The era of engagement is passing, and the era of culture is here. Company culture is not a new concept. It was, in truth, the root cause of the financial crisis.
Yet never before has it been at the forefront of our working lives. The pandemic accelerated a shift that was already well under way: a shift towards the humanisation of work.
In today’s hybrid working world, expectations of work and life are higher than ever before. People are seeking not just money, but meaning; and forward-thinking leaders need to drive both purpose and performance in a landscape of rising complexity and competition.
This paper sets out four fundamental areas that organisations need to get right if they are to leverage company culture for commercial advantage, talent management and business growth. No other dimension of business has greater power to influence change and results than company culture. When culture is well organised, effectively measured, and correctly linked to business strategy, execution is unstoppable.
Join us on a whirlwind tour of these four key areas, as we discuss the challenges and solutions you’ll face as you tackle each one, brought to life with case studies. In each case, we’ll provide you with guidance and tips for taking your first or next steps towards leveraging company culture as an engine for growth.
But first things first: what exactly does ‘culture’ really mean?
What is company culture?
Culture is about how people things get done. It’s about how people interact. Culture presents as shared practices and beliefs, as well as collective behaviours. Those collective organisational behaviours are influenced and reinforced by external factors: by the working environment, leadership behaviours, systems and processes, policies and structures. These all need attention in order for transformation to happen.
“At the heart of culture are human behaviours, and these behaviours are influenced and reinforced by systems, processes and leadership actions.”Charlie Coode, Founder, Culture15 and Coode Associates
With so many other areas of business that need attention, why should leaders focus on company culture?
Why is it important for organisations to understand what company culture is?
The case for culture is clear.
“A healthy culture both protects and generates value. It is therefore important to have a continuous focus on culture, rather than wait for a crisis.”Sir Winfried Bischoff, Chairman, Financial Reporting Council
Toxic, dysfunctional cultures have been the downfall of many a large organisation. Issues with culture often lie at the heart of high-profile disasters, not least the collapse of Enron and the BP Deepwater Horizon disaster.
Organisational cultures that are too ‘nice’ can also lead to failure.
Tamara Littleton, founder of The Social Element, admits that the cordial culture she purposely created led to people agreeing to bad decisions because they didn’t want to ‘ruin things for everybody else’. In a BBC interview, she said:
“You can’t be too nice. You have to allow for people to challenge you. I decided that we really needed to focus on healthy conflict, where people are allowed to challenge each other in order to move forward in the best way for the company.”
Identifying that something is wrong with your culture or needs changing, and knowing how to do anything about it, are two very different things.
Historically seen as the soft, immeasurable part of an organisation, culture has often been handed over to HR, viewed as something to be managed ‘on the side’, and left untouched by executive leadership teams. In today’s world, organisations can replicate strategy and access capital relatively easily – it’s talent and culture that stands out as the real source of competitive advantage; and now is the time to harness the power of these elements.
Culture is not an end in itself: human behaviours and culture are the foundational enablers for strategy delivery. To ensure that culture accelerates execution, rather than acting as a brake, it must be actively managed as a central part of the strategic narrative. To do this, organisations need to understand their ‘Culture Gap’ – that is, the differential between the culture needed for optimum organisational performance and strategy execution, and the culture that exists currently. Closing this ‘culture gap’ should be approached in the same way as any other major transformation: with rigour, structure, governance and metrics.
You must define the culture you need and diagnose the culture you have. Only then can you track progress towards closing the culture gap, in order to leverage company culture for accelerated and sustainable organisational performance.
Step 1: Define the culture you want and need
There is no universal ‘good’ culture that every organisation should seek to create. The ‘right’ culture for an organisation is dependent upon the organisation’s strategy, context, market objectives and priorities. For example customer experience, operational excellence and cost efficiency may be the anchors of a supermarket chain’s strategy, whereas for an emerging biotech company, innovation, diversification and collaboration are likely to be at the forefront. Everyday behaviours that are required for success will be different across these companies with differing strategies. So it’s first important to define what culture – which behaviours – are needed for strategic success. If there is a culture of consensus and slow decision-making, or poor reaction to failure, will people be hesitant to propose innovative ideas and take risks, even if innovation is identified as a key strategic priority?
Step 2: Diagnose the culture you currently have
It doesn’t necessarily follow that the culture that is needed for strategic success and business performance is the one that actually exists. Culture develops organically and automatically as soon as any group of people come together and form a collective (and this is what all organisations are).
