Top 5 Reasons Executives Need to Focus on Culture

Culture is the reengineering of this decade.  It is: 

1. The reason top talent stay with your company, or move on.
2. Your “internal brand” that helps deliver the ideal customer experience. 
3. The success formula that is hard for any competitor to copy.
4. The way to help people adapt more quickly and efficiently. 
5. The turbo-charger for growth and profit in any organization. 

Below are some compelling facts about the dynamic, global economy we live in, to help your leaders understand why culture is so much more important now, than ever before. 

No More Steady State: Adapting as Essential.

• As the world has flattened and become more transparent, there are new competitive forces requiring a greater rate of adaptation. Worker and customer expectations are colliding with the ability of an organization in any industry to meet complex demands and constant culture change.  
• The “spaces between change” are shorter and smaller: There is no more steady state.
• Running a profitable business is harder. Annual changes in the Fortune 500 list – and profitability – demonstrate how quickly you can become extinct if you don’t adapt.

In attempts to stay competitive, change programs and processes (cultural and other) have mushroomed in popularity.

But it’s not succeeding!

The Project Management Institute released a stunning analysis of this situation in their 2014 report “The High Cost of Low Performance.”

• Very few organizations (9 percent) rate themselves as excellent on successfully executing initiatives to deliver strategic results. Consequently, only 56 percent of strategic initiatives meet their original goals and business intent.
• This poor performance results in organizations losing $109 million for every $1 billion invested in projects and programs.
• High-performing organizations successfully complete 89 percent of their projects, while low performers complete only 36 percent successfully. This difference in success results in high-performing organizations wasting nearly 12 times less than low performers.

“75% of change efforts end in failure”

Mourier, Conquering Organizational Change, 2001

“58% of change initiatives failed to reach their goals”

McKinsey Survey, LaClair, J.A and R.P. Rao, 2002

“63% of TQ or change initiatives in the high tech industry failed to achieve anticipated improvements”

Schaffer R.H. and Thompson, H.A (1992) Successful change management begins with results, Harvard Business Review, January-February, 80-9 80

90% of TQM projects miss their target”

Crosby, P. (1989) Quality is free. New York, McGraw Hill

“Business Process Reengineering fails 50-70%”

Steward, T.A. (1993) Reengineering: the Hot New Managing Tool,
Fortune, 128, 4 pp 32-37

Failure to formalize and create the space for practice back in the workplace dooms most training programs to deliver returns that are at best 65 percent of their potential.

The Culture Connection

Organizations who are dealing with major change – typically focus on making those changes in strategy, systems, or structure. They complete underestimate the human element of change and the need to address cultural elements, to bring that into alignment with the new expectations and ways of working.

Further, CEO’s are protected by the CEO Armour Effect:

The desire of the people around the CEO, to affirm and validate his or her vision and point of view. Nobody wants to tell them “The culture here sucks.” (think: “Your baby’s ugly.”)

This can be depicted visually from:

What To Do?

The simplest truths about what works to produce successful change are often the hardest for senior executives to understand and hear.

The #1 rule of any successful culture change?

THE FINGERPRINTS RULE.

If you want people to own the change, you have to create a process in which they CREATE the change together.

This rule is ignored daily in almost every company, of every size, in every industry.

Culture is just a fancy word for “People are motivated when they create something together.”

What Happens When You Get it Right

This study from McKinsey provides clear examples of the business results when you put the Fingerprints Rule into action. (which they call  “inconvenient truths about change.)

• In retail banking, applying conventional change management approaches in a salesforce stimulation program achieved an 8 percent lift in profit per business banker and 7 percent per retail banker. While respectable, this was below management aspirations of achieving a 10 percent lift in both areas. When acting on “inconvenient truths” beyond conventional change management approaches, however, the program achieved a 19 percent lift in profit per business banker and 12 percent per retail banker, far exceeding management’s expectations.
• In the call centers of a large telecommunications company, the results of a customer churn reduction program applying conventional change management approaches resulted in 35 percent churn reduction, falling short of management’s aspiration of a 50 percent reduction. Acting on the inconvenient truths, however, delivered 65 percent churn reduction to the delight of management, employees and customers.
• An insurance back office which had implemented lean operations improvements found that performance six months after the “step change” was stagnant, not fulfilling the continuous improvement expectations of the program. Revamping the program to leverage inconvenient truths, the company has now posted more than two years of 5 percent improvement (above and beyond the step change) in cost, quality and service, exceeding the 3 percent continuous improvement target built into the budget.

Excerpt from “The Inconvenient Truth About Change Management, by Scott Keller and Carolyn Aiken, McKinsey & Company, August 2000.

Bottom Line

• Healthy cultures are more capable of withstanding economic pressure.
• Sick cultures are too busy in-fighting to set aside ego and do what’s required to continuously improve.
• The goal for CEO’s is not about changing the culture … more about building healthy habits in the culture that can navigate rapid adaptability and change.