Using Company Culture to Increase Financial Results and Shareholder Value

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Research has shown that companies with high performance cultures have an average increase in revenue growth over a multi-year period of 682% v.s. non-high performance culture peers at 166% growth, and shareholder value growth of 901% v.s. 74%.  In the final of our three-part series in using company culture to increase financial results and operational performance, you’ll learn how to transition ineffective cultural attributes to effective employee behaviors that create an energized and focused corporate culture.

We’ll show you how to tackle impediments caused by the silent killers of corporate efficiency: invisible clans, organizational silos, private processes, and information hoarding, among many ineffective behaviors.

Just joining this blog?  Read from the beginning here. Want to check out the facts?  Get the research here.

Involved and Active Leadership is Essential

The most important component of successfully transforming culture into an instrument of corporate growth is continuous and strong leadership from the top and active and enthusiastic involvement from the entire senior management team.  For cultural transformation to be effective, it cannot be delegated to the HR team, but must be driven, internalized, and exemplified by an executive leadership team that is in lock-step with the vital importance of this transformation to corporate success.  Using company culture to increase financial results and operational performance is a powerful competitive weapon when coupled with operational and compensation changes to reinforce the cultural changes.

Read more about how to become an effective, inspirational leader here and here.

Cultural Transformation Process Step 4: Detailed Description of Ineffective Current Behaviors and Desired End Behaviors

Once the Target Cultural Values and Target Value Definition are created, you must take the additional step of providing detailed examples of desired end behaviors and then Actively Train Employees.

This is probably the most critical step in laying the foundation for a successful cultural transformation.   Even with the best of intentions, it is very difficult to change habits.  Therefore, the more detailed, concrete, and context-based the example of the behavior you do not want, the more likely it is to be absorbed and understood.  Understanding is the first step towards accepting change, so spending time crafting the wording for the Ineffective and Effective Behaviors to suit the existing culture, will be time well spent.

Let’s examine in-depth two of the most common cultural transformations frequently seen in companies which previously had been successful market leaders, but for a number of reasons – usually a combination of market changes and internal operating challenges – have caused company performance to decline and necessitate transformation for growth.

Sample Cultural Transformation 1:  Re-instilling “We Can Win” Attitude.

In the case of a company that has gone through a growth/ flat/ declining cycle, it is not uncommon for a number of dysfunctions to have emerged within the customer-facing organizations.   Consider a market that has undergone significant transformation.  For example, customers are now looking for SaaS solutions versus product purchases.  Or competitive dynamics have changed the customer’s buying criteria due to a nimbler and lower-priced competitor.  Perhaps some combination of market and competitive factors, such as a need to share confidential information with a customer’s value chain, require different systems.  Given these market changes, it is likely that, without training, the sales force is no longer effective in bidding in, and combating against, the changed market conditions and/or competitor.  While operational changes are also necessary – such as sales training and/or new products – cultural transformation is desperately needed, because in these changed circumstances, the sales force may exhibit one or more of several undesirable behaviors:

Strong-arm customers:  It is not infrequent in these situations for a sales organization to rely on past success, in which the company essentially controlled the customer, and apply brute-force tactics to close a deal when the customer now has options and the brute-force tactics only serve to drive the customer away.

Arrogantly assume success:  Alternatively the sales force may assume the deal is “done” because it always has been so in the past, and either ignore or be oblivious to danger signals from the customer.  This can lead to unpleasant downside surprises at the end of the quarter when the customer for the first time awards the bid to a competitor.

Give up when faced with competition:  Particularly in situations where the company has previously had a market-leading product, leading to consistent wins, if the sales force has now begun to consistently lose deals because of either strong-arm tactics or arrogance, now potentially a “loser’s mentality” has set in, whereby at the slightest sign of competition, the sales team assumes they will lose – a mind-set that is sure to become a self-fulfilling prophecy.  It is essential that the “mind-set to win” is re-established, and the loss of confidence addressed, in addition to the operational changes such as improved training or an enhanced technical pre-sales structure.