Organically developed cultures are perfectly suited to reproducing their current outcomes over and over again, regardless of whether those are the outcomes that are wanted or needed. It’s clearly better to intentionally design the culture you need, rather than develop a culture by default, but first you need to find your starting point for that intentional design. To do that you must measure – or ‘diagnose’ – the culture you have. How are people collectively behaving day-to-day, even when no-one is looking?
Step 3: Track your progress towards closing the ‘culture gap’
Once you’ve defined the culture that you need and diagnosed the culture that you have, you can see if a ‘culture gap’ exists between the two. Closing the gap can’t be achieved with one-off, episodic interventions. Culture is dynamic, so the approach to managing culture also has to be dynamic; and it needs continuous and sustained attention. You need to track it, in order to monitor the cultural direction of travel.
To leverage culture as a powerful engine of growth, you need to know how to transform your culture in the right way (the action), where specifically to focus your interventions; and you need to be able to measure the impact of the action taken to bring about the transformation.
Four focus areas
Key things to get right if you want to leverage company culture for commercial advantage
In an era of rapid change to the way many of us work, it’s critical to focus on culture, and to take action to evolve from simply measuring employee engagement to leveraging company culture for commercial advantage. But how?
- Elevate culture to the Executive Leadership’s agenda. Now is the time for HR leaders to take their seat at the table as key strategic partners in the business, driving value creation through culture
- Define the difference between culture and engagement and put the management and measurement structures in place to focus on it as a discrete area
- Recognise and leverage the powerful enabling link between culture and strategy
- Measure and quantify company culture to ensure it is an effective enabler of strategy execution, rather than acting as a brake (or not being fully harnessed as a powerful tool for driving results).
Employees celebrate or criticise culture regularly. When things are going well, staff love to talk about how great the culture is; leaders talk about culture in team meetings and company events – usually off the back of a restructuring initiative or quarterly employee engagement survey. As leaders today we’re all reading more and more about the importance of culture in business press, but in the words of Elvis Presley – a little less conversation, a little more action please.
How can organisations, of any size or complexity, focus their efforts away from engagement surveys that are filed in a drawer and circular conversations about abstract questions like ‘how can we make people happier?’, towards creating a culture in which people feel motivated and engaged, but that also drives sustainable commercial success? How can you create an objective basis for the belief that you have a ‘good’ or a ‘toxic’ culture, for example? What data and information supports that belief?
Organisations need to focus on the following four things if they are to build and sustain the right culture for organisational performance.
Area 1: Elevate culture to the Executive Leadership’s agenda
The remit of HR and People teams has developed at pace over the last five years, from recruitment and administration of personnel, to talent strategies aligned with business objectives, and managing change.
In many large organisations, employee engagement has been the remit solely of the HR department, and as people continue to conflate the terms ‘engagement’ and ‘culture’, culture has been linked to the HR agenda without due consideration.
It is critical to give culture the leadership focus it deserves, by transferring the culture agenda to the Executive team. That way culture and business performance become inextricably linked.
“All organisations are human enterprises. Without people there is no success or failure, there is simply no organisation there at all.”Louise Myson, Consultant, Culture15
Without people, there are no businesses. If an HR function is overburdened with transactional work, it is missing a crucial opportunity to create value for the enterprise. Moving away from a ‘cost centre’ mentality around people in business, to a ‘profit centre’ mentality – where people and their collective behaviours are recognised as the main driver of business success – enables HR leaders to take their rightful place at the table, as a key strategic partner for the business, driving value creation through culture. Such ‘people-first’ organisations look at challenges from the perspective of how people create value, and HR is well-positioned to bring data-driven insights on culture to bear on strategic decisions made at board level.
Put this at the heart of every discussion, and boards and leaders are forced to view business strategy, objectives and measurement, and culture, as inseparable elements for sustainable success. But this is where the challenge lies.
There is appetite for this change, but also a feeling of not knowing where to start – leading to inertia, mistaking activity for progress, or culture-washing. Culture-washing is prevalent in corporate entities, where company purpose, mission and values can often live on office walls, websites or stationery, but are not reflected in how employees behave. This has the power to long-term success.
“When an organisation says it has a certain culture and values, but the actual employee experience – the behaviours witnessed and structures in place – do not reflect these espoused values, then trust quickly evaporates and talent retention is at risk.”Ellen Madsen, Consultant, Culture15
The key to measuring culture across an entire organisation, and understanding the changes you need to make, is getting a 360° perspective. It’s strikingly common to see a chasm between the perceptions of senior leaders and those from people at other levels of the organisation. By elevating culture to the executive leadership team, it can be brought into the boardroom, allowing leaders to understand what impact their behaviours are having on how people experience the culture across the organisation, and what behaviours they need to model to build the right culture for organisational success.
