Organisation : Organizational Cultures That Get Financial Results

Hagberg Consulting GroupRichard Hagberg

hagberg logo.gif (2535 bytes)Hagberg Consulting Group specializes in the assessment and development of executive leadership and organizational effectiveness.

Founded in 1984, the firm is a leader in using sophisticated proprietary assessment tools and long-term, personalized coaching to develop successful leaders and organizations.

Dr. Hagberg, President of Hagberg Consulting Group, has practiced as a consulting psychologist in the Bay Area for 16 years. Dr. Heifetz, Senior Consultant, has worked for over 15 years as a cultural anthropologist on issues of culture, integration and change.


Organizational Cultures That Get Financial Results

The commonly accepted elements of financial success in business are well established: a good product or service, cost-effective procedures, skillful marketing, competitive pricing, visionary leadership, a high-productivity workforce, and so on. At HCG, we have discovered that while these elements are essential, they may not be sufficient to guarantee financial success. Our research indicates that an organization’s culture may act as either a strong supporting or constraining factor in determining whether it can achieve its financial objectives.

An organization’s culture comprises the values, assumptions and beliefs, as well as the practices that knit the organization together. The often unspoken values and worldviews become the social and behavioral norms of the organization and form the basis of such practical, everyday matters as performance standards, promotion criteria and behavioral expectations. All these elements are transmitted from generation to generation within the organization.

How important are these elements to an organization’s financial success? Is culture one of those “soft” issues that has very little impact beyond how people feel at work? Is there anything in that largely intangible, usually unexamined realm of corporate values, practices and behavior codes that could offer a competitive edge?  The answer, according to data from an extensive recent study, is a resounding Yes!

Over the past six years, HCG has utilized the Cultural Assessment Tool, its proprietary, objective measure of organizational culture to assess the culture of more than 59 public and privately held corporations, from a wide variety of industries throughout the world. This survey measures 33 elements of corporate culture including such factors as loyalty, trust, information sharing, accountability, teamwork, acceptance of change, external focus, organizational politics and participation in decision-making.

Among many other things, respondents were asked to assess the organization’s financial results. Given the wide variety of financial measures of success that are used in different industries at different stages of growth and with different business models, this question allowed respondents to evaluate their financial success in terms of metrics which are relevant to their own business. Not surprisingly, when compared to the published financial results of public companies, respondents’ ratings are highly correlated with published metrics. It also allowed HCG to gauge the performance of privately held companies that don’t publish financial results. When ratings of financial results are then compared with a wide variety of cultural values and practices, clear relationships are seen between culture and financial success. 

By identifying these cultural factors and revealing how a company’s underlying values, attitudes and typical behavior patterns influence its bottom line, the research points the way toward a conscious effort to foster those cultural characteristics that are helpful and to change those that stand in the way of the organization’s financial success. The following is a summary of the research results, presented as a series of recommendations to managers for implementing what appear to be universal cultural attributes of organizations that enjoy financial success today.

Get Grounded In Business Realities

Organizations that are financially successful know what is going on in their world: with their competition, in their marketplace and with their customers. Their leaders are keenly aware of the broader business environment with all its threats and opportunities. Their decisions are grounded in the widest possible context in which their business operates.  A leader must see things as they are. Ultimately, reality is always the winner. It is the role of the leader of the organization to ensure that decisions are not made in a vacuum. If you are just talking to yourself and not paying attention to what your competitors are doing, how technology is changing or what your customers are facing, you’re almost certain to make decisions that will go wrong.

Develop a Keen Awareness of the Competition

Leaders of financially successful organizations keep close tabs on their competition. They understand their competitors’ products and services, their prices, their distinguishing features/benefits, their competitive strategy, their strengths, weaknesses, and vulnerabilities. They’re tuned in to recent events. Understanding their competitive environment allows them to position their organization strategically and to differentiate their products and services.

Closely Monitor Trends, Opportunities and Threats 

Beyond monitoring competitive trends, leaders of financially successful organizations also monitor changes in their marketplaces, technologies, economic conditions, regulatory environment, financial markets (cost of capital), etc. They are especially attentive to changing conditions that could represent either opportunities for growth or threats to their position, market share or outright survival. This watchful eye on the world around them allows them to be flexible and responsive to evolving conditions. 

Encourage Senior Management to Spend Time with Customers and Understand their Needs  

Focus on the customer is standard practice in the financially successful businesses HCG surveyed, particularly among high-level leaders. Often the contacts and activities of senior management keep them isolated and have the potential for causing them to lose touch with customer needs. When this is the case, their decisions will reflect their incomplete and often unrealistic view. Openness to customer input helps leaders understand the world from their customers’ point of view and enriches their decision-making process. 

Stay Focused on Long-Term Vision, Strategy and Goals.

