It was the late Peter Drucker who reportedly said that “Culture eats strategy for breakfast”. Yet boards appear to be paying only lip service to Drucker’s fundamental, according to a new survey by tax and accountancy firm Mazars, the INSEAD business school in Paris and Board Agenda magazine.
The study found that, despite culture being in the top three priorities for company boards, only 20% of 450 London-based directors and board members reported spending the time required to manage and improve it. Some 62% of survey respondents felt that they were primarily responsible for setting culture from the top of an organisation.
However, a similar proportion (63%) either did not consider culture as part of their formal risk assessment or failed to routinely consider the risk associated with their corporate culture. The study claims to be the first survey of its kind to measure how effective boards and directors across Europe are at leading and managing corporate culture.
It shows that the importance of corporate culture is now widely recognized by boards, but that translating this understanding into focused action remains a challenge. Boards need reliable information on the actual culture of the business so that they can be clear on how they are going to close any gaps between that and their desired culture, the report concludes.
Even if boards are thinking more about corporate culture, there does appear to be a discrepancy between what directors are thinking and what happens in practice. This gap that needs to be bridged if leaders are to maintain or restore public trust in their businesses.
Culture sets you apart in a commoditized world
One of the greatest challenges facing every business is how to provide the market with a compelling reason to do business with you rather than your competitors. What distinguishes your business from others in the same industry?
It is proving to be more difficult today than at any time in our history to differentiate ourselves. Another way to look at it, is that it has never been easier to copy each other. Businesses spent heaps of money on advertising and marketing copy typically posted all over their website and then splashed all over social media. Whatever amount of time, money and effort it took to try and articulate that differentiation will take your competitors a fraction of that to copy it.
The result of this is that we largely operate in a commoditized marketplace. Most businesses are offering the same thing, or at the very least claiming to offer the same thing. If potential customers can’t figure out what makes one product or service different from another, on what basis do they make their buying decision? You guessed it; Price! If the products all appear to be the same customers will just buy the lowest priced one.
This constant pressure on pricing naturally depresses profit margins and it makes it far more difficult for businesses to survive.
It’s not about what you do – It’s how you do it
How do some companies manage to compete and thrive year after year in a commoditized environment? I believe strongly that it’s not because of what they offer, but they win rather because of how they offer it. It’s how their people work together, how they treat their customers and how they interact with suppliers that sets them apart.
If you want to be in the game, quality products or services and competitive pricing are the minimum requirement to compete. These are relatively easy to copy. The real sustainable differentiation will always be behavioural. Of course, in today’s rapidly changing world where businesses are being disrupted by many different factors we should always be experimenting and innovating, finding better ways to improve our products and services. It’s just that we need to be absolutely clear that these actions are merely minimum requirements to be in the game.
Why do companies like Marriott, Disney, Zappos and Starbucks willingly share the secrets of their success to other companies?
Marriott international and in particular their Ritz- Carlton brand consistently rank number one for the quality of their customer service when it comes to hotel groups. With the advent of Airbnb and so many other innovative options for travellers, hotels have had to really focus on the behaviours that differentiate their product.
People don’t go to a Ritz-Carlton because their beds are more comfortable, or their rooms are bigger. They go because of how they are treated. There are many legendary stories about amazing experiences, shared by customers. They consistently out-behave their competitors.
Here’s something really interesting though, the Ritz-Carlton leadership centre offer various training programs and consultancy services where they will actually teach the secrets of their success. Let that sink in for a minute. You can work for the Inter-continental group or southern Sun and you can attend classes at their leadership centre where they will reveal why they are consistently ranked the best in their industry.
Think about your business. Would you be willing to share what really makes you the best in your industry with your competitors? I am guessing not many would. So, why would Ritz-Carlton be willing to do this? Because their competitive advantage is wrapped up in how their people behave, and that’s so deeply embedded in their DNA, that they know most companies won’t have the discipline and the commitment to copy it, even when they are given the formula!
Ritz-Carlton are not alone in this practise. Companies like Disney, Zappos, Starbucks and many others have actually created separate business around teaching other companies the keys to their success. But here’s the important thing. These companies aren’t at all worried that competitors are able to duplicate this. That’s the real power of differentiating yourself by the behaviour of your people. Not only is it the last remaining opportunity for competitive advantage in a commoditized world, but it is by far the most sustainable advantage that you can create. It says easy but it does hard. This is not easily copied.