“People will watch leaders’ feet, not just their lips, so for successful culture and business performance, change initiatives must be led from the very top.”Claire Holmes, Engagement Lead, Culture15
Area 2: Understand the difference between culture and engagement, so you can move beyond engagement
The terms ‘engagement’ and ‘culture’ are frequently mixed up, resulting in organisations believing they are addressing cultural issues or measuring culture with employee engagement surveys.
This may seem harmless enough, with many businesses believing they are doing a good job if they’re ticking the box of regular employee engagement surveys. And yes – employee feedback is critical to business success and high engagement is clearly a good thing – but it doesn’t necessarily follow that how people feel reflects the optimum conditions for successful strategy execution, performance and growth.
Engagement levels can be high, while key business performance indicators are lagging. To make this connection, organisations need to look at culture – how people are collectively behaving, not just how they are feeling. It’s about taking a holistic view of the employee experience.
Asking employees what they want, as all engagement surveys essentially do, is a fundamentally flawed approach. Responses will be subjective and based on how things are – and how an employee feels – at the particular moment they’re completing the survey.
“To properly match behaviours with the needs of the organisation, cultures need to be focused on what the strategy requires of them, which is often forward-focused, representing a change to the status quo.”Charlie Coode, Founder, Culture15
It is important that leaders continue to care about sentiment/engagement at the same time as focusing on strategy, but culture needs to be surfaced and proactively addressed. If the required culture for strategic success is defined, measured, and described as collective behaviours, then these behaviours can be explicitly communicated and reinforced. They can be woven into all systems and processes across the entire employee lifecycle. If this is achieved, the desired behaviours will become the collective norm, and people will feel congruence between their ways of working and the organisation’s purpose and strategy, which in turn increases engagement levels.
Successfully measuring and tracking culture means moving from measuring individual sentiment and engagement, to describing collective behaviours and how work gets done. It means moving from measuring engagement in an absolute way, to comparing an organisation’s current culture with its target culture, making industry benchmarks on things like employee engagement rates much less relevant.
In other words, do pay attention to engagement, but don’t stop there and limit your business potential by solely focusing on engagement:
- It’s only one indicator of organisational health, and you need multiple lenses of input to fully diagnose issues that need attention.
- Factors that influence engagement tend to point to areas that fall within the HR domain, such as learning opportunities and reward systems. If you focus on measuring culture more broadly you can then tailor engagement surveys to gather feedback on motivation and energy relating to factors that will shape organisational identity and growth.
- Engagement scores will eventually hit a ceiling – if you’ve been identifying opportunities to increase engagement for years and taking appropriate action, you will gradually raise engagement levels to a finite peak, but other key business indicators can still be lagging. Instead, the long-term power lies in focusing more broadly on culture and actions associated with increasing business growth. Prioritising engagement over culture can stunt the changes that are needed for growth and success.
Area 3: Recognise and leverage the powerful enabling link between culture and strategy
Culture is the key enabler for strategy execution. And conversely, culture can be the blocker for strategy execution. More than any other factor – leadership alignment, operating sponsorship, implementation capability, skills and resources – it is culture that drives strategy execution and therefore business performance and commercial gain. So, it’s critical to identify the culture you need for the strategy you are trying to execute, and explicitly link the two.
“Culture is a crucial issue which is inseparable and inextricable from strategy. It is critical to execution of strategy – and is all about how we are going to go about this.”António Horta-Osório, Chief Executive, Lloyds Banking Group
It’s important to understand, here, that there is no ‘right’ or ‘good’ culture that all organisations should be striving to achieve. Toxic cultures may lead to short- or medium-term success, but for optimum, long-term organisational success and growth, defining the culture you need is the fundamental first step.
Area 4: Measure and quantify company culture
Culture must be quantified to ensure it is an effective enabler for strategy execution, rather than acting as a brake.
How do we know if our culture efforts are paying off?
Boards and regulators are increasingly asking for proof of success when it comes to how organisations and their leaders are proactively and measurably supporting employee mental health and wellbeing. This laser focus from boards and regulators is highlighting what we already know deep down – that there is an undeniable link between employee wellbeing, engagement, and individual and collective behaviours, and overall organisational performance.
Culture is about people and behaviours, rather than rules and codes of conduct. Alignment and consistency of behaviours and communication is critical to a successful culture. Yes, having values and expected behaviours set out is important, but the actual behaviours demonstrated day-to-day is what really counts when it comes to developing a great culture, and cultural transformation.
In forward-looking organisations, substantial investments have been made in establishing culture programmes that communicate and promote cultural values. The LEGO Group is often cited as an example of a brand with a great company culture, but how, or indeed if, they measure the impact of their culture on business performance is never discussed.
