Shape culture Drive strategy

View the complete Global Human Capital Trends 2016 report

Culture has become one of the most important business topics of 2016. CEOs and HR leaders now recognize that culture drives people’s behavior, innovation, and customer service: 82 percent of survey respondents believe that “culture is a potential competitive advantage.” Knowing that leadership behavior and reward systems directly impact organizational performance, customer service, employee engagement, and retention, leading companies are using data and behavioral information to manage and influence their culture.

• Culture is a business issue, not merely an HR issue. The CEO and executive team should take responsibility for an organization’s culture, with HR supporting that responsibility through measurement, process, and infrastructure.
• While culture is widely viewed as important, it is still largely not well understood; many organizations find it difficult to measure and even more difficult to manage. Only 28 percent of survey respondents believe they understand their culture well, while only 19 percent believe they have the “right culture.”
• Culture can determine success or failure during times of change: Mergers, acquisitions, growth, and product cycles can either succeed or fail depending on the alignment of culture with the business’s direction.

This year, unlike in past reports, Global Human Capital Trends treats culture and engagement as two distinct topics. Why? Because, while the two issues are intimately connected, the differences between them are significant, and the importance of each has risen to justify a separate treatment and a separate, well-defined approach to tackling it.

• Culture describes “the way things work around here.” Specifically, it includes the values, beliefs, behaviors, artifacts, and reward systems that influence people’s behavior on a day-to-day basis. It is driven by top leadership and becomes deeply embedded in the company through a myriad of processes, reward systems, and behaviors. Culture includes all the behaviors that may or may not improve business performance. Today, culture is a CEO-level issue and something that can be measured and improved to drive strategy.

• Engagement, in contrast, describes “how people feel about the way things work around here.” It is a way of describing employees’ level of commitment to the company and to their work. According to our model, engagement encompasses five broad areas: meaningful work and jobs, management practices and behaviors, the work environment, opportunities for development and growth, and trust in leadership.¹ When engagement is poor, employees feel uneasy or uncommitted, resulting in high turnover, low performance, and low levels of innovation and customer service. New tools are enabling companies to monitor engagement on a detailed, real-time basis, delivering specific, actionable information to continuously improve the work environment.

• The two are connected. When a company’s culture is clearly aligned with business strategy, it attracts people who feel comfortable in it, which in turn should produce a high level of engagement. Conversely, programs to improve engagement often discover cultural issues, forcing the company and its leadership to question and change its values, incentives, programs, and structure. Both culture and engagement require CEO-level commitment and strong support from HR to understand, measure, and improve.

Few factors contribute more to business success than culture—the system of values, beliefs, and behaviors that shape how real work gets done within an organization. Its close connection to performance is not lost on HR and business executives: Nearly nine in ten (87 percent) of our survey respondents say that culture is important, and 54 percent rate it as very important, nine percentage points more than last year. (See figure 1 for our survey respondents’ ratings of culture’s importance across global regions and selected countries.)

Culture brings together the implicit and explicit reward systems that define how an organization works in practice, no matter what an organizational chart, business strategy, or corporate mission statement may say. A staggering number of companies—over 50 percent in this year’s survey—are currently attempting to change their culture in response to shifting talent markets and increased competition.

In an era in which bad news travels instantaneously and an organization’s culture is both transparent and directly tied to its employment brand, great companies consciously cultivate and manage their culture, turning it into a competitive advantage in the marketplace. Have you ever wondered why certain companies hire great engineers, deliver seemingly endless innovations, and generate consistent growth, while others always seem to be reinventing themselves? A large part of the answer, in one word, is culture.

The importance of culture is readily apparent when things go wrong. When two large companies merged last year, for example, it became clear that one company had a culture of “low cost” while the other had a culture of “quality service.” Employees received mixed signals for months until the new management team took the time to carefully diagnose and redefine many business processes throughout the company.

