“Culture Eats Strategy for Breakfast” – Peter Drucker

 

Over the past 15 years we have worked with many companies in every type of industry and with a wide range of revenue and level of profitability. 

In virtually every situation, we were asked to help our client improve operations and profitability.

While our approach includes a number of tasks, one of the most important things we focus on is corporate culture. Corporate culture is the foundation by which any company operates.

Our experience includes working with clients that have many different types of culture.

We have learned, however, that there is a direct correlation between the culture of a company and it’s operating performance and related profitability.

This relationship is extremely important and we are devoting the next two blogs to this topic.

This blog post will discuss the cause and effect of a bad culture and how it negatively impacts companies. Our next blog will discuss the elements of a productive culture and how it contributes to the success of companies.

 

“CULTURE” DEFINED …

It is important to look at the definition of an organizational culture.

In a paper published in the Academy of Management Journal, in 2006, Ravasi and Schultz characterize organizational culture as a “set of shared assumptions that guide behaviors.

It is also the pattern of such collective behaviors and assumptions that are taught to new organizational members as a way of perceiving and, even thinking and feeling.

Thus, organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders.

In addition, organizational culture may affect how much employees identify with an organization.”

 

BAD CULTURE WILL  …

Inherently, bad corporate culture ultimately leads to poor performance, operating losses and sometimes the failure of a business.

Some cultures can be labeled negative or toxic and originate from a leader, management team or a management style that promotes an environment that every person should fend for themselves.

There is typically a heightened sense of individualism and an environment that encourages individuals to get ahead at the expense of everyone else.

Management typically encourages conflict and promotes a combative style of behavior by encouraging an “Us versus Them” mentality.

 

ANOTHER EXAMPLE SKILLS …

Another example of poor company culture we have found in troubled companies, is a situation where there is a void in leadership.

The company typically does not have a clear leader and the management group is incapable of making even the most basic decisions.

When decisions are made, it is by group think and is often a compromise instead of making the best decision for the business.

Furthermore, no one is responsible for looking at the big picture and setting strategy even for the near-term operations of the business.

This results in a lack of clarity with the middle and lower level management of the business.

The end result is a lot of people wasting time on tasks that really do not move the business forward.

 

6 EARLY WARNING SIGNS …

There are many more examples of poor company culture, however, we would like to highlight some early warning signs of a bad culture that if recognized, should result in rethinking the approach to the current cultural environment.

Poor management and leadership
• Lack of empathy
• Micromanagement
• Low office productivity
• Poor internal communication
• Lack of Discipline

When working with a company, we look for one or more of these warning signs early in the process. If they are prevalent, changing the culture becomes a critical element in developing a plan for improving operations.

 

IS YOUR CULTURE EFFECTIVE?

These issues are addressed early in the process and checkpoints are established along the way to assess if the culture is changing.

Ensuring that the cultural change is occurring is an important benchmark and contributes to the success of achieving our objectives.

No company’s culture can ever be perfect.

Our experience, however, in working with many companies, reflects that working toward an effective corporate culture will result in a more productive and profitable business.

Our next blog will focus on the attributes of an effective corporate culture and how it positively impacts a business.

 

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Integrity & Accountability

 
 

The March 8, 2018 issue in the Seattle Times presents the story of a former Coast Guardsman who injured his leg during a fall in 2011. He went to the Puget Sound VA and had surgery on his leg.  

After having excruciating pain following the surgery and having three more surgeries, he finally went to a private doctor.

The doctor determined that the VA surgeon had inadvertently pushed a surgical screw about a centimeter into a nerve bundle, causing him chronic and excruciating pain.  Despite multiple X- rays by the private physician showing the screw, the VA doctor denied that he had done this and denied medical negligence.   However due to the delay in getting the proper care, the lower leg had to be amputated.

In this case, due to a donation to an organization that uses amputated limbs to train rescue dogs, the limb was still available. A pathologist that examined the leg found that the screw had indeed been pushed into the nerves.

 

UNDENIABLE EVIDENCE IS “SILLY” …

The VA doctor, in the face of this evidence continued to deny any responsibility and claimed that the evidence by the private doctor and the pathologist was “silly”.

Yet, in pretrial mediation the VA agreed to pay the individual $1.75 million to “avoid further litigation.  $1.75 million to an individual who had been in pain for years, lost his job, lost his wife and finally had his lower leg amputated.