How do you measure the success (or otherwise) of these costly investments in culture transformation?
Measuring progress in terms of activity (i.e. how many staff surveys you conduct each year, and what your engagement rate is) is no longer enough. If you’re focused on harnessing culture for long-term business success, it needs to be measured objectively and empirically, and the insights from that measurement need to be acted upon. And then you need to measure whether those actions have had any impact.
The UK Corporate Governance Code states that: ‘the board should assess and monitor culture. Where it is not satisfied that policy, practices or behaviour throughout the business are aligned with the company’s purpose, values and strategy, it should seek assurance that management has taken corrective action. The annual report should explain the board’s activities and any action taken’.
“The strategy to achieve a company’s purpose should reflect the values and culture of the company and should not be developed in isolation. Boards should oversee both.”Sir Winfried Bischoff, Chairman, Financial Reporting Council
“How can we measure culture?” has therefore become a critical question on leaders’ lips. Regulators across sectors as wide-ranging as financial services, government and charities are insisting on tangible metrics for culture as a whole, and specifically for sub-sections of culture such as diversity and inclusion (D&I). Organisational collapses and scandals have convinced regulators that they need to be active and insistent upon boards directly managing and measuring culture.
A report from the Financial Reporting Council on corporate culture and the role of boards highlights the fact that ‘cultural failures damage reputation and have a substantial impact on shareholder value’. It goes on to say that ‘intangible assets such as intellectual property and brand now account for over 80% of total corporate value, compared to under 20% 40 years ago’[i]. It concludes that boards must find ways to understand and influence the factors that affect culture.
The key here is for leaders to recognise the importance of monitoring the cultural trajectory. It’s not a case of taking some action, measuring the impact of that action and closing the case. Culture is dynamic, and for success, culture measurement and management needs to be dynamic too. Benchmarks and regular revisiting of those benchmarks is needed. Focus on:
- Measuring company culture in an actionable and useful way, and be held accountable for it. In the same way as you would be expected to measure the effectiveness of how you spent investment, for example, and be held accountable for that.
- Defining your target culture, i.e. define the goal
- Diagnosing your current culture, i.e get a benchmark of how far away from the goal you currently are
- Tracking progress towards your goal, by revisiting your culture diagnosis to see if behaviours on the ground have changed in an observable way.
- Measuring culture as collective behaviours that are aligned with successful strategy execution.
In conclusion, company culture is not simply about wellbeing or employee engagement – although these are important elements – culture is much bigger, more complex, and more influential than these elements in isolation.
“Organisational culture is created in each moment, every second of the day, by every human action and interaction.”Claire Holmes, Engagement Lead, Culture15
To measure culture and really effect change in organisational performance – commercial performance, and talent attraction and retention – organisations must drill down to observable, practical, and most significantly, collective behaviours. An individual alone does not have a culture, but a group of people does.
Measurement of collective behaviours can be done alongside analysis of the data around the consequences of collective behaviours, such as whistleblower numbers and staff turnover rates, for example. This takes tools, guidance, processes and dedication that leadership teams and boards are well-versed in applying to business strategy every day.
The majority of organisations have not found a way to effectively apply their leadership and strategic skills and processes to defining, diagnosing and tracking culture in a strategically aligned, sustainable way.
But evidence suggests they want to.
In a Coode Associates survey of CEOs in the Leading Minds Network, 61% said that culture was a central factor in business success, yet only 16% specifically measure culture. And 81% see culture as mindsets and behaviours, and yet only 25% have described their culture in those terms, with the remainder describing them in ‘values’, verbally only, or not at all.
Culture needs to be measured:
- As collective behaviours, not sentiment or individual opinion
- In practical and observable (and therefore actionable) terms, not abstract or conceptual
- In a way that is directly linked to the core functioning and strategy of the organisation
- In a way that goes beyond the measure of engagement levels – whilst engagement undoubtedly affects individual performance, it is collective behaviours, culture, that affects organisational performance.
The new world of work demands higher performance than ever before; and the only way for successful leaders to incite unified action is by showing a clear path towards a better future.
Culture analytics light this path, by measuring the gap that lies between where you are now and where you need to be in order to deliver your strategy.
By focusing on the four areas detailed in this paper, organisations can start to leverage company culture for competitive advantage, talent management and business growth.
Speak to a Culture15 culture specialist, who will listen to your unique challenges and goals, and who can guide you on the journey of defining the culture you need, diagnosing the culture you have, and tracking your progress towards closing the culture gap and how to leverage culture for commercial gain, talent management and business growth.