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Building an organizational culture, whether in its traditional or Netflixesque form, continues to be their best hope for delivering long-term results. Photo: iStockphoto
Building an organizational culture, whether in its traditional or Netflixesque form, continues to be their best hope for delivering long-term results. Photo: iStockphoto

We’re at an inflexion point for organizational culture

  • As guardians of corporate values, CEOs could opt to either swim with the cultural flow or against it

In our recent conversations with chief executive officers (CEOs) about their strategic priorities amid the pandemic, one concern kept coming up: the ability to build and sustain an organizational culture. In the past decade, connecting a company and its people with its mission, strategy and values had already become a challenge, and the pandemic has made matters worse.

Organizational culture has been under siege since before the pandemic. Generational changes have led to individualism, shortened attention spans, and a desire for instant gratification. The median tenure of employees at companies like Amazon or Facebook—where the average employee is still in her 20s—is just about one year, and has been declining. An extrapolation of this trend points toward a future where tenure is measured in months and not years, and workers jump from one short-term gig to the next. By some estimates, “gig workers"—people with no strong affiliation to any one company—already constitute as much as 30% of the workforce.

What’s more, the rise of intelligent machines means that it is no longer uncommon to find machines or robots in an organizational chart. Many corporations have made the difficult choice to let go thousands of loyal employees whose jobs have been rendered redundant by robots.

Amid this two-pronged assault by the gig economy and automation comes the blitzkrieg of remote work. At least for the foreseeable future, you may have to do without the camaraderie of off-site retreats, the serendipitous tête-à-tête with your CEO in the elevator, the buzz around the water-cooler, and the hours spent with your manager waiting for a delayed flight. Video conversations are often quite productive and effective, but they are mostly transactional, leaving the warm, fuzzy connections between individuals—hitherto an important ingredient for the cultivation of culture—a casualty.

How can CEOs and organizations respond? There are two possible approaches. One is to swim against the tide of transactional relationships, seeking opportunities to build deep and emotional connections among employees, and between employees and the company. Organizations taking this approach are appointing chief culture officers and investing heavily in culture creation at all levels. During the hiring process, psychometric tests and other assessments are used to evaluate candidates for cultural fit. Members of top management spend substantial time in culture workshops, now virtually. They share examples of how the company’s values translate into day-to-day work habits, and stories of how a passionate adherence to values has shaped the company’s past and present. If the investment in culture pays off, it will make for not only better organizations, but a better and more connected society as well.

The second approach is to swim with the tide, and take the view that generational changes are here to stay. This doesn’t mean abandoning the idea of organizational culture or accepting relationships as purely transactional. But it does involve a new way of thinking about culture.

Consider Netflix, whose services have been in high demand in recent months. By any measure, Netflix is a very successful company—one dollar invested in Netflix stock in 2002, when the company went public, was worth more than $500 in October 2020. Netflix’s mission is to change the way people consume video entertainment. Its strategy is innovation—not one-off, but constant innovation. Netflix attributes its success to its unique culture, described in the Netflix Culture Deck.

Netflix hires only the most talented individuals and pays well above market rates. Employees are encouraged to determine their own market value by talking to recruiters and peers at other companies; Netflix will usually match or exceed that pay. Retention is decided by its “Keeper Test". Managers ask themselves: “If this employee told me they were leaving for a similar job at a peer company, how hard would I fight to keep them?" If the answer is “Not very hard", that employee is let go. Ironically, the creator of the Netflix Culture Deck, human resources head Patty McCord, was herself let go in 2012 after 14 years at the company.

Netflix’s culture leaves no room for mediocre or low performers. Employees know that their “connect" with the company is meaningful as long as they are high-performing contributors to Netflix’s mission. This connect is objective rather than emotional. One senior executive has described it this way: “We are a team, not a family."

Judging from our recent conversations with CEOs, this latter approach is less common. CEOs believe that it is critical for employees to connect emotionally with their companies and develop meaningful friendships at work, especially if working remotely. Given that CEOs themselves are deeply connected to their company’s mission and strategy, they often struggle to understand the mindset of a younger generation of employees who could be working at Google today and Facebook tomorrow. Most CEOs—Reed Hastings of Netflix included—can’t wait for the pandemic to get over and have their employees back in the office.

Today’s CEOs must now decide whether to swim against the tide or with it. In either case, they must swim hard. Building an organizational culture, whether in its traditional or Netflixesque form, continues to be their best hope for delivering long-term results.

Kapil Viswanathan & Vijay Govindarajan are, respectively, chairman of the executive committee of Krea University, and Coxe distinguished professor at Dartmouth’s Tuck School of Business

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