By:Aurimas Adomavicius Posted On: Topic:Strategy

The financial burden of culture debt

Underinvesting in a company's culture results in lower employee engagement and, in turn, a higher cost of doing business. I’ve written multiple articles previously that discuss the mechanics of the agile process for building great products, but they cover only one side of the coin. On the other side we have people, values, and culture.

Culture engagement values diagram

Within the context of our narrative, employee engagement may include task ownership, operational transparency, conflict resolution, and lesser aversion to risk (which becomes important when we dive into product innovation and new channels of revenue). Gallup reports that 70% of the U.S. workforce is unengaged. The negative financial impact? Around U.S. $450-550 billion per year. 

For example, two financial organizations determine to invest in customer experience. Digital channels are chosen as the platform for the investment. The new digital product aims to reimagine how a loan application process would work without a branch’s involvement or paper forms. The digital initiative encapsulates an innovative loan application workflow on mobile and web, a new microservices architecture to facilitate decoupling of front-end and core systems, as well as new applications and workflows for loan processing downstream.

Both organizations have a similar approach: they use agile, cross-functional teams, have similar budgets, and target a similar time to market. Yet one organization is able to get to a working digital product four times faster and at a fraction of the original budget. One of the most important variables contributing to such a dramatic difference in time and cost is organizational culture.

Organizational culture increases productivity to market

Engaged employees go the extra mile

We’ve established that companies with a functional culture can create more with less. Companies with a culture that lacks investment carry a significant financial burden and lose their competitive edge in the market. Furthermore, an organization with a poor culture will demonstrate some of the following employee behavior:

  • Aversion to failure. Failure is punished and prohibits advancement within organization. It’s hard to be innovative and nimble without making mistakes.
  • A focus on activity versus progress. If you can’t be part of the solution, there’s money to be made along the way. Complacency and mediocrity is rampant. 
  • Self-preservation. Unnecessarily large groups participating in all meetings and projects.
  • Lack of ownership. Teams tend to blame others and lack transparency.
  • Defensive position. Constant fear of change limits progress and ability to react to opportunities.

In the current market, there is more demand than supply for the modern knowledge worker. Employees look beyond compensation and benefits when selecting their next employer. Organizations with a rich culture attract the best people and engaged employees demonstrate the desired behavior as seen in Bain & Company's “The big green talent machine”:

Engaged employees go the extra mile to deliver. They provide better experiences for customers, approach the job with energy—which enhances productivity—and come up with creative product, process and service improvements. They remain with their employer for longer tenures, which reduces turnover and its related costs. In turn, they create passionate customers who buy more and tell their friends, generating further growth. As a result, companies with highly engaged workers grow revenues two and a half times as much as those with low engagement levels.

Engagement is closely coupled with culture. Deloitte reports that most leaders lack an understanding of and models for culture. Culture is driven from the top down. Yet most executives can’t even define their organization’s culture, much less figure out how to disseminate it through the company. So what are some themes for investing in and changing culture for the better, long term?

A Culture of Change

Culture is not the same as perks. Video games, ping pong, and an occasional sponsored lunch are great perks that do little to correct the fundamental challenges organizations face with culture. A culture is built over years by the beliefs shared and practiced within the community. It is taught by example from leaders, fortified by practice of individual teams and team members, and is influenced by the geography of the business. 

Four steps to adopting value-based culture practices

In Blue Ocean Strategy, W. Chan Kim and Renee Mauborgne have identified the challenges that a leader will face when initiating a transformation of culture:

  • Cognitive – your team should understand why the change in strategy or in culture is needed
  • Limited resources – be it financial or availability of people, the initiative will require an investment 
  • Motivation – employees will need to care to initiate a change
  • Institutional politics – support should come from the top down to break through existing behavior patterns

Start by aligning your strategy and values. Most organizations (or even departments within extremely large companies) do not have the luxury of a “reset” button for culture, so the culture strategy should focus on changing behavior versus simply pouring money into perks. Investing in culture, then, is about gradual, positive change that influences downstream behavior and improves the bottom line. In HBR's “Culture Change That Sticks,” the authors write:

Too often a company’s strategy, imposed from above, is at odds with the ingrained practices and attitudes of its culture. Executives may underestimate how much a strategy’s effectiveness depends on cultural alignment. Culture trumps strategy every time.

Consider if the current organizational values and employee behavior correlate with your business strategy. If lowering costs is your strategy, exceptional customer experience as an employee value may contradict the strategy. If collaboration and teamwork is valued, eliminate exclusive private offices and other perks that are based on rank.

Perform a value audit to determine what to keep and what to change. Even if the organization is underinvesting in culture, some values may be engrained in the core business and should be celebrated. In Winning the Story Wars, Jonah Sachs recommends capturing existing values as well as aspirational values and sorting them into four categories:

  • Values built into the founding story
  • Values expressed by products or services
  • Values held by leadership
  • Values we believe will most deeply resonate with the audience

Establish a beachhead team that will operate with close mentorship and oversight from the leader that owns the culture project. Provide the team with a blueprint of values and lead by example through the first digital product initiative. Once success is demonstrated, as with the lender example I mentioned at the beginning, use it as a story to spread awareness throughout the organization. 

Strategically select people for the beachhead team. While most culture challenges are inherited from poor management and lack of leadership, the members of your team need to be receptive to change and adapt. It is likely that not all employees will survive this change process. New hires will bring in outside perspective as well as a more open attitude.

And last, but not least, provide teams with the tools and processes to succeed. A culture shift will also need a change in your processes, be it how digital products are designed and developed or how back-office processing is handled.

Design Thinking, Agile, and DevOps all contribute to faster, smarter product teams. Investment in culture and company values, however, guarantees that gaps in process and methodology are covered by team members that are engaged, passionate, and results oriented.  

Aurimas Adomavicius

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