Given the importance of culture and the consequences of cultural issues, many companies are proactively defining culture and issuing culture “manifestos.” The Netflix culture presentation,² often used as an example, has been downloaded more than 12 million times since 2009.³ The presentation clearly describes a culture that combines high expectations with an engaging employee experience: Generous corporate perks such as unlimited vacation, flexible work schedules, and limited supervision balance a strong focus on results with freedom and appreciation for the expected achievement.⁴

The financial services industry, still restoring its brand after the 2008 financial crisis, is sharply focused on culture. One organization is using a variety of initiatives to help employees understand “how the bank does business,” including offering speaker series on topics such as compensation packages, customer satisfaction, and maintaining regulatory standards. Citigroup has an entire committee focused on ethics and culture and has implemented a series of web-based videos detailing real workplace ethical dilemmas. Bank of America is focusing its corporate culture transformation on encouraging employees to report and escalate issues or concerns, as well as incorporating a risk “boot camp” into their current training. Wells Fargo is increasing its efforts to gather employee survey feedback to understand current trends and potential areas of weakness in its culture.⁵

A new industry of culture assessment tools has emerged, enabling companies to diagnose their culture using a variety of well-established models.⁶ Yet despite the prevalence of these tools, fewer than 12 percent of companies believe they truly understand their culture.⁷ That’s where HR can help. As businesses try to understand and improve their culture, HR’s role is to improve the ability to curate and shape culture actively. An organization’s capabilities to understand and pull the levers of culture change can be refined and strengthened. HR has a natural role to play in both efforts.

As operations become more distributed and move to a structure of “networks of teams,” culture serves to bind people together and helps people communicate and collaborate. When managed well, culture can drive execution and ensure business consistency around the world. HR has an opportunity to assume the role of champion, monitor, and communicator of culture across, and even outside, the organization. Once culture is clearly described, it defines who the company hires, who gets promoted, and what behaviors will be rewarded with compensation or promotion.

Given the importance of culture and the consequences of cultural issues, many companies are proactively defining culture and issuing culture "manifestos."

To effectively understand and manage their organization’s culture, business and HR leaders must collaborate to answer a daunting set of questions. For example:

• How do we create more high-impact customer and employee experience moments and ensure that we deliver them consistently?
• How well does our performance management or compensation system reinforce or improve our culture?
• Are we willing to reduce productivity temporarily to invest the time it takes to build a culture of learning?
• What cultural issues lie behind problems such as fraud, loss, or compliance issues? Is punishing the offenders and reinforcing good behavior enough, or does supporting ethical conduct require changing cultural norms that enable or even encourage bad behavior?
• In M&A situations, how can cultural barriers to integration be identified and addressed before they become problematic?
• In today’s competitive talent environment, how does our culture affect our employment brand and ability to attract, hire, and retain top talent?

CEOs and senior business leaders should work with HR to take a hands-on, data-driven approach to managing culture. To monitor and reinforce culture, companies must regularly assess employee behavior and revisit reward systems and business practices in all areas of the company.

The good news is that there are many new ways to research, measure, and monitor culture, enabling companies to approach the issue rigorously and systematically. Just as employee engagement is being transformed by internal and external tools for feedback, corporate culture is now transparent and open. Indeed, many companies’ cultures are constantly being discussed, shaped, and rated for the entire world to see on social media platforms like Glassdoor and LinkedIn.⁸

Some companies are taking action to actively manage and change their culture:

• Nordstrom has formed a People Lab Science Team in an effort to define and curate a culture that will attract top talent and enable the retailer to compete with tech companies such as Tableau and Microsoft. The team takes a multidisciplinary approach to designing programs to define and reinforce Nordstrom’s culture.⁹
• Starbucks analyzed thousands of social media entries to gain an objective view of its culture through the eyes of its employees and take specific actions to reinforce its cultural strengths and address cultural weaknesses.¹⁰
• Securitas Belgium has defined the behaviors associated with its vision for culture, performed an analysis of its current state, and developed a detailed, measurable change plan for 150 of its managers.¹¹
• Software giant SAS was recently rated the best place to work by the Great Place to Work Institute. It is also highly successful, with 37 consecutive years of record earnings (it earned $2.8 billion in 2012). SAS has identified trust as a critical cultural attribute and regularly surveys its employees on elements of trust: communication, respect, transparency, and being treated as a human being.¹²

Once an organization develops a clear understanding of its culture and decides on a direction for cultural change, it is critical to move rapidly from analysis to action. Moving from talking to doing is the only way to build momentum. For companies pondering a cultural transformation, the time to start is now—because many companies are already way ahead.

