Levi Nieminen

Senior Behavioral Scientist at BetterUp

Posted in: Organizational Learning


Is Company Culture Your Competitive Advantage or Hidden Inertia?

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Is Company Culture Your Competitive Advantage or Hidden Inertia?

In thriving organizations, culture looks like (and often is) the hidden “secret sauce.” On the flip side, in failing organizations, culture is often blamed for preventing change. When we envision what the two look like, they could not appear more dissimilar in our minds. The culture of engagement, passion, and purpose versus the culture of punching clocks and sacred cows. But the reality is that these two types of organizations are often much closer than we think, more like close cousins than distant strangers.

Culture is often blamed for preventing change

You may have read Jim Collins’s business best seller, Good to Great, which offers an in-depth analysis of a whole slew of organizations, and then identifies 11 that transcended average performance to achieve God-like success in the 1990s.

But history has shown that many of the 11 — a list that included Fannie Mae, Circuit City, and Wells Fargo — haven’t fared so well in the time following the book’s publication. In fact, economist and Freakonomics author Steven Levitt’s analysis showed that investing in the 11 as a set would have underperformed the S&P 500 in the 00s. He did a similar analysis of Peters and Waterman’s now-classic In Search of Excellence. Different set of exemplary companies, same underwhelming results in the long-term.

So what happened?

Competitive advantages can become prohibitive disadvantages

With the benefit of hindsight it’s easy to question the authors’ methods and wonder how they got it wrong. It’s also plausible to ask, as Levitt did, whether case studies focused on past success tell us anything useful about the likelihood of future success. An elusive third explanation is that the same culture which was once central to these organizations’ greatest achievements was later a key part of their undoing. And in this way, the versions of the organizations seen by Collins and by Levitt, once great and then not, were more like cousins than distant relatives.

We need to look closer at what culture is and how it changes Click To Tweet

To understand how this is possible and what can be done to get ahead of the curve, we need to look closer at what culture is and how it changes.

How leaders influence a company culture

Few scholarly metaphors have had the lasting impact of Edgar Schein’s iceberg model within the organizational culture domain. As with icebergs, the most important and enduring elements live below the surface. In this case, inside the minds of the most influential people in the organization, starting with the leaders.

Leaders’ mindsets tell a unique and often personal story about their past success — branded by fire, the perilous lessons of trial and error — the consequences of which can be seen in all other layers of the culture, including in the values that are espoused (“what we stand for”) and in the norms and practices that are supported (“how we do things around here”).

As with icebergs, these lessons are not easily forgotten. Sometimes their effects persist from one war to the next, literally. In his book Leading Culture Change in Global Organizations, Dan Denison recounts how World War I artillery crews maintained the practice of “holding their horses,” so as to avoid spooking them when firing their guns, despite that horses were no longer used on the battlefield. As Denison would say, how many times do you think the previous generation had to learn that lesson the hard way? Just once, if they were lucky.

An organization’s culture can be a source of competitive advantage.Click To Tweet

Like the cavalry, all organizations sit on a foundation of mindsets which were at one time adaptive and which will eventually outlive their utility. But in the heyday of this life cycle, the culture looks like (and often is) the hidden “secret sauce”. Research now clearly supports this idea – that an organization’s culture can be a source of competitive advantage.

Creating a sustainable organizational culture

Good organizations can become great when operating in this zone of aligned culture, strategy, and ecosystem.

Of course, this also means that some organizations do it better than others. The best create an environment that is not only highly engaging but also highly specific to executing on their strategy. Superior performance, then, results from the three-way alignment of the culture, the strategy the organization is pursuing, and the ecosystem in/for which that strategy was designed. Good organizations can become great when operating in this zone of aligned culture, strategy, and ecosystem.

