Catalyzing organizational culture to enable transformative digital performance
Voluminous writings, conferences and Ted Talks play the culture drum but often miss its heartbeat.
What is organizational culture?
Organizational culture can be nuanced and difficult to discern. Small, agile companies can be traditionally rooted and highly conservative; large, hierarchical enterprises can display disruptive characteristics and embrace risk. An entity in a deep-rooted industry such as watchmaking may operate in a manner at odds with traditions, while an ambitious, 10x-driven tech start-up could embed conventional principles of rigour and discipline.
A distillation is that an organizational culture describes its character, blueprinted in its origins and heritage, forged or refined through an entity-wide value system, and evidenced in all aspects of operations – even in minor, everyday behaviors such as the use of customary language or display of symbols.
Renowned economics writer and business strategist Peter Drucker observed that “culture eats strategy for breakfast”. His point was that corporate strategy is plotting and planning, but the speed and efficacy of implementation hinges upon what employees actually do, which is a function of the organization’s culture. Or, as Daniel Coyle puts it in The Culture Code: The Secrets of Highly Successful Groups, “culture is a set of living relationships working towards a shared goal…it’s not something you are, it’s something you do.”
The essence of a company, what it does, is an integral part of its culture
The Virgin group of companies incorporates some of the world’s leading brands in the financial services, travel and transport, mobile communications, music and fitness sectors. From its 1970s origins, founder Richard Branson has epitomized the culture of alternative, entrepreneurial flair and mercurial vitality, running the holding company from a barge and spreading smiles as the PR mirror of the company’s cheeky, lateral thinking ethos.
Culture, then, can be integral to a brand. But it can also be a pure way-of-working, exemplified by family-owned Japanese medical technology company Kono Seisakusho Co. which, a decade ago, revolutionized the possibilities of surgery by producing the world’s first infinitesimal surgical needles and threads, enabling ground-breaking techniques in tissue, blood vessel and organ operations. Kono Seisakusho Co. is still a small company of around 50 employees – but it is recognized as a medical technology industry leader, willing to embrace any challenge to improve the application of their products. “We don’t want to say ‘no’ to our clients,” says company President Junichi Kono. “We want to examine how we can respond to their demands.”
Brought into sharp relief by COVID-19 is the issue of remote work. As a company culture touchpoint, it illustrates how these differ, and why cultural change may not only be difficult, but also inappropriate. AB InBev, the world’s leading beer conglomerate, insists on a driven work ethic which embraces pressure, with passion conveyed through co-located teamwork and high-frequency visits to retail and on-consumption outlets. Apart from the drastic loss of sales due to the forced shutdown of hospitality industry segments, AB InBev’s leadership has acknowledged the negative business impact of remote work, given its incongruity with the organizational culture.
What all companies should be doing now is digitising
Digital maturity is a vital quest for any manufacturing company – in the near future, if not today. The transformation to a digital operating system, or DOS, will accelerate imminently. It relies upon strong foundations, one pillar of which is the organizational culture. Properly attuned, it should be primed for change but simultaneously geared for continuity; tracking along the path towards digital maturity but aware that the journey requires adherence to established principles and the phasing of integrative improvement; a culture which embraces the concept of digital-first but understands the ongoing relevance of Lean operations.
Download the white paper Digital operating systems: The next-generation of production systems for the building blocks of a successful transition to DOS.
Culture is important for other reasons too
- Manufacturing faces a global talent and jobs crunch. International organizational consultants Korn Ferry estimate a workforce deficit of over 8 million by 2030, resulting in forfeited sector revenues exceeding $600 billion. A manufacturing company’s culture will be increasingly relevant as a lever to recruit and retain talent.
- Profits with principles is no longer simply a mantra. Companies must deliver value across multiple measures, and for a range of stakeholders including local communities located near operations. The ethics, values and identity of an enterprise thread within its culture, and should be nurtured as part of ensuring broader societal relevance.
- High performance delivery requires a high performance culture. Ultimately, whether before a transition, or smoothing it, or post-transition, a culture of high performance is the objective.
Will a culture overhaul be worth it?
The answer is most certainly ‘yes’. Culture is crucial. The COVID-19 pandemic which broke in late-2019 – and which the IMF estimates will cost the global economy $9 trillion in lost economic output during 2020-2021 – has demonstrated the reality of Black Swan shocks. Companies whose resilient culture rapidly installed coping mechanisms – control towers, nerve centers, immediate communications technology upgrades – are now posed to capitalize on opportunities beyond the crisis.
