Book Extract: Culture Connect

What’s your company’s biggest asset? We often asked this question in interviews we conducted with leaders of companies that had closed the strategy-to-execution gap. These leaders nearly always named their culture.

At CEMEX, human resources chief Luis Hernández said the culture “produces the behaviors that reinforce the capabilities that will make us successful.” Haier’s CEO Zhang Ruimin said that “the main factor enabling [the difference between Haier and other companies] is our culture.” Peter Agnefjäll, CEO of the INGKA Group at IKEA, said, “Our culture is very difficult to copy. You could copy our Billy bookcase or the retailing format or our warehouses, but how do you copy our culture?” We could quote similar remarks from leaders at Danaher, Lego, Natura, Qualcomm, and Starbucks. These cultures may not always be friendly; they can be tough on people. But they are always seen as a source of strategic strength.

To be sure, executives at most companies talk frequently about their culture. But all too often they describe it as something to overcome: an impediment to performance. They launch “culture change” initiatives to eliminate negative cultural attributes and build new ones. These efforts prove futile; a culture does not change easily or rapidly.

An organization’s culture is a multidimensional, complex, and influential thing. It is the reservoir of behaviors, thoughts, feelings, values, and mind-sets that people in an enterprise share. Culture influences the most common practices of an organization, many of which are more informal than formal, especially those practices which people take on themselves and which may not be consciously recognized or talked about explicitly. Like tacit knowledge, a culture can’t be managed by controlling it; but its impact is concrete. “Cultural forces are powerful,” writes Edgar Schein, the MIT professor who first articulated the concept of corporate culture, “because they operate outside of our awareness.”

In most companies, the culture manifests itself in the way people look at things and talk to each other; in the way they compliment and criticize one another; in the posters on the wall and the knickknacks on the desks. Most of all, it is evident in the stories people tell each other, about what matters at this company or why some people fit in while others don’t. Thus, closing the gap between strategy and business often involves telling new stories that are deliberately chosen to reinforce coherence: stories about the capabilities that make this company special, the reasons why we do the things we do, events that have challenged the enterprise, the things people did to meet those challenges, and the evolution of the company’s capabilities and attitudes. (Indeed, these are the kinds of stories that came up repeatedly in the research for this book.) It isn’t necessary to become a good storyteller to lead a company in this direction; but it is necessary to become aware of the prevailing stories, and how well they fit the identity of the enterprise. If there are serious contradictions, then it may be necessary, as we’ll see later in this chapter, to find the stories that fit better, and bring them to the surface.

Your culture is a valuable resource. Learning to work with your culture can make the development of differentiated capabilities much easier. In a relatively coherent company, when strategy and execution are closely aligned, the culture provides the support that individuals within the enterprise need to find their own personal connection with the overall strategy. It helps break down the barriers that separate strategy from execution, such as the boundaries between functions. A culture that is in tune with your most distinctive capabilities can also draw people to accomplish amazing things.

Most business leaders understand the power of a company’s culture. But it’s not always clear how to harness that power. To do so, you must understand the way that culture evolves as you close the gap between strategy and execution, and how it can help you move further down that path…

Fostering a Distinctive Culture
Peter Agnefjäll hits on an important point when he says IKEA’s culture is difficult to copy. Like almost everything else about them, the cultures of coherent companies are unique and hard to replicate. No other retail chain can adopt the practices of Starbucks or Zara and expect the same result; the people in these companies behave the way they behave because a culture has grown up, over time, which reinforces this behavior.

Many very capable people are drawn to work for companies with distinctive capabilities. Although they might not think of it as an emotional connection to the company’s culture, that’s what attracts them. They want to be part of something distinctive. Thus, at companies that close the gap between strategy and execution, you don’t typically find people trying to leave their culture behind. They celebrate the bespoke attributes that make them special, and they keep bringing those elements to the forefront. In a coherent company, the elements of the culture, often dismissed as merely personal, reinforce what the company is trying to be. Consider, for example, how Natura’s culture expresses and reinforces its identity. Every artifact, from the product designs to the architecture of the buildings, is a testament to the company’s shared purpose and values. Even the annual reports open with this statement: “Life is a chain of relationships. Nothing in the universe stands alone.”4 The culture goes a long way toward reinforcing the relationship with sales consultants at the heart of Natura’s value proposition.

You can also see its impact in the company’s relationships with rain forest suppliers, and its intent focus on keeping promises.