But, sustaining it in the long run has more to do with what happens as the formula changes. For many organizations, culture change is demanded as a function of changes in the ecosystem, changes in the strategy, or changes in both. And in this sense, the change is often quite reactive. The first challenge has to do with seeing the situation for what it is, and the second has to do with making change on a culturally meaningful (“deep”) level.

Often, the signals are buried in an incremental performance decline, and the causes are either unclear or the source of stifling internal debates. Alan Wurtzel, former CEO of Circuit City, described how the electronics retailer long ignored changing consumer preferences and dismissed the rise of its eventual successor, Best Buy, as a flash in the pan. True to form, the cycle is now repeating itself as Best Buy and other large box retailers struggle to make the shift from their brick-and-mortar strategies toward an omnichannel experience that can compete with Amazon.

Even when the results are more dramatic, the cultural pre-conditions were often cultivated for years. Aggressive cross-selling was a hallmark of the Wells Fargo strategy and culture long before it was exposed as a systemic cause behind the massive banking scandal. In his 2007 best-seller, The Black Swan, Nassim Taleb famously characterized how Fannie Mae was “sitting on a barrel of dynamite, vulnerable to the slightest hiccup.” We now know quite clearly that the dynamite was lit. Increasingly risky practices were institutionalized in the mindsets and practices that came to define not only Fannie’s operations but the industry as a whole.

The jury is still out on whether Wells and Fannie can reset the cycle and once again climb back to good and to great. More fascinating still is the much broader possibility that we can learn to do proactively what these organizations, like many others, were forced to do reactively. In other words, to read the earliest signals that the sauce is turning into inertia and initiate meaningful steps to reinvent for a different future. In a new era of rapid  disruption and where change is the only constant, developing this capacity for continuous, proactive culture change might just become a business necessity.

How can organizations develop this capability?

5 skills for building a great company culture

You need to observe the behavior and attitudes of groups and make the relevant connections back to the mindsets of individuals.

One thing that makes the process of culture change uniquely challenging is that you need to work at multiple levels. You need to observe the behavior and attitudes of groups and make the relevant connections back to the mindsets of individuals. The sense-making and change happens in a social context and on a personal level. But how do you get at something deeply personal in the normal workplace context?

The answer is found in specialized skills related to observation, reflection, and dialogue. These skills can be developed with practice. Here are five ideas with accompanying questions that you can ask to help get (and stay) ahead of the culture curve:

Develop the muscle for cultural introspection

Check in daily on whether the assumptions driving the organization are becoming (or have become) outmoded. For this purpose, try a daily practice of asking yourself and others in your organization: What did we believe to be true yesterday that is no longer true today?

Give others the permission to challenge your mindsets 

Accelerate growth and create the opportunity for open dialogue. Marshall Goldsmith’s What Got You Here Won’t Get You There is a great reminder that sometimes the greatest impact is in the process of letting go. But knowing which habits and mindsets are no longer effective is difficult, if not impossible, without getting the right feedback in the right way. Try asking yourself and others: What is one thing we can let go of, starting today?

Engage in the search for blind-spots 

Uncover what you don’t know that you don’t know. This is the experience of a traveler encountering vastly different world views than her own. Embrace your inner traveler and try asking yourself and others: What bubble(s) are we in today, and how can we step outside to broaden our perspective?

Create cognitive dissonance

Allow behavior change to have a chance to lead mindset change. Jeff Bezos’s “disagree and commit” is a good example of building cultural support for action and experimentation first and alignment later. Try asking yourself and others: What is a first step that we can take today and revisit tomorrow?

Target behavior change at habits

This way, the focus is narrow and the impact is wide. Habits are a powerful place to aim because of their repetition and scale and because they often link to core business processes. Some habits become so deeply ingrained over time that we forget that we have the power to choose something different. Try asking yourself and others: What is one habit that we should take off of “autopilot” and disrupt, starting today?

For organizations to hold onto what makes them great, they need to change. Embracing a new form of proactive culture change might just make all the difference in what happens next.

Original art by Theo Payne.

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