How healthy is your culture?
Updated: Apr 17
Ask ten people in any organization if culture is important to business performance, and all ten will enthusiastically say that it is. Ask those same ten people to specifically define the culture within their organization, and you will likely experience several seconds of blank-faced stammering followed by ten different answers. So, the obvious question that follows is this: If the culture of an organization is not explicitly defined, identifiable, and operationalized, can it be a contributor to growth, operational excellence, continuous improvement, and financial performance? I believe the answer is no.
In many organizations, culture is nothing more than the arbitrary personality of the current leader or leadership team. In organizations where culture is not defined and operationalized, performance tends to be more subjective, political, and selectively applied to those not favored by the boss. Personality-based cultures can more closely resemble a cult than a system designed for high functionality, continuous improvement, and performance.
In a well-designed, explicitly defined, and operationalized system culture, professionals can have confidence in knowing their contributions will be measured and compensated commensurately. "Every system is perfectly designed to get the results it gets" - Edward Deming. This timeless and irrefutable statement has never been more accurate, but unfortunately, many business leaders hyper-focus on outcomes/results at the expense of the system and inputs that produce results. I totally agree that results are the ultimate performance metric, but results are a function of the effective application of a system of functions, talent, incentives, and capital. How functions, talent, incentives, offerings, and capital are systematically organized, integrated, and applied is what I call a "System Culture." A properly designed, and operationalized system culture is the single most powerful force within an enterprise because it effectively aligns strategy and tactics with behavior, and incentives to produce specific performance outcomes. Peter Drucker said, "Culture eats strategy for breakfast." This may be directionally accurate, but a well-designed and operationalized system culture is the key component to
strategy execution.
The best performance cultures eliminate the grey area whenever possible and make it easy for talented people to plug in and maximize their contributions with minimal bureaucracy and structural misalignment. Walk the walk and talk the talk - Your culture should be your brand and not some hallow marketing platitude.
Mission - The mission of an organization answers three distinct questions. 1. Why do we exist? 2. What is the nature of products and services solutions? 3. What type of client problems do our solutions solve? The mission statement anchors the organization on a central purpose, frames the nature of its product/service solutions, and clarifies its client focus. Missions prevent scope creep and concentrate the organization on a central specialized purpose.
Vision & Value Strategy - The vision statement identifies what the organization is attempting to become that it is not today. There are three central questions to be answered. 1. How will the organization position/evolve its product/service portfolio to be competitively differentiated in the future? 2. What additional geographic markets will we enter and or the type of fill-in M&A it will pursue to achieve our vision & value strategy? 3. In what time-frame will we achieve our vision and value strategy? The best businesses have clearly defined value that escapes commoditization and related pricing constraints. Unique and differentiated value is usually based on one or more of the following: speed, price, capability, specialization, geography, status, safety etc...
Operating Model - Your operating model should reflect the most efficient operational architecture to align functions, roles, performance metrics, and incentives to achieve your business strategy with as little bureaucracy possible. When the operating model is designed and aligned specifically for performance most of structural misalignment's and bloated bureaucracy that waste time, resources and frustrate your market facing professionals are eliminated. There are five key questions regarding the design of the operating model. First, what is the optimal structure to achieve you business and growth strategy? Second, what are the minimally acceptable quantitative and qualitative performance metrics and the function and role level to achieve your value strategy? Three, how will you assess and how frequently will you assess quantitative and qualitative performance ? Four, how will we compensate and incentivize the exceptional performance and behavior to achieve our business strategy? Five, what combination of quantitative outcomes and qualitative contributions at the role level determine total performance for an individual in a role? For example, quantitative outcomes produced 70% and qualitative contributions 30%. I can't stress enough the importance of performance assessment and incentives. "Show me an incentive and I'll show you an outcome" - Charlie Munger, Vice Chairman Berkshire Hathaway
Values & Beliefs - Values are the organization's personality as they define the qualities and characteristics all professionals are expected operate with and can expect to experience from others. Beliefs are the soul of the organization and define imperatives that leadership believes in, and when push comes to shove will defend and will stake their reputation on. Good people want to be around other good people and they want to work in a highly functional, transparent and equitable system they can be proud to be part of. Values are the operating qualities that professionals are required to operate with. Values enable professionals collaborate and transact with one another effectively and efficiently. I like the following four because they are simple and irrefutable: 1. Positive Attitude, 2. Self-motivated, 3. Commitment to outcomes, and 4. trustworthy. Beliefs are the fundamental imperatives that leadership espouses, coaches and defends because they are critical to achieving the vision strategy, professional and client satisfaction. I like the following time tested beliefs: 1. Total performance is more important than quantitative outcomes alone. 2. Our values are important inputs to short and long-term performance. 3. Winners want to work with other winners. 4. Everyone and everything we do must have a plan to demonstrably improve and innovate. 5. We celebrate our successes with enthusiasm and humility and our setbacks with an urgency to learn and improve.
Quarterly Continuous Improvement Calendar - quarterly review of financials and continuous improvement plans for operational functions, products/services, and leadership development.
Performance & Incentives - Performance and incentives are two sides of the same coin and should create a win-win alignment of organizational objectives with individual performance criteria and incentives. Performance expectations by role should be impersonal and explicitly defined. I define total performance in both quantitative and qualitative dimensions. 1. Firstly, what is the minimally acceptable level of quantitative outcomes produced from every unique role? 2. What are the qualitative values we expect from all professionals regardless of role? I like the Positive Attitude, Self-motivation, commitment to excellence, and trustworthiness.
Continuous Improvement - The first principle of continuous improvement is there has to be a benchmark standard starting point to improve. Because all the parts are expl