Lessons from the front lines

Culture is particularly important during times of great change, such as mergers and acquisitions or corporate divestitures, which offer an opportunity for a fresh start on culture.

Take the example of HP Inc., a global technology company headquartered in Palo Alto, CA, which began when Hewlett-Packard Co. split into HP Inc. and Hewlett-Packard Enterprise on November 1, 2015. The company used the separation as a unique opportunity to reinvent the sales culture and create an environment that supports high-performing sales organizational behaviors for the entire global sales team of more than 6,500 employees. It took a systematic approach, using a quantitative tool to assess sales behaviors for all regions and sales roles. Analyzing the complex intersection of sales behaviors, activities performed by salespeople, sales competencies, and compensation has provided insights that create top-performing sales representatives, sales managers, and teams. The findings from this multifaceted analysis has enabled HP’s top sales leaders to make “culture commitments” at their global sales meeting in an effort to begin to transform the company’s sales culture.¹³

As another example, following its July 2015 spin-off of PayPal, eBay took the opportunity to implement a deliberate approach to redefining and actively managing its culture.¹⁴ eBay’s CEO has declared himself to be “chief culture officer” to emphasize his personal commitment to driving change. On the first day of the new company, he introduced a refreshed company purpose and five new values that are intended to create a more brand-focused, inventive, and bold work environment. eBay is relying on new company values to turn its culture aspiration into reality. The value statements are being monitored using a quantitative approach to measuring and disseminating them: eBay’s team of organizational development experts and data scientists actively measures the strength and adoption of these new values, regularly surveying eBay employees on over 50 cultural attributes that are mapped to the five recently formulated values, and conducting employee engagement surveys. This data is then combined with operational metrics to assess the extent to which compliance with cultural values impacts the business.

To compare the internal view—that of eBay’s employees—with an external view, the analysts also conduct both thematic and natural-language analysis on news articles and Glassdoor content, to gain a data-driven understanding of the ways that people discuss eBay’s culture in the open market. This strong effort has enabled eBay to quantify elements of its culture and gain a more accurate understanding of how people both inside and outside the company view it.

Where companies can start

• Culture cannot be delegated—it must be on the CEO’s list of top priorities: C-suite executives must clearly understand their company’s cultural values, determine how they relate to business strategy, and take responsibility for shaping them, while also analyzing whether their own behaviors reinforce the desired culture.
• Understand both the current and the desired culture: Business leaders should closely examine current business processes step by step to identify which practices are aligned with the desired culture and which are destructive and require change—which begins by uncovering the values and behaviors that allowed those practices to develop. While many HR organizations are building teams to better communicate leaders’ vision of the desired culture, these teams do not always connect cultural change programs to behaviors and business strategies.
• Examine the organization to determine whether the targeted culture is taking hold: Executives can drive permanent cultural change throughout the organization by reminding employees that culture is a tangible set of attributes and behaviors that can be clearly recognized at visible “touchpoints” among employees and people outside the firm.
• Measure culture: Use empirical tools to understand employee attitudes and actions. If measurement reveals that current behaviors conflict with desired cultural values, refine the program to communicate and model culture throughout the organization. HR should take the lead in this effort.

Bottom line

Although HR has a distinct and proactive role to play in driving cultural change—one that leading HR organizations have already embraced—the challenge of culture should be owned at the highest level: by the leaders who are responsible for business strategy. Just as the CEO is ultimately responsible for business strategy, the CEO is ultimately responsible for culture.

In short, leaders must understand that their beliefs and actions are the primary drivers of the organization’s culture. In the “new organization,” senior leaders must drive cultural change just as they do other cross-organization issues, reinforcing the behaviors necessary to support the business strategy. Start by identifying the practices that need to change before any cultural transformation can take hold, and then use the new tools available today to measure and manage culture toward alignment with business goals.

Deloitte’s Human Capital professionals leverage research, analytics, and industry insights to help design and execute the HR, talent, leadership, organization, and change programs that enable business performance through people performance. Visit the “Human Capital” area of www.deloitte.com to learn more.