Culture—the values, mindsets and behaviour that people in an organization generally take for granted—matters as much as anything that can be measured on a P and L.
Herb Kelleher, who led Southwest Airlines to the top of the US airline industry, credits his company’s culture with keeping it there. “Everything (in our strategy) our competitors could copy tomorrow,” he once said. “But they can’t copy the culture—and they know it.”
They do. As many as 91% of 1,200 respondents in a recent Bain and Co. survey agreed that “culture is as important as strategy for business success.” In another Bain survey, 81% of executives agreed that a company without a winning culture is “doomed to mediocrity”. But while it’s easy to agree a winning culture is needed, instilling one can be a leader’s toughest challenge because it requires influencing people’s deepest beliefs and altering their most habitual behaviour. The challenge is to unfreeze established behaviour, create motivation for adopting new behaviour, and then refreeze that behaviour over time.
A winning culture has two defining characteristics. First, the company’s unique personality and soul must shine through. Toyota’s emphasis on quality and cost efficiency isn’t the same as Enterprise Rent-A-Car’s focus on customer service. Both are different from Nucor’s devotion to developing the latest steelmaking technology. Yet every employee in these companies would have no trouble identifying their values and priorities.
Second, each company must have a set of cultural norms and behaviour to translate that unique personality and soul into bottomline results. In winning cultures, employees constantly seek to improve. They maintain an external focus, on customers and competitors, rather than on internal politics or “turf”. Employees think and act like owners—they take personal responsibility for overall business performance, not just their slice of it. They exhibit a clear bias for action, with little patience for bureaucratic debate. Right after 9/11, for instance, Enterprise Rent-A-Car saw its front line scramble to accommodate customers’ entreaties to rent cars one-way to drive home from New York City, in exception to the firm’s then round-trip rule.
To create and sustain a winning culture requires five key steps. The story of Sydney-based St George Bank, with a new CEO, illustrates these changes. When Gail Kelly became CEO in 2002, she found that the bank had a strong heritage of taking care of customers with friendly and service-oriented employees, but financial performance was lagging. An early culture audit showed managers weren’t accustomed to being held accountable and were slow to make decisions. Branch employees were uncomfortable offering additional products to loyal customers or even asking for referrals.
Quickly, Kelly moved to align the team. Change starts at the top, runs the maxim. And while many factors influence culture, the single most important one is leadership—what leaders do and say (in that order). Finding the management team siloed, with little incentive to cooperate with one another, Kelly got rid of the silos while ferreting out high-level cultural saboteurs so the cultural changes could take hold.
Soon after, because culture is a means to an end and not an end in itself—the end is your business agenda—Kelly delivered the business agenda. She didn’t mount a big “culture change” programme; instead, she simply but strongly began to instill the notion that everyone was accountable. Scorecards became an integral part of evaluations, with metrics tracking customer service and advocacy accounting for at least 15% of each employee’s score, including Kelly’s. And she began to tell an easy-to-understand story illustrating where the company had been and where it must go.
In managing the drivers of change, Kelly used the analogy of a vine and a trellis. St George’s passion and care for its customers was “a fantastically growing vine”, she told employees. But the bank lacked a firm trellis—the framework of management, discipline and strategy to keep the vine growing in the right direction. Bigger banks had a rigid trellis but little vine—ultimately a weaker position, she said. The key was to build a trellis to help the vine grow in the right areas and with the right support.
Finally, any culture change must be communicated and celebrated. This is a long journey, one that requires tireless leadership, complete with consistent, sustained communication. It’s important to celebrate victories, large and small, but never to declare victory outright.
At St George, Kelly calls a dozen or so customers each week and routinely visits branches to shake hands and hear concerns. She also champions a peer-based recognition system, rewarding “the kinds of customer focus we want”.
St George is clearly pointed in a new direction, with four years of double-digit earnings growth, a reflection of culture as much as strategy.
Indeed, our surveys found that while nine out of 10 executives put culture on a par with strategy, some, such as Merck CEO Richard Clark, go further. “The fact is, culture eats strategy for lunch,” he told World Business. “You can have a good strategy in place, but if you don’t have the culture and the enabling systems that allow you to successfully implement that strategy, the culture of the organization will defeat the strategy.”
We think Gail Kelly, and you, would agree.
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Vivek Gambhir is a partner with Bain and Company in New Delhi. Paul Rogers is a Bain partner in London and leads Bain’s Global Organization Practice. Marcia Blenko is a Bain partner in Boston and the leader of Bain’s North American Organization Practice.