Multiple studies, over decades, link solid company culture to improved performance measures or comparatively better delivery against industry averages. But the clearest current evidence that culture is now at the forefront of corporate performance is the demand by leading finance and investor groups for more non-financial information and insights into culture as part of corporate reporting.
The right culture is difficult to define
Company culture is largely about people. This means that the gamut of human traits, attributes, drivers, flaws and emotions are tossed into the melting pot of organizational culture.
It also means that the ‘optimal’ culture is hard to define. Hundreds of pithy quotes from eminent corporate leaders, in trying to pin down their views in a few phrases, are often contradictory. In their book Why Should Anyone be Led by You? (Harvard Business School Publishing, 2006), former BBC HR Director Gareth Jones and London Business School organizational behavior Professor Rob Goffee note that a company’s culture isn’t necessarily good or poor, but simply different.
However, it is increasingly clear that a digital-first culture also implies ‘people first’. Talent must be nurtured through broad knowledge- building and -sharing, and the cultivation of a curious culture. This underpins a wider upskilling of the workforce which will augment increased digital resources and capability.
A successful digital future is a high-performance culture
The characteristics of an optimized, digitally mature operation are the same attributes leaders should seek to inculcate within company culture. Consider these 10 focus areas to reshape a performance-geared organizational culture to support your digital factory:
|1. Mission||Just as digital re-gears capability, culture should motivate employees around a clear corporate purpose and associated values and drive increased digital capability building within the organization.|
|2. Teamwork and trust||Digital is powerful because it connects and expands the value network. Similarly, a supportive, collaborative culture improves employee engagement, and enables problem-solving and facilitates innovation.|
|3. Communication||Consistent and transparent communication – including the willingness to listen and absorb feedback – is the crux of culture.|
|4. Autonomy||A degree of decision-making independence, allied to accountability, creates an adaptive, responsive culture.|
|5. Data-driven performance measurement||Digital systems allow real-time monitoring of rich data and end-to-end visibility. A culture of goal orientation and KPI achievement aligns people, systems and practices towards the orchestration of value.|
|6. Customer centricity||Avoid taking quick comfort from only the latest indicators from key customers. Dig deeper: assess smaller clients, look at three- or five-year trends. (Volatility is a sign of uneven servicing.)|
|7. Agility and learning||In the current climate, agility and a focus on continuous learning helps employees respond quickly and effectively to any disruption to ensure survival and growth.|
|8. End-to-end thinking||Moving from function-centered to end-to-end thinking optimizes the entire value stream, creating a win-win-win for providers, suppliers and consumers.|
|9. Remote working||With the rise of remote working, employees need regular contact with their managers and colleagues to be productive, stay connected to the company’s vision, and feel their opinions matter.|
|10. Leader Standard Work||Culture starts at the top. Is leadership and senior management practicing what it should be preaching? It may be illuminating to confirm the regularity of Gemba walks.|
Change management may be required
Change is stressful – for leadership keen to get it right, management concerned with operational stability, and for employees who need to balance day-to-day responsibilities with questions about their roles and concerns for their ongoing employment. Issues in leading and managing change are routinely identified as some of the most challenging and complex – no less so in a manufacturing company.
That’s the context. Changing a company’s culture – its fabric and bindings, its style and character – is extraordinarily difficult. Jones and Goffee in their book Why Should Anyone be Led by You? (Harvard Business School Publishing, 2006) describe it as fraught: “Our research suggests…[t]o describe the process as tricky does not do it justice. It is perhaps one of the most complex and risk-laden changes a manager can face.”
However, without an appropriate culture in place, transitions – including, but not limited to, digitization – present pitfalls. The transformation’s pace may be retarded, equating to an opportunity cost of delayed improvements. Core operations may be disrupted, effecting the value chain from production through to customer satisfaction. Possible employee disaffection – a downward spiral whereby an unsuitable culture turns wholly negative – will have severe business consequences.
An anthropological view of employee engagement
Even before the social disconnect and unemployment caused by COVID-19, the world of work had been changing, irrevocably. Almost universally, employee engagement levels have been tracking negatively. “Since employee engagement is highly related to many performance outcomes – even more so in tough times – this unprecedented drop in the percentage of engaged workers has significant potential performance consequences,” comments Gallup in their recent commentary on findings that US employee engagement levels had fallen to 31%, the steepest decline in 20 years.
