"One thing is guaranteed: A culture will form in an organization, a department, and a work group. The question is whether the culture that forms is one that helps or hinders the organization's ability to execute its strategic objectives. Organizational culture is too important to leave to chance; organizations must use their culture to fully execute their strategy and inspire innovation. It is a leader's primary role to develop and maintain an effective culture."
-- Chatman and Cha*
"Why should we focus in leadership and culture?" "What's the ROI?" "How do we know that this is a worthwhile investment?"
Every client I've had in the last 25 years has asked me questions like these. Here is my answer.
Why Do CEO's Fail?
CEO's fail because they are unable to execute their strategy (Fortune 1999, "Why CEO's Fail" by Charan and Colvin). Rather than brilliant design what matters most is strategy execution.
An effective culture is the key to strategy execution, and conscious leadership is the key to an effective culture. Thus organizations succeed when their leaders consciously develop an effective culture, and fail when they don't.
This is not only valid for CEO's and their organizations. The same argument works for any leader and her team: small units, departments, functions, regional offices, lines of business, etc. Any group with goals needs to focus on execution to succeed. So whether you are a CEO, a functional leader, or the manager of a small team, leadership and culture should be high on your priorities.
What Is Culture?
Culture is the system of shared beliefs (what is true), shared values (what is important) and shared norms (what is right) that orient members about the way things get done in their organization, what expectations they need to fulfill to fit in, and what they can expect -and demand-- from others.
Like a magnetic field that invisibly aligns iron shaving into intricate patterns, culture can align human thought and behavior into productive patterns. The energy of this cultural field comes from our deepest needs and aspirations: to survive, to belong, to achieve, to grow and to find meaning in our lives. We can only satisfy these needs in a community, and there's no community without culture.
What Makes A Culture Effective?
There are five conditions for an effective culture:
1. An effective culture is strategic. It supports strategy execution creating a context in which people are encouraged and empowered to do their very best to achieve the strategic objectives. It responds to the question: How do people need to think, feel and act in order to execute the strategy?
For example, our sales strategy at LinkedIn requires the collaboration and coordination of different lines of business. That's why one of our cultural tenets is that, "sales is a team sport." If our strategy were delivering a single product, we might place more emphasis on the individual's focus and accountability.
2. An effective culture is integrative. It aligns members' efforts without the costs and inefficiencies of bureaucracy or close supervision. To do so, it has high agreement about what's valued and high intensity about these values.
One organizational block to strategy execution is a culture of high intensity but low agreement. For example, product teams at LinkedIn tend to focus on customer-facing features while engineering teams tend to focus on elegant designs. Without the integrative force of a culture that demands that each one of us "think like an owner" we could degenerate into "warring factions." This doesn't always dissolve conflict, as even owners might disagree on the best course of action. But when we address these differences of opinion we expect everybody to be "open, honest and constructive."
Another block to execution is high agreement but low intensity. In these "vacuous" companies people agree on what's important but they don't much care and thus, are unwilling to go the extra mile. To prevent this, one of the LinkedIn cultural norms is to "demand excellence" from one another.
3. An effective culture is cohesive. It provides members with a sense of belonging and community. It establishes a boundary between "anyone" and "one of us" and unifies each one of the individual "I's" within that boundary into a collective "We." It does so by norming how each one of us individually, and all of us collectively think, feel, and act.
At LinkedIn, for example, we hold the belief that "relationships matter" and expect our colleagues to treat one another with kindness and respect. We also expect people in authority to "manage compassionately."
4. An effective culture is innovative. It supports risk-taking and change. Innovation is internally driven, concerned with value creation through new products and processes Extensive research has determined that innovation is one of the only two universally effective cultural norms.
An innovative culture encourages learning behaviors such as asking questions, seeking feedback, experimenting, reflecting on results and openly discussing errors or unexpected outcomes. It creates a safe environment that promotes creativity.
An innovative culture discourages aggressive-defensive attitudes such as perfectionism, criticism and authoritarianism. For example, at LinkedIn we ask people to "criticize by proposing" (an alternative solution), and to "make the other right" (e.g., recognize the kernel of truth in her argument) "before you make her wrong" (e.g., point out where you think she's mistaken).
An innovative culture also discourages passive-defensive attitudes such as conformism, conventionalism and traditionalism. At LinkedIn, for example, we encourage each other to "take intelligent risks" and "celebrate (and learn) from intelligent failures."
5. An effective culture is adaptive. It promotes flexibility and experimentation. Adaptation is externally driven, concerned with how to respond to environmental challenges such as market conditions and exogenous change. Adaptation is the other universally effective cultural norm.
An adaptive culture is an antidote to groupthink. Organizations that have high agreement and high intensity of values can become overly conservative and rigid. This can prevent them from adapting to environmental changes. So, a strong culture with a high level of consensus but without a high level of adaptability can be a mixed blessing.