In the final blow, the Justice Department had rejected the settlement, offering $1.4 million and denying any wrongdoing by the VA. Exhausted, the individual accepted the settlement.

The Orthopedic Surgeon and his management continue to work for the VA.

 

THE ORGANIZATION’S OPERATING CULTURE …

We have all read about the horrors outlined by those who have had difficulties with the VA. 

Those who manage the VA, from the top down are focused on avoiding accepting any responsibility for errors made by them and those who report to them.

In this case it was a leg; in others it has been life and death.  But always, admitting an error is to be avoided at all costs.

But what about when it isn’t life or death, but the conduct of your company or business.  Like the VA, rarely do the character flaws of a single individual fully explain corporate misconduct. 

More typically, unethical business practices involve the tacit, if not explicit cooperation of values, attitudes beliefs and behavioral patterns that define an organization’s operating culture.

Ethics and integrity is as much an organizational as a personal issue. 

Managers who fail to provide proper leadership and fail to institute systems and behaviors that insure ethical conduct are as much responsible for those who benefit directly from the lack of integrity of the company.

 

NEW FEDERAL SENTENCING GUIDELINES …

Executives and managers who ignore ethical behavior run the risk of personal and corporate liability in today’s increasing tough legal environment. New federal sentencing guidelines are increasingly recognizing the organizational and management roots of unlawful conduct by members of the organization.

We see and have seen these issues in companies ranging from the largest to the smallest entrepreneurial business.  Consider the recent Wells Fargo fiasco.

Several years ago, Wells Fargo decided it was not doing enough cross-selling, Cross-selling means getting customers who use one service, such as checking, to use other services, such as savings or credit cards.

Wells Fargo developed a specific strategy to encourage cross-selling, which was to involve its employees in telling customers about other products and services. In order to encourage employees to support the program, Wells Fargo employed the strategy of providing incentives to employees who succeeded at cross-selling. 

 

WHERE EVERYTHING WENT WRONG …

This is where everything went wrong. Employees not only responded to these incentives by cross-selling, they manufactured fake accounts in the names of existing Well Fargo customers.

Some customers figured this out, but many didn’t and ended up paying fees on accounts they didn’t even know they had. 

The problem was huge.  In attempting to correct the problem the company fired 5,300 employees including its CEO, John Stumpf.

The Wells Fargo mess teaches a clear lesson which is that you get what you pay for. 

Specifically, you can talk yourself blue in the face about ethics, as many Wells Fargo managers did, but you cannot send employees a clearer signal than their paycheck.

 

ALL ALMOST ALWAYS IGNORED THIS …

The first reason this is important is that when organizations think about creating an ethical culture, they almost always ignore the organization’s reward system. They print codes of conduct, mandate training and establish ethics hotlines. But if you are rewarding the wrong things, you will get the wrong behaviors.

This is as true of the teller at your local branch bank as it is of the top levels of an investment bank. Organizations signal what they really care about through their reward systems. Remember that the one corporate document every employee reads is their paycheck.

The importance of this lesson goes well beyond ethics. The idea is that you can get better performance out of employees if you abandon pay for performance in favor of one or another strategy that rewards “the whole person” and not just the paycheck. The peak of this phenomenon is, a veritable tangle of cross cutting evaluations and peer-enforced group-think.

 

WHAT BEHAVIORS YOU “REWARDING”?

The Wells Fargo case shows once again the power of paying for performance. Unfortunately, it also showed the power of paying for performance when you pay for the wrong performance.

The performance systems of most organizations are the jealously guarded hostages of either executives or in larger companies, HR.

Executives who want to run truly ethical – and effective – organizations need to take responsibility for ethical behavior before engaging in silly talk about the greater good.  

You will have a lot better chance of avoiding the sort of ethics crisis that Wells Fargo has undergone if you effectively manage your organization’s reward system.

 

WE DISCOVERED SOMETHING …

At the other end of the scale, Revitalization Partners was recommended by a bank to assist one of their clients that did not have any financial management.

In attempting to establish proper systems, we discovered that the company was placing funds in another bank, which was in direct violation of their loan agreement.

When challenged on this issue, their response was that they were worried that the bank would stop lending to them.  Additionally, they were signing certification documents that they knew were not correct.

Because of their unethical behavior, the bank elected to ask the company to find a new bank and the company is no longer a client of RP.

Unethical behavior and lack of integrity has a cost. And it is often not only the managers and executives that pay the price.

 

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.

Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.