06 November 2017 by Max Klugerman
Changing organisational culture is never easy, but the rewards can be substantial
In the wake of many an organisational scandal there has come a moment, whether in committee or courtroom, where the implicated individual has shared a familiar sentiment: ‘That’s just how we did things.’
Although few would argue this is an acceptable defence for some of the conduct issues in business in recent years, this phrase does capture something important – the power of culture.
It is just over a year since the Financial Reporting Council’s (FRC’s) Culture Coalition project reported recommendations for those trying to govern and improve their cultures, and that focus has not abated.
Many are addressing it as part of their efforts to prevent the next scandal – to ensure that their employees are ethical and compliant in their conduct. This is spurred by our growing understanding of how individuals’ environments, and their perception of them, plays a large role in decision-making.
However, on a more positive note, other organisations are looking to the value that good culture can bring beyond merely preventing misconduct.
When employees act in accordance with a shared set of purpose and values, organisations can experience increased engagement, productivity, retention, agility and innovation.
At PwC, we define culture as the assumptions or beliefs that are common across an organisation and allow you to predict how people will behave and what they will achieve.
From the way you spend your first day in the company, to where the boss sits in relation to their team; or from who you tell when you realise a mistake, to how your manager reacts when you come up with the next big thing – they are all part of that earlier definition of ‘how we do things around here’.
“Understanding these ‘culture carriers’ may help articulate what you are aiming for”
Culture will happen whether you like it or not. So naturally those who understand the competitive advantage and protection afforded by building the right culture are working to shape their own.
But because it is so all-encompassing, touching every interaction or decision taken in an organisation, many struggle to get a grip on their culture, or to even know where to start. Although daunting, there are practical steps firms can take to positively influence culture and employee behaviours.
The most important first step in shaping the culture of an organisation is being clear on the culture you are aiming for – your aspirational culture.
This usually involves a clear articulation of purpose, vision and values. Wise organisations will consider this long before they notice any problems with their culture.
The best organisations start a conversation with their people, involving them in the definition process.
One method may be to ask for stories from employees of the times when it really felt like the business was getting it right – or, indeed, wrong. Stories help bring a culture to life and often demonstrate the unwritten rules that form a culture.
Another approach would be to identify the individuals who are recognised as personifying the desired culture; understanding these ‘culture carriers’ may help articulate what you are aiming for.
Leadership can use the outputs of this engagement process to shape a definition of culture that resonates with employees. Ultimately, as the FRC notes, it is the board’s role to determine the company’s purpose, vision and values, and to support the business strategy.
Of course, having a defined culture aspiration does not guarantee that staff will live and breathe this in day-to-day life, but it is an important place to start. Working on a definition that feels unique and ‘like us’ will help employees get on board.
To understand how to get to any destination, you need to know your starting point, and achieving your aspirational culture is no different. Management should conduct one-off or regular assessments to understand the current state of their organisation's culture.
Organisations take a wide variety of approaches to conducting research into culture, but there are some important things to bear in mind. Firstly, the nature of culture means it is necessary to carry out some form of qualitative research.
Although quantitative enquiry can supplement this, only qualitative research can scratch below the surface to understand the root causes of employee behaviour.
Secondly, assessors should be comfortable in collecting evidence about experiences, perceptions and emotions. This makes cultural enquiry complicated and requires a strong assessment framework to devise insights that can be relied upon.
Finally, remember that a culture assessment will be visible to employees and as such provides them with an opportunity to contribute to the wider dialogue about culture in the workplace. Insights and actions should be shared with employees as much as possible, with the opportunity for discussion.
“ Despite culture often being expressed by people processes, HR should not be the only party involved”
Although management should seek insight into culture, there is also a role for other views from HR, compliance, risk and – increasingly – internal audit teams. Best practice internal audit functions have been defining their approaches to auditing culture with success in recent years.
Even though this can feel like unchartered territory for some functions, organisations are having success by providing a platform to discuss employee behaviour, something that internal audit has not previously had a mandate to do.
Approaches range from including a small culture component in every audit, to dedicated reviews in the audit plan, and beyond, to more substantial frameworks, including regular consolidation and reporting of themes.
Insights gathered through assessing your culture may point to a number of areas for potential intervention. It can be daunting to know where to start, so getting the right people in the room to discuss next steps will be important.
Remember that despite culture often being expressed or reinforced by people processes, HR should not be the only party involved.
From this point, organisations may need to go in many different directions, depending on the insights and root causes gathered. Successful interventions could include changes to structure, physical space, processes and people.
One lens through which to look is behavioural reinforcement.
This involves looking at the way in which the organisation is set up and asking whether different opportunities for behavioural reinforcement (such as leadership, communications and people processes) are being used to encourage desired behaviour.
To take a simple example, many organisations now explicitly state that performance rating and reward decisions will be based on a balanced scorecard of both behavioural and financial measures, including customer centricity.
Look a bit closer though, and the reality is that financial performance often still holds far more weight when these decisions are made. The sale of a product to a customer who is eligible, but may not need it, may trump the individual who did the right thing. And at this moment, the wrong culture is being reinforced.
Another simple framework to consider is clarity, ease and motivation as root causes of behaviour.
For example, if an employee incorrectly manages a confidential document, think about the reasons why. It could be because of lack of clarity in the company policy, due to overly-complex or inaccessible rules. Otherwise it may be that employees find it difficult to do the right thing, which may relate to skills and lack of training.
Sometimes, staff find certain poor behaviours hard to avoid because good alternatives are not provided. In our example, this could mean an employee sending a confidential document unencrypted from their mobile phone because the firm has failed to provide an alternative, such as a secure file transfer protocol.
“Successful fixes could include changes to structure, spaces, processes and people ”
We must also consider motivation. How are you motivating your staff to display the right behaviours, even when it comes to the more mundane elements of work? This can be challenging, but firms should explore incentives and disincentives.
Finally, an obvious yet sometimes forgotten factor are the people at the heart of the business. Culture is about behaviour and behaviours are about people.
Rather than starting culture initiatives from the top down, focusing on organisation-wide processes or policies, some organisations are taking a more human-centric approach.
This involves understanding the staff experience at each stage of their employment – their needs and expectations – and designing experiences that can help them engage with, and contribute to, the desired culture.
Changing one person's behaviour is difficult enough, as behaviour is rooted in the power of habit. But changing a whole group or organisation's behaviour can be a huge task, often taking long periods of time. As such it is important to measure culture change regularly.
Many organisations are seeking mechanisms for regular – if not real time – feedback on culture in order to gauge progress and fine tune activity, so if something is not working, or is achieving the wrong outcomes, you can address it quickly and keep your plan on track.
This is a key feature of the FRC's Culture Coalition recommendations. As this suggests, culture is also becoming a priority among regulators.
In some industries like financial services, regulatory initiatives such as the senior managers regime have been established to prescribe key accountabilities around the setting and embedding of desired culture.
Organisations should be clear about their strategy for measuring culture. As with all efforts on culture, approaches vary; some firms are having success in turning to technology with pulse surveys, while others are building dashboards of quantitative data, supplemented with qualitative enquiry.
In addition, organisations will need to balance depth of insight with level of resource to make the exercise viable.
These steps have helped some organisations break down cultural change into manageable blocks. Boards and executives who invest in finding the right approach to assessment and measurement will find their approaches more informed and successful.
Ultimately, this is about your people determining, together, the environment in which they want to work and develop. As with societal behavioural change, changing the culture of an organisation is not easy, but can be achieved with sustained effort and focus.