The culture is also reflected in the way people talk about the company. “We are driven by language,” says brand director Ana Alves. “We tell stories. This comes partly from the Brazilian culture; you understand things in part by feeling them.” And it is manifest in its architecture. Visitors to Natura’s headquarters in Cajamar, a suburb of São Paulo, encounter a six-story glass-and-steel building, with the upper three stories built on stilts to promote airflow and a bowstring bridge that encourages people to linger and look at the forest around them. The company has been regularly planting seedlings to recover the native biome on the site since 2009, when the building opened.

Some forty-seven hundred miles to the north is Danaher—an equally coherent company with a completely different culture, one that centers around operational effectiveness, ruthless execution, and no-nonsense candor. It’s a necessary culture for an enterprise assembled from other companies who must all operate as high achievers, helping one another continually do better. There is no room for slack or indecisiveness. When you run a business at Danaher, it’s understood that your performance might drop sometimes, but you’d better be prepared to explain what happened and what you are going to do about it, with lots of data and no embellishment.

“If you’re touting pabulum, that’s an unsafe place to be,” says Steven Simms, who spent eleven years at Danaher and is now CEO of another manufacturing company. Danaher’s global headquarters occupy an unpretentious floor in a building in downtown Washington, D.C. “We are nonpolitical and nonbureaucratic,” says the company’s culture statement. Executive vice president Jim Lico adds, “We have the soul of a small company. We still remember the day when we all pitched in to ship product on Fridays if the warehouse was full, or we took a tech support call even if we were top executives. Though those days are long gone, we remember and long to keep that culture.”

We could paint a similarly compelling portrait of every company that we credit with closing the strategy-to-execution gap. Apple, Amazon, and Starbucks are famous for their idiosyncratic cultures, and you’d find a similarly distinctive sensibility in Frito-Lay, Inditex, Lego, and Qualcomm. They don’t take their culture for granted.

Moreover, the cultures of these companies are directly linked to their capabilities systems. Natura doesn’t just have a commitment to environmental and social sustainability; its people know how to achieve it because it is one of their distinctive capabilities. The culture reflects not just what people believe, but what they do exceptionally well. Behaviors lead to stories; stories engender new behavior; and everything ties in with the value proposition and capabilities system. That’s why these cultures are so different from each other.

You may think of your company as having a standard, nondescript business culture, just like everyone else’s, but it too is unique.

It has come to life over time through the accumulation of many factors: the background of your company’s founders and key leaders, its geographic roots (companies founded in Silicon Valley tend to be different from comp-anies founded in the Netherlands or in Singapore), its prominent functions, its history of mergers and acquisitions, and its structural constraints (highly regulated industries lead to cultures different from those in more freewheeling industries). Your company’s culture is unlike any other, and that distinction is a strength. Now that you are moving to close the gap between strategy and execution, it is time to celebrate and use that distinction.

You can foster commitment with it; you can bring your value proposition to life. Think of your culture as the “intrinsically cool” part of your identity—the part that engages people. When you talk about your company’s culture, articulate the ways in which it reflects your capabilities system and the value your company creates....

Your effort to build capabilities and bring them to scale have already highlighted the amazing things your people can do. People naturally identify with their capabilities, especially if shared by an elite organization full of highly skilled colleagues. Companies that define themselves by their capabilities, instead of by their financial results or an abstract mission statement, thus enjoy a huge cultural advantage.

Finally, while the distinctiveness of your culture is a strength, coherence does seem to bring with it three common cultural elements: emotional commitment, mutual accountability, and collective mastery. These will tend to emerge as you practice the five unconventional acts enumerated in chapter 1. Most companies are familiar with these elements—but only in places. As you close the gap between strategy and execution, you will increasingly be able to rely on them. ..

Emotional Commitment
Suppose, then, that you are on your way—that you are following the first two acts, and your company has a clearer identity and a stronger capabilities system. One of the first changes you will notice is a rise in the level of emotional commitment. When people understand the identity of the enterprise, and when they feel aligned with that identity, they are ready to give more of themselves to the enterprise, because they see its success as their own.

Emotional commitment is impossible to measure precisely. It may not even show up reliably in employee engagement surveys. But people who are attuned to it can generally tell when it’s present. “You can walk into [any type of retail store],” CEO Howard Schultz is quoted as saying, “and you can feel whether the proprietor or the merchant or the person behind the counter has a good feeling about his product. If you walk into a department store today, you are probably talking to a guy who is untrained; he was selling vacuum cleaners yesterday, and now he is in the apparel section. It just does not work.”

Reprinted by permission of Harvard Business Review Press. Copyright 2016 PwC. All rights reserved