Continue losing tactics:  Sometimes these dysfunctional behaviors continue for a sufficiently long period of time that causes a sales team to become inwardly focused.  This is catastrophic, because the key indicators of consistent sales success are self-confidence and outward customer focus.  If those are lost, attempts at re-training will be resisted, old habits will remain entrenched, and new ideas and even compensation will be rejected.  In many cases, the only solution is a major triage and re-staffing, but even in that context, the “best and brightest and most positive” of the existing employees will need cultural retraining to re-instill positive behaviors for forward-going success: confidence to win, confidence to compete, and belief that the company is taking the actions to create current and future success.  Changing the “losing” mind-set is an essential component of using company culture to increase financial results and sales performance.

Lack of attention to bottom line:  As business spirals downward, sales organizations sometimes engage in acts of desperation.  This can include out-of-bounds discounting, T&C’s that are disadvantageous to the company, lavish customer dinners in misguided attempts to lure back the business, and other expense-generating or margin-reducing behaviors that provide a “double-whammy” in the context of reduced revenues.

The cultural retraining that must happen in this situation is easy to describe but difficult to implement, and must be pursued in parallel with re-staffing and compensation changes to incent changed behavior: focus on a belief that the company can win; exude confidence without arrogance; ask for help from executives and corporate, and re-instill financial discipline. But following this process will yield improvements in company culture to increase financial results and operating performance.

The chart below shows an example of the Effective and Ineffective Behaviors Chart, which would be a part of any employee retraining, but especially sales employee retraining in this situation:

company culture to increase financial results

Sample Cultural Transformation 2:  From “Invisible Clans” and “Private Processes” to Effective Metrics-driven Operations:

In addition to dysfunctions related to obtaining new customers and keeping existing ones, it is likely a number of factors have led to disruptive employee behaviors that are seriously impacting operational efficiency.  This can include frustration with the changed marketplace and the overall loss of the company’s market position, and as we describe below, the existence of “invisible clans” and “private processes” that are particularly difficult for a new leader to root out.

“Invisible Clans”: Workgroups reflect personal relationships and “private processes”:  In many corporate turnarounds, the employee population will have a significant percentage of employees who have been with the company for a long time.  An unintended consequence of such long-standing employees is that processes, interactions, and relationships have become institutionalized within working groups that have been together for years.  In addition, in the majority of cases, personal and professional lives have achieved higher-than-average intersection points.   Possibly the culture also previously reinforced that the workplace was “family” – a practice which ultimately creates problems as the company expands (often internationally) and new employees are added who can’t or don’t want to fit in the “family” atmosphere.

As the company has grown, the “family”, now being much larger, has taken on cultural aspects of a clan – meaning sub-families aligning and operating at cross-purposes, or battling over “turf”.  Past events that are no longer necessarily relevant to the business are dwelt upon, and in some cases assigning blame for these past events achieves greater importance than finding a solution or putting the issue behind them and moving forward.

Because of these clan-like interactions, sets of workers may be aligned with each other in surprising ways, and may support each other in ways that may be unsupportive or actively damaging to the company.   For example, a small number of employees who have worked together a long time may have devised a “streamlined” customer support process for a certain set of customers, known only to them.  Such a “private process”, which is not documented, may actually be at odds with the officially documented processes.   Regardless of the intrinsic worth of their “private process”, because it is not documented and either ignores or is counter to the company’s official process, multiple bad outcomes can happen.  Consider if one or more of the employees become ill, takes vacation, or for personal reasons leaves their job (e.g. a spouse is relocated).   In this case, the “private process” may break down catastrophically.   Moreover, replacing the individual or individuals may be nearly impossible – either because an internal candidate is culturally rejected or because an external candidate cannot hope to absorb or fit into a process that is devised purely for the benefit of individuals.

Companies that display “Invisible Clan” behavior must be changed culturally in a very significant way in order for business to proceed with efficiency, or in severe cases, at all.

The only way to instill permanent change is to use company culture to increase financial results and operational performance and couple active leadership of cultural changes with specific metrics-driven compensation tied to operational results.