Our anthropological drivers include curiosity, a natural and harmonious mixing of work and leisure, creativity around a sense of purpose, sociability, mobility, and a degree of autonomy. The Industrial Age suppressed these; in the Digital Age, as futurist and author Ade McCormack notes, companies have come to realize that allowing employees to work in a natural ‘human’ way is likely to liberate their cognitive capabilities – a route to both better performance and a more engaged talent base. “Visit any Google campus and you will witness people expressing their anthropological drivers in full. In this sense, Google’s offices are cognitive gymnasia,” writes McCormack.
A sad, salutary lesson
The demise of Nokia illustrates the need for a holistically sound corporate culture. In the 15 years from 1998 to 2013, the IT and mobile telephony manufacturer and assembler went from industry leader with profits of $4 billion, to acquisition by Microsoft after the company valuation had plummeted 90%. The reasons are multiple, but academics and researchers point to an “organizational fear”: a status-orientated rigidity which stifled information-sharing and decision-making, and hampered innovation and motivation. When combined with a sense of hubris as to the company’s existing technologies and products, Nokia’s leadership made fatal decisions involving investment and technology planning priorities, failing to understand the real competitive environment and consumer landscape. It’s also noteworthy that the organizational fear existed in a direct contradiction of Nokia’s supposed core values of “Respect, Challenge, Achievement, Renewal”, affirming Peter Drucker’s point that culture is about actions and reality, not about strategies and ambitions.
Microsoft, having acquired Nokia in 2013, also learned from Nokia’s mistakes. In 2014, new CEO Satya Nadella moved quickly to change Microsoft’s culture. He prioritized employee engagement and empowerment, emphasized a learning culture, and insisted on a management philosophy of listening and eliciting feedback.
Ensure culture is primed for a journey
Consider that change – although often dramatic and rapid in appearance – is rarely an instantaneous switch, or triggered by one magical thing. Instead, inevitably, it is a gradual process. In other words, deep change needs solid foundations and requires hard work and patience. And due to the rapid pace of technological change and adoption, the culture journey becomes a continuous loop of re-evaluation and adaptation.
But transformation goes deeper than change. Change can be managed; transformation must be led. Digital is a discovery, not a destination. It adopts the idea of a brave new paradigm, of possibilities beyond the current.
The coordinated capabilities of teams, processes and technology, which digitized factories and operations optimize, opens enormous scalable opportunities. But a transformation can occur only with the appropriate, attuned organizational culture.
“For individuals, character is destiny. For organisations, culture is destiny.”
Tony Hsieh, internet entrepreneur, venture capitalist and CEO of online retailer Zappos
Download the how-to guide Managing change across the organization to find out more about successfully managing and anchoring change throughout your organization.
Future of Work: The Global Talent Crunch’, Korn Ferry, 2018, p22
‘What it takes to execute large-scale and lasting transformations’, Deloitte Consulting LLP, 2020
‘Now. Next. Beyond. If you don’t plan in three dimensions, will you be left behind?’, EY, 15 May 2019
‘EY survey finds culture and trust have become critical priorities that will shape future corporate reports’, EY, 5 December 2019
‘Historic Drop in Employee Engagement Follows Record Rise’, Gallup, 2 July 2020
‘Production Systems 2025: Rewriting the Working Systems for Industry 4.0’, SCM World/Gartner, 2019
‘Six Components of a Great Corporate Culture’, Harvard Business Review, 6 May 2013
‘Corporate Culture’, Evan Tarver, Investopedia, 12 July 2020
‘Leading Change – a new perspective’, Simon Marshall, WhyNot Partnering, 19 November 2019
‘8 steps to creating a super-resilient organization’, Ade McCormack, undated
‘Why did Nokia fail and what can you learn from it?’, Brand Minds, Multiplier Magazine, 24 July 2018
‘Rethinking Performance Management for Post-Pandemic Success,’ MIT-Sloan Management Review, 1 June 2020
‘Spark and sustain growth by focusing on company culture’, Strategy+Business, 21 April 2020
SCM World/Gartner survey 2019: ‘Leading and managing changes’ ranks 2nd as a constraint in integrating manufacturing with supply chain. (‘Production Systems 2025: Rewriting the Working Systems for Industry 4.0’, SCM World/Gartner, 2019, p16)