A clear, compelling vision is an integral part of every successful organization. But in a world that is rapidly changing, you’ve got to be able to look out over the horizon, see trends coming and shift your strategy accordingly. This is precisely what financially successful organizations are able to do. They maintain a balance between their long-term vision for the organization and the short-term reality of remaining profitable. They stay focused on the big picture, resisting the pressure of going merely for near-term results – without being so focused that they are unable to change direction when necessary. In addition, these organizations keep their employees excited about the relevance and meaning of their vision and strategy. When employees feel that what they do has meaning and is special, they are energized; when you’re on a “mission” you work harder, you work more efficiently and are more committed.

Develop an Exciting Vision, Mission, and Business Model that Inspire and Motivate Employees

Not surprisingly, the organizations we studied have charted a clear direction and share a common purpose that is inspiring and motivating to employees on every level. It is important for employees to understand the long-term strategic goals of the organization and to believe that these goals are personally meaningful. The vision, purpose and strategies that an organization adopts must connect with both the heads and the hearts of employees. If you want to keep them maximally engaged and productive, they need to feel that the direction the company is headed is meaningful and will lead to success. Employees want to be on a winning team and part of a successful enterprise. More than ever, they want to feel successful psychologically as well as financially.

Remain Focused on the Long-term Plan and Avoid Over-reacting to the Current Crisis

While a successful organization certainly needs to be opportunistic in response to shifting market conditions, the correlations with financial success show that those organizations that develop and adhere to a solid plan for the long term actually get better financial results in the short term. Flexibility is vital, but so is a stable focus on the long-term strategy. Jerking the company from one side to another or over-reacting to each quarterly bump in the road can create problems for long-term financial viability.  Staying focused on the organization’s long-term strategy provides a focus and platform for decision-making. 

Make A Commitment to Management Development, Continuous Learning, and Quality Improvement

Financially successful organizations have established cultural norms that value quality products and the continuous learning and on-going management development that make quality possible. Organizations that do not have their eyes open to new trends and technologies coming down the road, and do not continually adapt their products and systems to meet those changes, cannot remain financially successful or even viable in today’s world. Likewise, the most financially profitable companies have discovered that the quality of their people is the one thing that is going to keep them successful in the long haul. Rather than allowing short-term financial urgency to result in cuts in “non-essential” expenses such as training, they take the long view and invest heavily in the ongoing development of their people. 

Invest in Management Development

In order to grow and remain profitable, financially successful organizations continually improve the quality of their employees, particularly their management. In his book “Execution,” Larry Bossidy suggests that given the uncertainties of business, the one thing organizations can control is the quality of their employees. “The quality of their people is the best competitive differentiator,” he stated. When an organization expands rapidly or its business changes significantly, managers who did an adequate job at one point in time can easily be left behind. Leaders then face a critical choice:  invest in employee growth and development, thus making a long-term commitment to current employees, or bring in new talent. New talent is certainly necessary at times to keep the organization vital. But bringing in new people is the more risky and the far more expensive choice compared to investing in current employees who have the potential to grow and who have demonstrated loyalty. In tough times it is easy – and may seem like a “no-brainer” – for management to cut training and development activities. However, our study suggests that this bow to expediency is shortsighted and can actually undermine the organization’s long-term financial success.

Value Continuous Learning

Among the hundreds of companies HCG studied, the organizations that get the best financial results are those that make continuous learning a high priority. This translates into continually improving the efficiency of all of the organization’s systems and processes. It means learning from success and failures. Peter Senge has defined the “Learning Organization” as an “organization with an ingrained philosophy for anticipating, reacting and responding to change, complexity and uncertainty.” Senge goes on to say, “The rate at which organizations learn may become the only sustainable source of competitive advantage.” HCG’s results would suggest he is correct. Financial viability requires adaptation to an ever-changing environment. In times of rapid change, the learners thrive while others die out.

Never Release or Sell a Substandard Product or Deliver Substandard Service

An uncompromising commitment to quality, deeply rooted in the company’s culture, is another hallmark of financially successful organizations. These organizations regularly ask customers how they can improve their products and services. They are continuously looking for ways to meet and often exceed the needs of their customers. They know that profits are generated by loyal customers and that the cost of creating a new customer is far greater than the cost of keeping a loyal one. One of the things that keeps customers loyal is quality. These days consumers are more knowledgeable and demanding; they have higher expectations and many more alternative choices. An organization’s reputation can quickly be lost if it releases a defective or substandard product. As one executive said, “If you ship an inferior product, your employees will disengage and your customers will depart.” Quality management produces fewer defects and overall lower costs. Fixing mistakes costs a lot of money. Financially successful companies know that quality is a competitive advantage.

