Successful cultural change requires sophisticated and precise conversations. Practitioners in the field have broken critical new ground, embedding the research-proven understanding that strong cultures correlate with long-term business performance. Just 25 years ago, there was much scepticism about this link and the focus of the discussion with leaders on culture was on trying to prove that so-called “soft stuff” matters. Post-MBA, those of us working in this area tended to avoid the C word altogether and talk about specific work practices that deliver the strategy.

    The conversation has now thankfully developed further. Culture no longer attracts huge incredulity as a business performance lever. There is an observable chorus of support for fostering “positive cultures”. This is useful, but requires disambiguation to influence real change.

    There are three requirements the board needs to be aware of when setting the tone from the top — and that the executive team needs to strive for in defining and nurturing their culture.

    Firstly, culture discourse needs to be specific in describing the present culture state and the target culture objective. Secondly, a culture’s effectiveness should be evaluated based on its link to strategic outcomes, rather than a binary “positive” or “negative”. Thirdly, a strong culture built on consistency creates durable competitive advantage. Satisfying these three requirements will guide directors as they establish a cultural framework to drive business success in the organisations they govern.

    1. Specific target cultures

    When leaders proclaim: “we want to create a positive culture”, it is akin to saying: “we want to improve our profits”. Both are vague, self-evident and don’t specify the metrics for achievement.

    Some generally acceptable norms of behaviour are desirable. Most people would want to work with “great people”, want to work in a business that has a “good culture”, a “nice” boss. Organisations are keen to be rated as an attractive place to work in Glassdoor, in lists such as Forbes, Fortune or LinkedIn’s top companies, or other workplace surveys. This is particularly true in economic cycles when talent is scarce, as is demonstrably the case in many key Australian sectors.

    The problems with general, ill-defined descriptions of culture are numerous — without a common language, leadership messages can be confusing or even contradictory; the absence of clear guardrails for acceptable and unacceptable behaviour; an inability to monitor/measure progress or adverse changes; it becomes difficult to compare across different teams and understand subcultures.

    As part of setting the cultural framework, boards must agree with the CEO and executive a specific choice of words to describe the target culture and desirable behaviours. When employees, managers, executives, board members say they want a “positive” culture in the organisation, they could, for example, mean they are striving for:

    • An agile culture with resilient people, who can respond quickly to changes in the business environment, such as the pandemic pressures
    • A high-performance, supportive culture where people are focused on working together to achieve outstanding business performance, or
    • A customer-focused culture encouraging decision-making autonomy and individual risk- taking within acceptable boundaries, in order to encourage individuals at all levels to resolve customer issues.

    In my view, culture archetypes are not mutually exclusive, and boards may pursue cultures with many or all of these elements over time. I have worked with clear-minded leadership teams that embrace customer experience (CX) as the central pillar of their culture transformation strategy, with targets set based on extensive “customer voice” benchmarking using the Net Promoter Score, and other customer feedback measures. Critical to success was implementing systems to measure lead indicators of customer satisfaction, such as conducting outbound calls to particular segments of customers. Specific behaviours and work practices were agreed. These were modelled by the CEO, the executive team and reinforced by the board, so they were consistently “on message”.

    The old, established culture took two years to displace: culture does not change quickly even with a well-considered, structured program in place. However, the CX dial shifted significantly once the changes were adopted by all divisions.

    The success stories and the cautionary tales are separated by leaders’ ability to answer fundamental questions: if you are going to describe your culture in one sentence, what is the most specific descriptor you could choose? What is the most important aspect of your desired culture that will drive your strategy? In effective culture transformation projects, it is unlikely that the most precise word directors can land on will be “positive”.

    2. Aligning culture with strategy

    Through the course of transformations such as sales improvements, customer experience, and digital strategy, where there is a lack of strategy and culture fit, it can become obvious that the strategy is unlikely to be delivered.

    Prominent mismatches between culture and a long-term, sustainable strategy have abounded in the banking Royal Commission case studies and more recent casino inquiries. This aged care Royal Commission comment was telling: “At least one in three people accessing residential agenda care and home care services... have experienced substandard care”. On a spectrum where a cost- focused McDonalds-style “factory” model sits at one end, and a quality-focused, personalised “care- driven” service at the other, which culture would better fit an aged care strategy?

    Culture is more complicated if the strategy varies across different parts of an organisation. My colleague and non-executive director Dr Norman Chorn describes the types of “dominant logic” that characterise the culture-strategy combinations, and notes how some of these do not fit well together.

    For example, he advised a company in a large divisional business that needed to improve its innovation and agility as its core markets were maturing. The core product division had a culture where there was a need for control and order to provide a “mass market” product with high efficiency at the lowest cost. The divisional executive realised they would need to establish a separate business unit with an entirely different culture to achieve this — as both strategies required completely different cultures and business models. But the board did not approve these changes, and no disruptive innovation has yet been produced.

    3. Creating consistency

    The strength of organisational culture is measured by how evident and consistent the behaviours are across the organisation. When culture diagnostics report a relatively large spread of behavioural ratings around the average, the culture is likely to be weak. Professional services firms like McKinsey & Co exemplify this commitment to consistency, where publications like Marvin Bower’s Perspective on McKinsey are distributed internally as the bedrock of “the McKinsey way”. Whatever the varying experiences of that culture among individuals, in my experience at McKinsey, there is no doubting the collective’s understanding of its expectations.

    To be effective, directors will want to gain insight into the culture of their organisations through direct personal experience. If it’s hard to gain a “read” on the culture after several conversations, it’s mostly likely because the culture is weak. It’s essential to avoid confusing “culture” with “climate” — where culture is an enduring, hard-to-change measure of the “personality” of the organisation and climate (aka employee engagement) is a volatile measure of the “mood” at a given point in time.

    The board has an important role to play in fostering a strong culture — setting the appropriate, specific parameters for the organisation and consistently demonstrating this in their own behaviours. Directors should also agree on a measurement framework with the CEO and monitor culture and climate to keep adequate oversight on business performance.

    ▶ Lisa Carlin GAICD is the chair of University of Cape Town Australian Trust, co-founder/director of FutureBuilders Group, and on the advisory board of Rebelliuz. 

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