Ensure job continuity through private knowledge not employee value to the business.  Because the clan-like behavior places a higher priority on the benefit of the clan and its individuals versus the benefit of the company, in the severest of cases information-hiding and active sabotage may occur.  This may remain “below the surface” and is extremely difficult to root out.

Organizational silos.  Intersecting with the invisible clan structure are historical organizational silos that may no longer be serving the needs of the business.  For example, in the early days of the company, perhaps there were two products that were significantly different in terms of technology, type of customer, and go-to-market strategies.  So either separate business units were created, or the sales force was divided, or possibly both the sales and support functions are separate.  Now, however, the market has changed and both products are sold to the same customers.  Rather than a benefit, the divided organizational structure is now a key impediment to growing the business.  As a result, customers don’t understand why they need to deal with two sales people, two support people, and two contracts, when they are buying from a single company.  This is one example where using company culture to increase financial results is, in and of itself, insufficient to yield results — operational changes are needed in addition to the cultural changes.

Dealing with Invisible Clans.   Cultural transformation in any established company will need to address the issue of Invisible Clans.  However, directly attacking the clan structure will merely achieve the reverse of the desired results:  the clan will “circle the wagons” and access will be impossible.  A more indirect approach is mandated – address the undesirable behaviors in blunt fashion from a cultural perspective, and from an operational perspective actively seek out the “clan thought leaders” and co-opt them to support the transformation.  That way, a modified clan structure can be leveraged to support – versus thwart – the new direction and business renewal.

The best way to approach this difficult problem is to clearly document the behaviors that are to be rewarded (Effective Behaviors) and the behaviors that will be not be rewarded (Ineffective Behaviors).  Over time, sufficient cultural training for the established employees, compensation programs that reward the Effective Behaviors, operational changes that are clearly metrics-driven, plus the infusion of new team members who can positively represent the Target Cultural Values, can affect positive change.

In the Effective and Ineffective Behavior Template below, the issues arising from invisible clans, private processes, and siloed organizations are addressed by focusing on the Cultural Value “Executing with Precision”, and defining the behaviors that support this value to encourage accountability, problem resolution, and goal alignment.  The Ineffective Behaviors document many of the by-products of private knowledge and private processes, and failure to work across visible or invisible organizational boundaries.

company culture to increase financial results

Cultural Transformation Process Step 5: Actively Train Employees

The best and clearest cultural transformation examples will be worthless if employees do not internalize and institutionalize the changes.  Cultural transformation of company culture to increase financial results and operating performance cannot occur without an enthusiastic and energized workforce. To do this requires active leadership from you and your management team with focused effort to improve company culture to increase financial results and operating performance.

It is important not just that the behaviors are clear – which, if you have completed steps 1-4 they will be – but that they are communicated to all employees repeatedly and consistently.  The most effective methods of instilling the desired values in the employees are hands-on workshops held with the thought leaders in the organization to make sure they understand and are evangelists for the change.  Through these workshops, you should provide concrete examples to the employees so they better understand what is expected of them in the context in which they are operating.

Depending on the size of the organization, you should aim to put all key leaders in the organization through at least two workshops.  Here, “key organizational leaders” is defined to include all managers that have budgetary or operational leadership, executives and managers in charge of key functional areas, and geographic leaders.

Workshop size.  Ideal workshops will be 25-30 people who will be mixed into 4-5 breakout groups.  Each breakout group will have an employee leader, a note-taker, and an executive sponsor, whose role is primarily to listen, and when necessary to clarify or answer questions.

Select multi-disciplinary class attendees.  Part of the cultural training is aimed at re-setting the Invisible Clan structure as well as breaking down organizational silos.  In order to do this, it is important to mix employees from different functional areas.

Identify thought leaders regardless of business card title.  Every organization has employees that have disproportionate influence.  If you can get these thought leaders to understand and believe in your transformation, they will become hugely effective evangelists for the transformation and will allow you to reach parts of the organization that may normally be inaccessible.

