This article was produced for the Australian Institute of Company Directors Boardroom Report, Volume 17, Issue 6.
Many business entities are aware that culture is important and that it influences every aspect of how a business performs (including staff conduct). However, understanding why and how culture operates is far from complete. Culture is still difficult to measure and many companies struggle to understand how they can shift culture.
Why is it important to develop good culture? Cultural failure has been identified by the Hayne Royal Commission as what lies at the heart of much of the misconduct examined by the inquiry. This year, the Australian Prudential Regulation Authority issued a warning in an information paper that shortcomings in governance, culture and accountability remain prevalent in financial services because they are grappling to manage non-financial risks. Many organisations also face difficulties in measuring, understanding and analyzing culture.
So how can the culture of any organsiation be improved? Here Jenine Waters, BDO Partner, Human Capital, offers some valuable insights.
Decide who should own culture
Firstly, whether it is planned or otherwise, every organisation will have a culture, and ultimately leadership will be at the core of that culture. The single most influential aspect of culture is, in our experience, leadership. So who should own culture? In our view a need for a culture review or shift may be driven by the board or flagged by certain issues in an organisation (be it performance, customer feedback or external pressures). Whilst culture really needs to be owned by leaders, the Human Resources department (HR) also plays a key role in enabling culture – by leading the process around identifying how an organisation wants a culture to look and feel and then identifying and supporting initiatives that can enable and support a culture shift. Culture and culture shifts require alignment between the board, leadership and HR to be effective.
Start with your strategy
For the board, developing culture starts with strategy. This is around making sure that the organisation is very clear about the direction it is going to take and what are the key cultural elements are that are going to help them be successful.
The first thing we look at when we go into an organisation is whether they have an overarching strategy at board or management level and from that a clearly defined people (or HR) strategy. This is a critical starting point to developing an organisation’s leadership and ultimately the culture.
In addition, the board needs to be clear about what good performance looks like for the organisation. For some this may be about sales revenue (for example) but what we saw out of the Royal Commission is that when good performance is too narrowly defined, or defined without thought to the broader consequences, it can have a very significant impact on the behaviours driven throughout the organisation. The old adage about ‘what gets measured gets done’ is certainly valid when looking at performance from a culture lens. Aligning the board’s expectation with those of the management team is also critical, so we ask our clients to be clear about what is important to them – is it revenue? Is it reputation? Customer value? Whatever it is for your organisation aligning on these performance expectations is critical to getting traction on culture shift.
Understand your organisation’s current culture
When we first start working with a client, we build the current picture of the organisation. We look at the HR metrics that are tracked (turnover, retention rates, recruitment time-to-fill, diversity, succession) to give us a sense of some of the cultural elements early on. For example, high turnover is often a key starting point for us to delve into what is going on in an organisation. We will also review employee surveys or feedback. We will then conduct a root cause analysis to create an image of the organisation and to understand the key pain points and causes. The key opportunity is to talk to people inside the organisation as well as other key stakeholders such as partners or customers to better understand the culture. I am often surprised by the differences that I can see in the surveys and what is said during one-on-one meetings. True insight comes from being able to talk to a wide range of people in the organisation.
Put culture on the leadership agenda
Since the Hayne Royal Commission, BDO is fielding an increased interest in culture from clients. However many companies seem to be putting it in the ‘too hard’ basket. They may focus on specific training to tighten up compliance, adjust policies that may have been too lenient; recut performance metrics, however taking a full and frank look at an organisation’s culture can seem too daunting.
In our experience, starting to have the conversation at the leadership table and being clear on the real need for change is the first step to starting to shift culture. Then it comes down to understanding what are the key aspects of our current culture and how have they come about? What then do we want to shift and what are the key levers we have to enable that shift? It sounds like an over simplification, but sometimes it is a matter of just getting started.
Consider the culture levers you have available
The starting point to develop your culture is to be clear on your organisation’s strategy. We have identified that leadership is at the core of what we term the ‘culture wheel’ and surrounding that are the key levers you can push or pull to impact culture. These levers include things like your organisation’s structure, the symbols that are important to you, your values, what you measure (and reward), your systems (including your policies and processes) and finally your organisation’s rituals (are there certain social events that are important?). When you are clear on your cultural direction, you can identify the elements of the culture wheel that will enable the culture you want to achieve and those that may be working against you.
One key lever that you need to pay attention to is what you reward in your organisation. This is not simply your bonus system but consider the behaviours that are celebrated and reinforced. Do you reward selling above all else? Are your employees encouraged to put the customer first? Do you reward innovative thinking and risk taking? Is your focus on compliance? Any of these may be appropriate for your business, but often companies either have reward systems that only drive one type of behaviour, or have unconscious systems that reward or punish specific behaviour without even knowing. An example of this is organisations which bury projects that failed (just stop mentioning them and move people on to the next thing) rather than celebrating the attempt to do something different and learn from the process. This may drive behaviour that reduces employee’s willingness to take on challenging projects if they feel their career may be adversely impacted. Compare this to a company which may have a process of promoting people as they come off a ‘failed’ project because of the fact that they were willing to take a risk and learn from it. These scenarios will both drive very different behaviour and ultimately form the fabric of what becomes your culture.
Be prepared to make hard decisions
Sometimes when an organisation starts to look at culture, hard decisions need to be made. I dealt with one organisation that acted as an umbrella company to three different sub-organisations. There was fighting between the companies and they were unable to achieve their combined objectives.
We conducted a review to understand why these companies (who had previously worked together so well) were no longer working as a team. We quickly realised that it was a combination of structural changes, the behaviours that were being rewarded, a lack of clarity around key policies and, critically, a key leader who was not aligned to the organisation’s values. We worked with them to identify what the picture would look like in the future from a succession point of view and in the end, they moved out one of their key managers. We also clarified their strategy and their values and worked on implementing those key policies that had been causing tension. From then the turnaround was very quick. One of the main reasons they had come to us for help was high employee turnover. This improved quickly after the changes were implemented and in fact, several past employees then returned. What became evident is that a cultural shift sometimes requires tough decisions.
Ultimately, there are rarely quick fixes that will completely change a company’s culture. However, a good starting point is a willingness to understand your current culture and the direction you would like it to take. From there it is like eating an elephant – one bite at a time!