context work in aggregate; some may amplify while others may neutralize the effects of behavior. Which elements are operative depends on the circumstances. So as long as you understand the organizational context and the interplay among its constituent elements, you can effectively change culture. By applying techniques drawn from social and behavioral psychology — techniques designed for complexity — you can create a set of interventions that move multiple “context levers” in the right combination. It’s even possible to determine the sequence of actions that will have the best and most timely results.

Designing the Interventions

Leaders have a plethora of context levers at their disposal to align employee behavior with strategy — and close the gap between their current and target culture. These levers represent a mix of hard and soft approaches that separately and in combination shape behavior. They enable organizations not only to understand the forces shaping their current culture but also to specify what needs to be changed in order to achieve and sustain the desired culture.

The Seven Organizational-Context Levers. BCG has identified seven context levers that influence the seven dimensions of behavior and thus shape organizational culture.

· Leadership: leaders’ role-modeling behaviors; their manner of communication, especially in reinforcing desired behaviors; how they spend their time, manage their priorities, and interact with direct reports (do they micromanage or manage by principle?); and the heroes and legendary leaders they revere and talk about

· People and Development: the kind of employees who are recruited and hired; opportunities for meaningful work and the kind of career paths and personal growth the company enables; how talent is promoted and retained; the coaching that supervisors provide; the company’s learning and development programs

· Performance Management: the KPIs that the organization uses to define and track performance drivers, and its policies and practices regarding compensation, benefits, reviews, promotions, rewards, and penalties, including the consequences of undesirable behavior (knowing when to dismiss employees is just as important as knowing when to promote)

· Informal Interactions: networks, the nature of peer-to-peer interactions, and gatherings and events (do active communities of interest exist? do people know whom to contact to access organizational knowledge?)

· Organization Design: organizational structure, processes and roles, decision rights, and collaboration processes; units’ relationship to headquarters; office layout and design

· Resources and Tools: projects that are funded, access to human resources, management systems, and analytical tools

· Values: the collective beliefs, ideals, and norms that guide people’s conduct and help them adhere to priorities, especially when facing a business dilemma

For each gap uncovered in the context analysis, companies must choose the right levers, design the right interventions, and determine when to apply them. For example, if your diagnostic has revealed that teams tend not to share information (and your strategy requires more collaborative behavior), you might want to see if a process breakdown is hindering collaboration. If so, one possible intervention would be to implement cross-functional processes that facilitate communication. If you find that the cross-functional processes are sound but your performance-management systems don’t encourage collaboration, you might develop programs that reward teaming behaviors and team accomplishments.

Some interventions, such as establishing a recognition system, will generate quick wins, while others, such as a reorganization, will take longer — but regardless, it’s important to prioritize them. Consider applying the 80/20 rule: picking the 20 percent of interventions that will have 80 percent of the impact. An implementation plan should delineate the highest-priority interventions — those intended to target the red flags identified in the context analysis — and sequence them as appropriate.

How can a well-designed set of interventions advance culture change? Take the example of a utility company undergoing a postmerger integration. To support its new operating model — and foster a common culture for the two entities — the company sought behaviors that would demonstrate a sense of local ownership, greater accountability, and greater customer focus. It devised several interventions, including redefining decision rights to cultivate ownership at the district level, introducing audits to promote transparency and maintain consistency and compliance across districts, and conducting skills training for employees.

How Do We Make Change Happen?

The fourth myth is that changing behavior and culture is a gamble. The complexity of the process makes culture change unpredictable; with all the moving parts involved, you can’t count on getting the results you seek — or even be sure that activating the right levers will make change happen. Of course, many companies unwittingly perpetuate this myth by not tracking behavior change and the business objectives it is intended to advance. So when the new strategy, initiative, or transformation falters, they have no way of getting a true picture of what went wrong.