Lead the educational sessions yourself and have your executive team attend the breakout discussions.  Without the leader’s personal involvement, and the involvement of the exec team, the organization will rightly conclude that it is not really important and will ignore the cultural transformation efforts – and also likely ignore your operational transformations as well.  It is important to note that the employees run the session.  The purpose of the executive attendees is to listen and be mostly in the background – but to be ready to subtly re-direct conversations when it is clear the group is reverting to Ineffective Behaviors.  Changing company culture to increase financial results and operational performance is effective only when led by operational leaders who clearly believe in the process and hold employees accountable for its results.

Have an HR consultant / employee track meeting notes. Do relieve your management team from tracking comments and action items.

Breakout sessions.  The purpose of the breakout sessions is to reinforce the Target Cultural Values and Effective Behaviors in a problem-solving format so employees get to practice the Effective Behaviors in a somewhat real-life situation.  However, the purpose of the breakout session is not to solve the problem – it is to reinforce the desired behaviors through practice! Therefore the breakout sessions should have a concrete – but very simple example – of a problem to be solved using the new behaviors taught in the Educational Session.  The session should be about the process, not about the solution, since constructing a real problem that can be solved by a somewhat random sampling of employees would be difficult to impossible, and would take too much time.

Each breakout session should:

  1. Elect an employee as leader
  2. Elect an employee as note-taker (on flip chart)
  3. Have one of your executive team members attend the session to reinforce the Effective Behaviors, discreetly guide the conversation in positive directions, clarify confusion around the objectives of the transformation, and provide brief insights and executive vision – but they should not monopolize the conversation or take over the meeting
  4. Sample breakout session topic: At a high level, diagram our customer support process, identify 3 key problems, and suggest 3-5 improvements.

Have breakout session leaders report back to the team.  You may be surprised at the creativity and resourcefulness each team chose for the assigned problem, and it will be enlightening to employees to see diverse problem-solving skills at work.

Cultural Transformation Process Step 6: Actively Driving Cultural Change Through Operational Accelerators

Using company culture to increase financial results and operating performance is a necessary tool, however the most effective transformation will cement the cultural transformation by targeted compensation plan and operational changes that reinforce and reward desired cultural behaviors.  These Operational Accelerators will be required to fully impact performance and behavioral change of the cultural transformation.  This very critical sixth step of the cultural transformation process closes the loop and implements operational and compensation actions that will create the necessary dis-incentives to Ineffective Behaviors and create positive incentives to Effective Behaviors.  When employees see a direct correlation in their compensation from the company culture to increase financial results and operating performance, then transformation will truly be institutionalized.

The format below most efficiently summarizes the relationship between these items and creates the desired closed-loop connection between the issues identified as Company Impediments in Step 2, the Ineffective Behaviors described in Step 4, and the Operational Accelerators to correct the Company Impediment and the Ineffective Behaviors to create transformed company culture to increase financial results and operating performance..

company culture to increase financial results

Case Study Example.   Let’s take a look at an example of a founder-led business that allowed culture to overwhelm the company.  For a number of years, the company achieved great success by hiring new college graduates and promoting from within.  The fact that the company was “unique” and “different” was a source of competitive advantage and company pride.  Employees were offered promotional opportunities in other functional areas and were encouraged to learn on the job, leading to very high employee satisfaction.  However, without expert role models or in-depth training and education, many of these trainee employees, while performing adequately in their roles, would not have favorably compared to peers at other companies who had substantial training and experience in their designated roles.  In addition, because so many of them had “grown up” in the company, nearly every corporate process was created from scratch, even for processes for which there were more effective and industry standard templates – which, for example, were in use at their competitors who were outpacing them in nimbleness in the market.

Because the company also had an “employees are family” approach as a value held by the founder, everyone in the company received a profit-sharing bonus.  However, unlike traditional profit-sharing programs where the profit-sharing bonus is a relatively modest percentage of overall compensation, in this company, the “profit sharing” essentially substituted for the variable compensation plans for managers and executives.  The direct employee impact was that all elements of individual performance were removed from variable compensation plans, which, at the director level were a substantial component of compensation – around 20%.