Creating a team of people who all consistently behave in a distinguishing manner is completely the product of organizational culture.
Attracting and retaining talent
Besides the issue of competitive advantage, there are many other financial advantages of working on your culture. In a world where companies compete for a diminishing talent pool, your culture will radically influence your ability to attract and retain talent.
The millennial generation will rapidly start to dominate the global workforce and we are seeing a significant shift in what’s important to them in a business. More than any other generation, millennials are looking for a sense of connection and purpose in their work. They will take a job for less money if they feel a deep sense of connection with a company’s culture. This may be especially true of millennials, but it is not lost on those from other generations too.
The impact on productivity
Rate the average productivity of your team on a scale of 1-10, where 1 means people don’t even show up for work and 10 is where people are producing to their highest capability given their level of skill or skill.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
I am guessing that the majority of you rated the average performance of your team between say 5 and 8. Imagine what it would mean if you could somehow move each person up a few notches on the productivity scale. What would happen if you could move a 5 to a 7 and a 7 to a 9? If this could somehow happen, the difference would virtually all go to the bottom line! You’d be paying them the same amount, but they would now be performing at a higher level.
Of course, there are many factors that would influence a person’s level of productivity, I would argue that the culture we create in our organizations would be the single biggest factor. The environment that we operate in has enormous influence over what we do and how we do it.
People are far more likely to raise their game when they are put in an environment that expects a higher level and where others are already operating at the expected level. The opposite is equally true.
The impact on customer rebuy
I have often bought products from Amazon and have often had to speak to someone on the phone or had online dealings with a staff member. I am always amazed at the customer experience they offer, right from ordering, all the way through to delivery and after sales dealings. Every part of the experience was warm, friendly and as quick and painless as they can possibly make it. This has never happened by accident. Amazon are very intentional about creating a culture that generates these types of customer experiences.
I have often contrasted that with some of the retail store and restaurant experiences that I have had in south Africa. Sometimes I get the impression that they are just there to collect a pay check, or they are “just following the rules”. There is little scope in the culture for independent decision making and no real genuine interest in helping you. Have you ever had a customer experience where it left you vowing never to do business there again?
The culture in the organization affects every aspect of the customer journey. Hopefully by now, we have demonstrated that culture affects our ability to differentiate ourselves in a commoditized marketplace, it affects our ability to attract and retain talent, it affects how productive they are, and it affects every aspect of the customer journey.
It really is that important!
Your organizational culture will be created by default if it’s not created by design
1. Rate the importance of organizational culture in terms of its impact on the bottom line.
1. 2. 3. 4. 5.
2. Does your team have a written down strategic plan outlining your goal, priorities and strategic initiatives? Yes. No.
3. Does your organization have a sales plan identifying this year’s quotas, targets and how you’re going to hit your sales numbers? Yes. No.
4. Does your organization have a documented budget or financial forecast that you operate from?
5. Does your organization have a written, documented, culture plan for how you’re intentionally driving the culture of your company? Yes. No.
If your company is like most out there, you will more than likely have indicated that culture is a 5 out of 5 in terms of its impact on the bottom line, but like most businesses you’re just winging it, hoping that it will all work out on its own.
Not having a culture plan is like trying to run our businesses without any kind of budget and just hoping that we are going to hit our numbers.
The point here is that your organizational culture in the absence of an intentional force on your part is going to evolve by default anyway, mostly influenced by those with the strongest personalities. Those with the strongest personalities are not necessarily the managers or supervisors or leaders. If they happen to be hardworking, quality focused, enthusiastic people then it may turn out okay. If, however, they are lazy, cynical, sarcastic swine’s they are likely to influence others to be the same.
I have no doubt that you will have seen this before. They may not intentionally be trying to ruin your business, but they’re doing it just the same. Culture is such an enormous factor in any business that it should never be left to emerge organically. As leaders we need to be intentional and even systematic in creating the cultures we want, rather than live with the cultures that happen by default.
Contact us today if you want to hear more about how we can help your business create a high-performance culture. We would love to work with you in distinguishing your competitive advantage.