November 17, 2017
How would you describe the culture of your organization? Some might say, “It’s the smell of the place,” or, “It’s how things are done around here.” Research done on culture and organizational performance by Kotter and Heskett defines culture as “…gained knowledge, explanations, values, beliefs, communication and behaviors of large group of people, at the same time and same place.” They concluded that differences in culture explains why one company succeeds where another fails within an industry. Consider Apple verses Blackberry, or Target verses Kmart. It wasn’t just the strategy that determined the success of the company, it was the culture. The ultimate summary statement on the topic may have been Peter Drucker’s familiar saying, “Culture eats strategy for lunch.”
However, culture can’t remain stagnant. As the economy and each industry changes, company culture needs to be constantly adapting. Unfortunately, companies often wait too long to adjust their culture. Doing so may mean walking away from a current business model, which can be risky—or it may just be that enacting change is viewed as requiring more effort than it’s worth.
In a survey of executives from 91 companies, with revenue greater than $1 billion, across more than 20 industries, Innosight asked: “What is your organization’s biggest obstacle to transform your culture in response to market change and disruption?” Forty percent of survey respondents blamed “day-to-day decisions that essentially pay the bill, but undermine our stated strategy to change.” It was by far the most prevalent response. The next most popular answer, at 24%, was “lack of a coherent vision for the future.”
The consequence of failure to adapt is illustrated by the Fortune 500 list. When initiated in 1955, the average time on the Fortune 500 list was 75 years. Today it is 14.5. The S & P 500, with a century’s worth of data, shows that in 1958 firms stayed on the list for an average of 61 years. By 1990 that plummeted to 20 years, and it is forecast to shrink to 14 years by 2026. If the current trajectory continues, half of the S & P firms will be replaced within 10 years.
What are the options for changing company culture?
Several possibilities exist to change your company culture: hire a new senior executive; embark on a focused campaign, such as increasing innovation; restructure the organization. Into that discussion, Jack Welch offered one more possibility, “If you want to change the culture of an organization change the way it develops its leaders.”
It is worth analyzing how changing leadership development could improve company culture. Our research at Zenger Folkman has shown the strong influence leaders have on every measurable business outcome: employee engagement, innovation, intention to stay, productivity, sales, performance, and customer satisfaction. If you use the metaphor of these leaders as the rudder of a large ship moving through the water, Welch’s argument becomes clearer. Even though the leadership team is a relatively small part of an organization, they have enormous influence on its direction and in short, they shape the culture. Reshaping the rudder of the ship has a profound impact on how fast it turns and the stability of its direction.
Leadership development initiatives
It is not hard to find critics of company-sponsored leadership development. The cynic argues, “After all the time and money we spend on leadership development, why don’t we have better leaders?” Some argue that leadership development is often detached from corporate strategy. Others say that the methods employed don’t have the power to truly change behavior. Still, others observe that there are insufficient follow-through and managerial involvement. Much of this criticism is justified! However, many organizations are working hard to eliminate these barriers to success.
Conversely, there are examples of success. Some organizations see elevated 360-degree feedback scores for their executives over time. Many firms have rising employee engagement scores. Business outcomes, such as customer satisfaction scores, are improving. Such outcomes can be directly tracked back to deliberate leadership development initiatives.
Three ways to improve leadership development
We strongly believe that leadership development can be significantly improved through the following methods:
• Increasing the involvement of managers in the entire development process.
• Improving the way development is delivered.
• Incorporating development into daily work.
• Ensuring that leadership development is reinforced and supported by all HR processes, including recruitment, onboarding, performance management, and compensation.
• Including a critical mass (one-third to one-half of the target population of leaders).
• Identifying specific outcomes being sought, such as innovation, customer focus, and/or profitability.
From the many possibilities, we’ll highlight three.
1. Involve Managers in the development process. When analyzing data from a study of 61 leaders in the finance industry, we noticed a significant trend. The leaders were asked to describe their manager’s level of support for their development plan, and were then placed into three groups: unsupportive managers, somewhat supportive managers, and very supportive managers. We then asked these leaders to describe the amount of progress they had made on their development plans, utilizing the question, “I feel that I have moved forward on improving the specific issues on my development plan.” Those that answered “Agree” or “Strongly Agree” to the question were designated as “Improvers.” We found that leaders with very supportive managers were more than twice as likely to feel they had improved than leaders with unsupportive managers.
2. Build development into work. Many assume that there is a major distinction—and to some degree a barrier—between daily work and development. Conscientious employees almost always put their work first, and invariably defer their personal development until they “find time” or “have a break.” The result has been that development nearly always plays second fiddle to job performance.Jobs are a perfect classroom in which to practice and learn how to be a better leader. Daily work and development need to be brought together in closer alignment—they are not competing for activities! Development enables us to be better members of the organization and to improve overall performance.
3. Build leadership development concepts, principles and nomenclature into all HR Systems. The competencies selected to be the bedrock for developing your leaders should not be confined to the classroom, or be seen as one-time events. They should be embedded in the selection, onboarding, performance management, and compensation of all employees.
Any student of physics knows that a body at rest requires an energetic force to get it moving. Culture is no different. Getting it to move requires a focused effort that must begin with the organization’s leaders
—Dr. Jack Zenger
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