However, because the variable bonus was based purely on how well the company performed, whether the employee had anything to do with that or not, low performers received the same bonus as the high performers.  Over time, many top performers had left the company, unhappy that their pay was identical to low performers. This led to a slow erosion of skill sets in a company that had prided itself on technological leadership.

The Operational Accelerators to Cultural Transformation.  In this case, the solution involved a combination of compensation changes, process changes, and consistent management and leadership reinforcement of the desired behaviors in company culture to increase financial results and operating performance.. Best results are achieved when using company culture to increase financial results coupled with operational and compensation changes.  In this case, changes included significantly increased individual accountability (reversing the “one size fits all” previous reward system) and alignment of responsibility and authority (reversing the previous “because we are all responsible, no one is accountable” value system).

The compensation changes involved moving to annual focal reviews tied to compensation increases on the same form, individual evaluation of performance for bonus payouts versus “one size fits all”, written quarterly goals set for each employee, and quarterly evaluations of MBO achievement for each employee, with performance actions for consistent lack of achievement.   The cultural transformation needs to emphasize that tough decisions need to be made by employees, and employees will be held accountable for results.  The operating transformation (see below) needs to align compensation to reward accountability and penalize lack of accountability, and align responsibility and authority so there is no place to hide.

Additional cultural changes included every leader asking the question “what are the best-of-breed practices in this area?  How is what you’re doing better than industry standard?”  In turn, each leader was evaluated on their adherence to best-of-breed practices that fostered a market-focused approach to problem solving.  The issues with functional competence involved a skills assessment for all employees.  Employees who did not meet industry-standard skill levels for their job function were transferred to roles for which they were qualified, or their positions were upgraded with qualified talent.

In addition, new top talent had to be recruited to re-instill the high-performance mentality.  This helped to reinvigorate the company as well as improve retention for the remaining high-performance employees.

The filled-in Operational Accelerators Chart is shown for this case study in the figure below.  Tying together company culture to increase financial results, compensation changes, and corporate process improvements yielded a transformed company with significantly increased financial results and operating performance.

company culture to increase financial results

 

Cultural Transformation Process Step 7: Over-Correct to achieve Desired End-State & Fine-tune every 6-12 months

In many cases where a culture has deeply entrenched Ineffective Behaviors, an over-correction may be needed to achieve the desired end result.   This is frequently the case when Cultural Value Confusion exists, because of the dual nature of the perceived and actual cultures. Depending on the organization, the over-correction may unintentionally create undesirable consequences that will need to be fine-tuned to achieve the balance required of the desired goal. Nevertheless, without the initial over-correction, you will be unlikely to reach the desired end state.  The over-correction is the better of the two alternatives. A concerted focus on using company culture to increase financial results and operational performance will eventually stabilize the over-correction at the appropriate place.

For example, recall the company example discussed under Corporate Core Values Confusion: A Case Study, in which the company started with a core value of “thoughtful decision making”.  Several years later, the company now suffers from “analysis paralysis” and the behavior has essentially caused the company to reach decisions at a pace insufficient to meet market demands.  To reset the ineffective behaviors, intense focus must be placed on “fast-moving decisions”.  However, this may have the undesirable and unintended consequence that employees make “dartboard decisions” without sufficient analysis.  In most cases, this is a necessary step towards the desired state – “thoughtful decisions with speed” – because not over-correcting will cause you to miss the desired state.   Thus, reaching the desired state is a two-step process with an initial over-correction followed by a second correction.

Doing periodic checks on the progress of the cultural transformation will allow the leadership to understand when the direction has reached the over-corrected point and must be brought back into alignment to achieve the desired end state.

Read the previous blog in this series.

Don’t “Go It Alone”!

When facing challenging situations, seasoned management consulting professionals can make a difference between failure and success.  BusinessExcelleration’s former operating executives have “been there, done that” through multiple similar situations and can bring a wealth of knowledge and experience and expertly apply it to your particular corporate transformation and help you use company culture to increase financial results and operational performance.  Learn more about our services!

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