Researchers at Stanford University and the University of California–Berkeley found in a recent study that companies can increase their profitability and innovation outcomes by creating a workplace that balances cultural agreement and diversity in the company culture. The researchers used text analytics to analyze cultural differences based on Glassdoor employee reviews, then measured these differences against business outcomes. In their analysis, they identified two distinct forces at work:
- Compositional Diversity: When employees disagree with each other what makes up a company’s culture.
- Content-Based Diversity: When company culture is made up of a diverse set of topics, which may sometimes conflict with one another.
After considering how compositional and content-based diversity impact organizations’ business outcomes, the researchers found that organizations with higher levels of compositional diversity are associated with negative business outcomes, while organizations with higher levels of content-based diversity are associated with positive business outcomes. From what we uncovered at CEB, now Gartner, in our latest research on organizational culture, both of these findings make perfect sense.
Aligning the workforce to a common vision of culture drives business performance…
Our research finds that organizations have better business and talent outcomes when they have a high level of what we call Workforce-Culture Alignment or WCA for short. Organizations with high WCA have a common set of core cultural expectations that are consistent across the enterprise, ensuring a lower level of what the Stanford-UCB scholars refer to as compositional diversity. Congruent with the findings from their study, we find that without a shared understanding of the desired culture, it is impossible for the workforce to engage in a concerted effort to put that culture into practice. When WCA is low, progress toward the desired culture is slowed and both business and talent outcomes suffer as a result.
…as does empowering employees to translate the culture independently.
Despite increased investment in culture change, less than one-third of organizations agree that their current culture enables their strategy. As pressure mounts from internal and external stakeholders to prove an organization’s culture drives its performance, heads of HR are looking to build and sustain the culture needed for the future. CEB’s Investor Talent Monitor (which CEB Corporate Leadership Council members can access here) found that 70 percent of organizations saw talent issues come up on investor calls last year, and culture was chief among them.
At the same time, organizations are experiencing unprecedented levels of change, disrupting traditional theories of management and organizational structure. In this context, MIT Sloan Management Review editor-in-chief Paul Michelman wonders if the culture challenges organizations are now facing mean that the prevailing ideas about culture are no longer fit for purpose in today’s business world:
We are evolving toward the age of networked enterprise, in which the traditional hierarchies of the corporation will be supplanted by self-organizing systems collaborating on digital platforms. It will be the era of entrepreneurship, distributed leadership, and the continual reorganization of people and resources… Layers of management will fall; the need for centralized systems and trusted go-betweens will dissipate, if not disappear.
And that makes me genuinely worried for my friends in the corporate-culture business. Because I’m not sure that culture is going to matter all that much in the future — at least not in the ways we conceive of it today.
While Michelman cites these changes in today’s work environment as reasons why culture is less important today, we believe they are precisely why culture matters more now than ever. Today we are seeing more and more examples of what we call the “on-demand organization,” which requires employees to have a firmer grasp on culture to guide their decisions, using culture as a tool and not a byproduct of work. Today’s on-demand organizations operate in a business world defined by a decrease in three major types of “time to action”:
At Training Magazine, Brandon Hall Group‘s principal learning analyst David Wentworth laments the dearth of measurement in learning and development functions:
Brandon Hall Group’s 2016 Learning Measurement Study found that few organizations are collecting metrics that help link learning to organizational and individual performance. In fact, only 6 percent of companies are truly measuring all different types of learning with an eye on business results. … More than 25 percent of survey respondents said they are doing only basic measurement or essentially no measurement of all. Approximately half are at what we call the Standardized level, where an array of metrics is collected and basic reports are run, but without much analysis or ability to link learning results to performance.
This lack of measurement effectiveness is evidenced by the study results, which show that companies are not very good at measuring learning that is not formal in nature, and they rely far too heavily on basic metrics such as completion rates and smile sheets. This shortsightedness is keeping these companies from building learning into a strategic influencer of the business. The study also finds that organizations perhaps should not be so concerned with the specific ROI of learning, but rather learning’s impact on business outcomes.
Wentworth’s final point—that businesses need to start thinking less in terms of ROI and more in terms of performance—is incredibly important, and applies to the challenges many organizations are facing in making effective use of talent analytics in all functions, not just L&D.
Two-thirds of organizations perform ad hoc reporting or descriptive analysis and many of them believe their next step should be investing in advanced data tools and technologies. However, these investments will yield minimal gains if teams are unable to translate data into insights that line leaders can act on. Our research at CEB shows that the best organizations build the right analytics capabilities and processes among their staff before investing heavily in analytics technology—they recognize that they can only reap the full value of technology when they have identified the right business problems and improved the HR team’s ability to use talent data to solve those problems.
Robert Adrian Hillman/Shutterstock.com
“Culture” may be the corporate world’s favorite term to use and abuse, particularly when it comes to M&A. When a merger or an acquisition fails, leaders (rightly or wrongly) are more likely to blame poor cultural fit or the inability to integrate cultures than anything else. Since last year was “the biggest year ever for mergers and acquisitions,” according to the Wall Street Journal, it’s likely that 2016 will witness more leaders citing cultural problems as the source of poor performance in earnings calls. That’s why this article by Daniel Friedman, Chris Barrett and Julie Kilmann at CFO on trying to fix cultural problems during M&A is so well-timed and important to note.
The thrust of the authors’ argument is that culture is critical to M&A success because it drives what is unique and valuable in “how a company gets the job done.” Yet culture is fungible and hard to define, let alone analyze. As a consequence, most companies don’t assess culture as seriously as they evaluate tangible assets during due diligence, resulting in cultural misalignments that explode during the integration phase. The authors recommend doing a “cultural beliefs audit” at the start of integration to uncover and safeguard common values and behaviors, and stay ahead of possible cultural conflicts that will hurt financial performance. This is a good idea and CEB Corporate Leadership Council members can get additional support in performing their own cultural audits here.
What the article doesn’t get into is the fact that culture has been and will continue to be an afterthought for the majority of leaders and deal teams exploring mergers and acquisitions. One can’t blame the authors for not challenging this state of affairs; even though cultural issues are a long-documented problem—at CEB, we’ve been talking about culture and M&A since 2006—there’s been little change on this front in the past decade. By way of explaining that inertia, Friedman, Barrett, and Kilmann quote the hackneyed excuse leaders typically give for integration problems: “Culture trumps strategy.”
What does that even mean? And even if it is true, the phrase should really be “strategy ignores culture,” because what is the value of having a strategy if it’s not designed for your reality?