An adaptive culture also encourages learning behaviors and discourages defensive ones. For example, at LinkedIn it would be suicidal to argue that, "We've always done it this way."
How Does An Effective Culture Support Execution?
An effective culture supports execution in three ways:
1. It uplifts employees' spirits, appealing to their sense of purpose and values. It quenches their thirst for meaning, eliciting their internal commitment to pursue a noble goal. This unleashes tremendous energy towards the accomplishment of the organizational goal. For example, at LinkedIn we are proud to "Create economic opportunity for every member of the global workforce."
2. It shapes employees' behavior, defining how they ought to respond to unique circumstances. It guides their actions without constraining their autonomy--as formal rules or micromanagement practices do. For example, at LinkedIn we hold that "members come first", that "relationships matter," that we must "manage compassionately" while "demanding excellence," and that our difference must be resolved in "open, honest and constructive" ways.
3. It aligns employees' efforts, orienting them towards a shared goal. It resolves resource allocation tradeoffs in the light of the organizational mission. For example, at LinkedIn we negotiate conflicts assessing which decision will best allow us to "Connect the world's professionals to make them more productive and successful."
As I claimed in the post 2.3 (Hang Together or Hang Separately), leadership and culture are the only way to address the most difficult problem of any organization:
In order to optimize the (organizational) system each member must be willing to sub-optimize her sub-system. But in order to incentivize each team member to contribute her best she must be evaluated and compensated based on the performance of her sub-system. So members will optimize their sub-systems and sub-optimize the system.
It is impossible to make every team member better off when she contributes to the organization's mission than when she maximizes her own performance metrics. Therefore, self-interested agents with private information cannot be managed to give their best to the organization.
However, self-interested agents with private information can be led to give their best to the team. Leadership is, precisely, the process of eliciting the internal commitment of each member of the team to pursue the team's mission to the best of their abilities, and to demand that each other member of the team does the same, creating a cultural norm that guides every agent's behavior.
What Is Culture Made Of?
Culture is made of norms. Norms are shared standards derived from an organization's values. Norms help group members interpret and evaluate reality and set expectations about appropriate behaviors. Norms represent expressions of an organization's core beliefs, such as how to prioritize objectives and treat one another.
Norms influence how organizational members see themselves, one another, the organization and the world. They define how they approach decisions, and solve problems. For example, Linkedin's norm about "putting members first" demands that we consider the impact that any decision will have on our members, and choose the one that maximizes their well-being.
Norms are powerful. They ensure conformity not by formal sanctions as rules do, but by praising compliant behaviors and censuring deviant ones. Research shows that norms shape employees' behavior more powerfully than financial rewards. This is so because we are social animals who want to fit in. We care about other's expectations. We are willing to adjust our behavior to assimilate, knowing that we risk ostracism if we don't.
The power of norms to guide behavior, however, does not come at the expense of flexibility. Norms, rather than inflexible rules, are key to exceptional performance. Excellence means going beyond the call of duty to address a specific challenge. Rules are useful for addressing standard circumstances in standard ways, but they can't deal with unique situations that are impossible to anticipate. Yet it is the way members deal with these unique circumstances that demonstrates excellence.
Paradoxically, the more general the norm, the more open its interpretation and applicability. For example, norms such as "be open, honest and constructive," and "act like an owner" don't tell us how to solve a problem--as a rule or a micromanager would do. They just require us to elevate our perspective and try to collaborate to optimize for the company as a system and not for our selves of our teams as sub-systems.
Norms are empowering. As opposed to what "bossy" managers think, the more autonomy and the fewer rules, the more people commit and perform. As Chatman explains, "Strong norms increase members' clarity about priorities and expectations as well as their bonds with one another. Unlike formal rules, policies, and procedures, culture empowers employees to think and act on their own in pursuit of strategic objectives, increasing their commitment to those goals. Violations are considered in terms of letting their colleagues down rather than breaking rules."
There are formal tools to shape, manage and change organizational culture. A short list would include: recruiting and selecting people for culture fit, socializing and training people for culture fit, and rewarding and promoting (punishing and demoting or even firing) people for culture fit.
These processes have been extensively researched and their power has been proved in the field. However, the most important tool to shape, manage and change organizational culture is leadership. And the most important --and the most "dangerous"-- tool to create an effective culture is conscious leadership. That will be the topic of the next post.
Further reading: The Right Culture for Your Team In Three Easy Steps
Readers: What are the most important norms in your organizational culture? What about your family culture?
* This article relies heavily on Chatman and Cha's extraordinary piece of research: "Leading By Leveraging Culture" by J. A. Chatman and S. E. Cha, in the California Management Review, Summer 2003, Vol. 45, No. 4.
Fred Kofman, Ph.D. in Economics, is Vice President at Linkedin. This post is part 2.1. of Linkedin's Conscious Business Program. You can find the introduction and structure of this program here. To stay connected and get updates join our LinkedIn Group: Conscious Business Friends
You can Follow Fred Kofman on LinkedIn here