Remain Agile and Support Innovation 

Companies that achieve financial success display two seemingly contradictory characteristics. They have an exceptional fixity of purpose, born of creating a clear vision of their organization’s goals and holding to it in the long run. At the same time, they are agile and flexible, adept at responding swiftly to changes in their markets and in world conditions. New products must be developed and brought to market rapidly. Paradoxically, holding to the long-range vision often demands substantial change, just as transcontinental jets must make hundreds of minor adjustments in order to stay on course. These organizations are not stuck in an organizational self-image that might prevent adopting new strategies; they know where they want to go and are ready to do what is necessary in order to get there. Most often, they have multiple strategies ready to pull out of the hat as circumstances change; they are never so attached to any set of plans that they cannot adjust. They have learned that the business world is ever evolving, giving rise to ever-changing, ever-emerging new conditions. The picture is moving all the time, and only the nimble will survive.

Be Aggressive and Opportunistic; Support Risk-Taking and Innovation

Financially successful companies aggressively seek out new business opportunities and quickly take advantage of them. The culture of these organizations values and rewards risk-taking. Employees are encouraged to experiment and try out new approaches. Management listens to new ideas. Innovation and creativity are valued, rewarded and recognized. In a fast changing global marketplace, organizations that anticipate trends, capitalize on opportunities, create new markets and find better ways of doing things consistently achieve the best financial results.

Quickly Adapt and Refocus Strategy as Business Needs Change

Because there are so many abrupt changes in global business, companies must be flexible and adaptable to remain successful. We live in an unpredictable world and an extremely volatile business environment. Economic and geopolitical uncertainty makes old notions of control and long-term stability a thing of the past. The post-9/11 world requires rapid adaptation of the organization’s strategy as new trends, opportunities and threats emerge. Rather than developing a static strategic plan that assumes a predictable future, today’s financially successful organizations create “all-weather” scenarios that allow them to modify their strategic plans as market conditions change.

Avoid Getting Tied Down to Old, Outmoded Models and Approaches

The financially successful organization has established a cultural norm that supports employees for continually challenging outmoded or inefficient systems, procedures and assumptions. Established ways of doing things are constantly reassessed. Inefficient processes are re-engineered. A large banner in the main lobby of one company sums up this attitude: “Continually challenge the process.” This openness extends even to the organization’s self-image. If the company – like an individual – holds on to an image or notion of “who you are” and “how it is” and then “how it is” changes and you don’t adjust, the organization will flounder. Thus, flexibility and openness to new approaches, as well as to an evolving self-definition, is a requirement of financial success in an unpredictable business world.

Model Your Company on the Winners, Not the Losers

Examples of corporations that did not adapt to changing  conditions are well known. A few that come readily to mind are Montgomery Ward, Smith-Corona (the old typewriter manufacturer), TWA and the Big Three automakers, which lost enormous market share to foreign competition by failing to  recognize changing trends and consumer demands. America Online was very slow to recognize the threat posed by a migration to broadband. The music industry has barely begun, after many years of battling against the inevitable flow of change, to respond to the reality of the Internet. Sun Microsystems held on to its proprietary operating system, and its future is questionable. Apple, when faced with changing customer needs and a shifting marketplace, failed to adapt and is now only a niche player. As the world changed, these organizations did not. On the other hand, Microsoft is an example of a company that quickly and nimbly adjusted and adapted. When Bill Gates -- somewhat reluctantly – acknowledged that the future of technology would be inextricably bound up with the Internet, the company immediately made the Internet part of its central strategy. Once they made the decision, they transitioned the company within nine months – surely one of the greatest strategic reorientations of an American corporation in history.

Build Teamwork, Trust, Loyalty and Belonging

It requires no intuitive leap to understand that organizations whose cultures foster a spirit of cooperation, teamwork and trust are more enjoyable to work for. Our research suggests that these organizations also achieve greater financial success. The feeling of shared fate, that “we’re all in this together,” creates focus and alignment of effort, builds a higher level of loyalty and commitment, the desire to build a quality product and provide quality service, and the willingness to go the extra mile. This spirit definitely places such organizations in the top tiers of financial achievement.

Develop a Cohesive Team at the Top that Models a Spirit of Collaboration

HCG has found that successful companies consistently have senior management teams that work well together. When top management is aligned, the organization’s direction is clearer, messages are more consistent, expectations are less ambiguous and divisive, and unproductive conflicts are minimized. When the organization is aligned, the strengths of individual members combine into something greater – “the whole is greater than the sum of its parts.”

Create an Atmosphere of Trust

A key building block of teamwork is an atmosphere of trust, and in financially successful organizations, this atmosphere is supported by the corporate culture. For example, management empowers employees to make decisions and gives them a great deal of autonomy in figuring out the best way to get the job done. This makes employees feel that they are trusted. Empowerment supports financial success because it enables individual employees to be more responsive in their relationship with customers.  Central to this atmosphere of trust is that the organization’s leadership must model trustworthiness. In many of the financially successful companies, leaders live up to their promises, tell employees the truth, and win trust through their behavior rather than with mere words. 

