Tuesday, August 8, 2017

What Stops Leaders from Transforming Corporate Culture and Driving Innovation?

Before the 2008 recession, large corporations took pride in buying back shares of their own organization.  This financial reengineering was a great way to boost earnings and attract shareholders.  As a result, the stock price would rise.  However, while billions of dollars were spent buying back shares, opportunity costs were being created.  It could be said that share buy backs create
no long-term value.  It could be seen as a poor decision on the part of leadership.  It may be a sign that the company has so much money they do not know what to do with it.  Instead of investing in product development, they invested in financial reengineering that provides no competitive advantage in the marketplace.  Therefore, in the long term, the enterprise may suffer from a disruptive competitor who steals market share.   

Furthermore, it creates a corporate culture of maintain the status quo.  While leadership may pontificate the need for innovation, the unspoken policy would appear that financial reengineering is the new innovation.  In most companies, employees follow what you do, not what you say.  Therefore, when a company starts to lose market share, they cut R&D and layoff staff.  That creates cognitive dissonance – the state of having inconsistent thoughts, beliefs or attitudes, especially as relating to behavioral decisions and attitude change.  Hence, you hear executives throughout the US cry that changing corporate culture is one of the most difficult things to do. 

Perhaps it is not as difficult to change culture as it has been made to believe.  In most cases, a change in perception can make the difference from hard to easy. 

For example, in one of my past CEO roundtable discussions, a sitting CEO of a Fortune 500 company told other CEOs about the challenges he experienced with transforming corporate culture.  He spoke in detail about how he fired many employees and brought in new people he knew and trusted.  Yet, this was insufficient to change the company’s culture.  After struggling to transform culture in multiple organizations, a light went on for him.  Instead of focusing on changing others, he transformed himself.  Once he transformed himself, it became much easier to drive the culture he desired.  In other words, he had to walk the talk before employees believed he was serious about transformation.

So what is corporate culture?  Social anthropologists say a culture is simply a network of conversations.  It is the conversations employees have in meetings.  It also includes conversations at the water cooler.  In addition to staff and management, it includes the conversations of vendors, clients, media and government – stakeholders.  What do stakeholders say about the enterprise?   

In a client organization, I interviewed several key people.  They all said the company culture was a cancer or black plague.  They said if a new person, who was good, was hired, it would be a matter of time before they caught the same cancer that everyone else had.  In time, they would not be as good of an employee. 

One of the common threads in companies with so-called cancerous cultures is that leadership says one thing and does another.  That is the unspoken policy that informs people about reward systems.  Sometimes the employees interpret that as ‘if you work hard, nothing happens.  If you’re lazy, nothing happens.  So who gives a damn’. 

With all that said, if the CEO is committed to transforming culture, he or she is the place to start it.  To drive that transformation, language and conversation must change.  Instead of talking about what leadership “wants” and “doesn’t want”, drive conversations that outline what executives are committed to.  And talk about what “we” stand for.  Then your actions, including investments have to follow the stand and commitment. 

Additionally, the leadership team must remember that failure is not a problem.  Transforming culture is a paradigm shift.  New paradigms require new thinking and actions.  In the beginning, people may revert to old behavioral patterns or they make not meet expectations.  Instead of punishing people for failure, reinforce the message and make sure your actions reflect the new culture.          

What do you think? I would love to hear your feedback. And I’m open to ideas. Or if you want to write me about a specific topic, let me know.

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