The Reality: Behavior and Culture Change is a Predictable Process — and Can Be Orchestrated to Achieve the Intended Results
Our experience working with clients across many industries and regions suggests that culture change can indeed be orchestrated successfully. If you have conducted a thorough diagnostic and identified, designed, and implemented the right interventions, you can get fairly predictable results in a predictable period of time. However, doing so requires an active, hands-on, systematic approach — and considerable attention to change management. The approach you take will, of course, depend on the specific interventions you’ve identified; changes in leadership behavior, performance management, people development, or role charters will naturally have different implementation requirements.

Implementing Culture Change

A handful of practices can ensure that the interventions you choose will have the best chance of achieving the intended results.

Find and support change champions in the organization. In every organization, there are people who are already behaving in the right ways and are enthusiastic about bringing others along. Ideally, they have been involved in the intervention design and understand and are committed to the proposed changes. To improve the odds of success, it will be important to train these champions in leading change and ensure that they are rewarded for taking on that role.

Run pilot programs. A crucial step is testing a select set of interventions through pilot programs. (See the sidebar “Pilots in Action: Changing BCG’s Always-On Culture.”) The choice of pilot should be carefully considered. For example, it’s best to avoid pilots where there are many variables, such as in a unit that interacts extensively with other units and areas. In such cases, it can be difficult to interpret the pilot’s results.

Roll out interventions after the pilot. Companies must decide how to roll out the change: which levers and interventions to introduce in what sequence, and a timetable that makes sense. You will need to create metrics and mechanisms for measuring and monitoring the change (and for evaluating the results of the pilot to identify adjustments needed before the full rollout). 
Ensure frequent, specific, and transparent communication. Communication is critical in any change program, and in culture change it is even more important. That’s because of the perceived amorphous nature of culture, the large number of people affected, and the potential for cynicism. The goal of a communications program should be to make culture as tangible as possible, emphasizing what it means for the individuals who will be affected. To counter the potential for cynicism, communications should include opportunities for direct interaction with leaders and change champions.
Measure and monitor progress — adjusting and refining interventions as needed.
Culture change is predictable, but it is also inevitably messy. Changing organizational context in the right ways will certainly reinforce the desired behaviors. But people are human, and their choices are informed by numerous influences. For these reasons, it is crucial to monitor progress to determine whether the desired results are in fact being achieved. If not, you’ll need to adjust and refine the interventions. Measurement is a powerful tool for driving behavior change. Refer back to the business-objective metrics you developed during the culture target-setting stage to actively monitor your desired business results and behavior changes.

Does Your Culture Need a Makeover?

Sometimes the need to assess, if not change, an organization’s culture is obvious. But often it isn’t at all obvious that a culture check is in order. What might signal the need?

· Is there a growing sentiment that your culture may be getting in the way of achieving your goals?

· Has there been a change in strategy? Is your current culture aligned with your strategy?

· Are you contemplating or involved in a merger? Are the cultures of the two organizations aligned?

· Are you engaged in a transformation or a large-scale change program? Are the behaviors required to deliver — and sustain — results in place?

· Are you struggling to drive higher levels of productivity?

Sustaining business success can be an uphill battle when the culture isn’t right. And no company can expect the desired set of behaviors to emerge when the organizational context discourages them. Whatever the challenge — whether a postmerger integration, a transformation, or even an effort to improve a specific element of operations — the odds of success will be dramatically improved by having the right culture.

Effective culture change, like any major change initiative, requires a disciplined management effort. From target-setting to making the changes happen, the company needs to prepare management to lead the way, engage and excite the extended leadership team, cascade change through the layers of management, and enroll the entire organization in the effort. (See Exhibit 5.) A robust change-management program will help keep expectations fresh, communicate progress, and demonstrate leaders’ commitment.

Culture change can be frustrating, but it doesn’t have to be. By answering the four questions laid out here — and recognizing culture myths for what they are — you can be confident about getting and keeping the culture you’ve always wanted. It’s surprising how quickly culture can be changed — and high performance unleashed — when culture myths give way to reality.

By: Jim Hemerling and Julie Kilmann