The Organization Must Foster a Strong Sense of Loyalty and Belonging

When employees feel a strong connection with an organization they are motivated to work hard and do whatever it takes to further the organization’s goals. They identify with the organization and see its goals as their goals. When these values are strong in the corporate culture – in the living daily culture, not just written into the mission statement – loyalty flourishes, and turnover of employees declines, significantly lowering the cost of hiring and training. The stronger the bond between the organization and its employees, the greater the commitment and motivation. This attitude produces financial results.

Avoid Self-Defeating Values and Behaviors

In addition to the many cultural attributes that are conducive to financial success, our research also identified several types of organizational behavior that are negatively correlated with a strong bottom line. Prominent among these are an over-emphasis on achieving financial results, high levels of tension and anxiety, and burnout due to overwork.

Steer Clear of Behaviors that Generate Stress

High pressure and stress undermine financial results. When jobs generate high levels of tension and anxiety, productivity and effectiveness drop and the bottom line suffers. These high levels of stress may be due to any number of reasons such as the company setting unreasonable demands or deadlines and inadequate systems and procedures. It is important to find out from employees what the sources of stress are so that they can be addressed. 

The Organizational Culture Must Value More than Just he Bottom Line

Paradoxically, organizations that over-emphasize financial results actually damage their financial prospects. When senior management seems to care only about financial performance and employees feel that the bottom line is all that matters, work becomes narrow and one-dimensional. Motivation fades and productivity declines. By contrast, as we have seen repeatedly, financially successful organizations motivate employees with a meaningful vision and encourage innovation, quality, continuous learning and team spirit.


Proactively Manage the Culture  

If organizational culture can have as big an impact on the corporate bottom line as our research at HCG strongly suggests, the message to organizational leadership is clear: learn about your own corporate culture (attitudes and guiding principles are often unexpressed and unrecognized); learn which cultural attitudes and behaviors are conducive to success and which are detrimental; and proactively guide your organization toward those profitable and expedient characteristics.

Regularly Assess and Adapt the Organizational Culture

Our research reveals a strong correlation between financial results and proactive culture management. Financially successful organizations do not simply let their organizational cultures drift and evolve haphazardly; they take an active hand in culture management. One key to achieving this is to put in place feedback mechanisms that allow management to maintain an up-to-date, objective view of the organization’s culture as it is.

The importance of this clarity of perception cannot be overestimated. In order to adapt the organization to changing business conditions and optimize its response to market needs, leadership must continually make adjustments in operating values, practices and attitudes. This in turn requires objective assessment of the organization’s culture, to understand what needs to change and to gauge its capacity to respond as well as its tendencies to resist. Unfortunately, HCG research shows that management in many organizations often has a distorted and idealized view of the culture it leads. As a result, their objectivity is reduced. Just as individuals with a critical lack of self-awareness often have trouble navigating the waters of life, these organizations rarely make the list of the most financially successful.

Conclusions   

If your role is to lead or manage an organization, this research contains some data of potentially great significance to you. Organizational success, HCG discovered, is based on acute awareness of the external environment and a dynamic and continuous management of initiatives – without becoming too reactive. As a leader, you must be in touch with your market so you can compete In other words, you have to figure out a way to stay tuned in to what is happening both within your organization and outside it. You need to know what is happening in your marketplace, with technology, with your customers and with your competitors, and all of that needs to be at the foreground of your awareness when you’re creating strategy and making choices.

This open, alert, flexible yet aggressive attitude leads naturally to the development of new ideas, rapid implementation of new products, and the quick discard of outmoded approaches. The challenge is to continually refine your products and services. The product that succeeds today will be outmoded tomorrow. You need to continually evolve a new vision of possibilities.

A leader must see things as they are. Reality is always the winner. Remember, change is inevitable and constant. Your job is to see, understand and respond to the changes in your world. The nature of life is to grow and expand. This means, leaders and their organizations must learn, grow and adapt. Don’t get too attached to old models of “how it is.” Your models frame your world. If they are out of date, too restrictive or distorted, you will lose. This doesn’t mean you don’t need a model. You do – to navigate and create order in a world that can appear chaotic and random. The key is to develop a vision but not get too attached to it. Your vision must adapt to a continuously changing, ever emerging “Now.”

The external world is increasingly complex. The challenge for leaders is to see what is fundamental and essential and to simplify. This requires deep and serious thought to understand the laws and principles that are operating in your business and in the broader world to which it is connected.


Copyright © 2003 by Hagberg Consulting Group. All Rights Reserved.

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