A culture of success: Using culture for world-class results in GCC companies
GCC business leaders seeking to compete with best-in-class companies abroad should rigorously harness the emotional energy of their organizational culture. Using elements of their current cultures, they can alter critical behaviors. These then accelerate the cultural evolution that ensures strong corporate cultures that can enable and accelerate strategic and operational changes.
A culture of success Using culture for world-class results in GCC companies
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About the authors
Beirut Georges Chehade Partner +961-1-985-655 georges.chehade @strategyand.pwc.com Dubai Per-Ola Karlsson Senior Partner +971-4-390-0260 per-ola.karlsson @strategyand.pwc.com James Thomas Principal +971-4-390-0260 james.thomas @strategyand.pwc.com New York Jon Katzenbach Senior Executive Advisor +1-212-551-6115 jon.katzenbach @strategyand.pwc.com
Gideon Rutherford also contributed to this report.
Per-Ola Karlsson is a senior partner with Strategy& based in Dubai. During the course of his career he has been the firm’s European managing partner and has led the organization, change and leadership practice in Europe. He has worked across industries with numerous large clients in the Middle East on projects focused on organization design, culture and behaviors, and capabilitiesdriven strategy. Georges Chehade is a partner with Strategy& based in Beirut, and the leader of the firm’s energy, chemicals, and utilities practice in the Middle East. He has extensive experience in energy, including midstream and downstream oil and gas, and has led numerous transformation programs for large international and national oil companies, including corporate and business unit strategies, restructurings, and operating model redesigns. Jon Katzenbach is a senior executive advisor with Strategy& based in New York, where he leads the Katzenbach Center, which develops practical new approaches to leadership, culture, and organizational performance. Prior to joining the company, he was a founder of Katzenbach Partners LLC. He is the author of several books, including bestsellers such as The Wisdom of Teams and Why Pride Matters More than Money. James Thomas is a principal with Strategy& based in Dubai and is the Middle East lead for the Katzenbach Center. He is a specialist in capabilities-driven business transformation with significant experience in the oil and gas industry.
Behind every great company is a culture of success. Such a culture creates pride among employees in their jobs, business units, and companies. It encourages the adoption of behaviors that are essential to the execution of strategy, such as accountability, creativity, and customerfocus. It acts as an accelerant of change and performance. The development and enrichment of a culture of success is especially relevant to the leaders of large companies in the GCC. These leaders have ambitious goals. They are setting strategies to expand and compete against best-in-class companies from around the world at a time when the corporate landscape is becoming ever more complex, connected, and competitive. They also are seeking to attract, develop, and retain the best and the brightest employees at a time of considerable turnover in their staff. Many of their most experienced people are retiring and growing numbers of young people with non-traditional attitudes and motivations are entering the job market. Many leaders of GCC companies have already begun the work needed to achieve their goals. They have formulated new and innovative strategies. These companies have undertaken the organizational restructuring; policy and process redesign; implementation of new, enabling technologies; and the employee training necessary to execute them. However, as some leaders have already discovered, on their own these strategies are not always sufficient to bridge the competitive gap between GCC companies and leading competitors in Europe, North America, and the Far East. The missing element is a rigorous approach to harnessing the emotional energy of their organizational culture. GCC business leaders need to identify, select, and spread a few critical behaviors that ensure their corporate cultures are strong, vibrant, and most important, capable of enabling and accelerating their strategic and operational efforts. Leaders often see the “soft” work of changing culture and behavior as a nebulous and daunting challenge compared to organizational restructuring or business process optimization. However, in reality, by following a few practical steps they can create tangible and significant business value.
An underexploited competitive advantage
The leaders of GCC companies have made great strides toward establishing their companies in regional and global markets. The results of their strategic initiatives to date have been impressive. Driven by operational improvements, the business capabilities and performance levels of GCC companies have improved. Recently, however, with most of the low-hanging operational fruit harvested, the yields have begun to diminish. Moreover, there often remains a significant performance gap between many GCC companies and their major competitors in Europe, North America, and the Far East. To reinvigorate their efforts and close this gap, the leaders of these GCC companies need a more holistic approach to strategic change and performance enhancement. Such an approach must recognize that culture plays an equally important role along with strategy and operating model in determining a company’s outcomes, and must find ways to capture and use the motivating energy that culture can generate. Organizational culture is a powerful force that influences and drives the collective norms of the people who work within a company. As such it is slow to change, but it has enormous influence. Culture must not be mistaken for a company’s values — those aspirational statements that appear on posters and screensavers, but often bear little relation to how employees feel or act on a day-to-day basis. Depending on how culture is wielded, it can enhance or hamper employee behaviors that are critical to a company’s success, such as accountability, creativity, and customer-centricity. It also can enhance or undermine a leader’s ability to create change and make it stick. The 2013 Global Culture and Change Management Survey of 2,219 executives, managers, and employees, conducted by the Katzenbach Center at Booz & Company revealed that 84 percent of the respondents believe that culture is a critically important element in the achievement of organizational goals. Our survey also found that culture is a force that is significantly underexploited. Less than half of the survey’s respondents reported that
Organizational culture is a powerful force that influences and drives the collective norms of the people who work within a company.
their companies did a good job of utilizing culture in the achievement of organizational goals. Furthermore, respondents that reported unsuccessful change initiatives also noted that cultural considerations had not been a priority in those efforts (see Exhibit 1). These findings suggest that GCC leaders who deliberately consider and proactively use their organization’s culture can improve the results of their strategic initiatives and raise performance levels. They can also gain a step in the race to close the performance gap with their local, regional, and global competitors.
Exhibit 1 Culture is a critical element in business success, but is undermanaged
Demographics & Results of Survey with 2,219 Responses
67% 12% C-suite 17% Director 24% Manager 47% Other Function Region 45% 35% 0–499 employees 37% 500–10,000 employees 28% >10,000 employees 60%
... agree that their organization’s culture is critical to business success
... agree that culture is more important than strategy or operating model
... agree that culture is being effectively managed in their organization
17% General Management 13% Planning 11% Operations 59% Other
53% Americas 30% Europe, the Middle East, and Africa 17% Asia-Paciﬁc
Source: Booz & Company Global Culture and Change Management Survey 2013
An essential enabler of change
Every time a company undertakes significant strategic or organizational change, it is likely that the full value of these changes won’t be realized unless and until peoples’ behaviors change too: the organization’s value creators — its employees — will need to change how they act in order to deliver different, presumably better, outcomes. Behavioral changes can be mandated from above and even incentivized, but that is not enough. Mandates and incentives tend to elicit rational compliance, and as many studies have shown, rational compliance alone usually produces only short-term bounces in performance that cannot be sustained. This is particularly true when the behaviors being sought depend on high levels of individual initiative, flexibility, and responsiveness. Long-term behavioral change requires a deeper, more emotional connection and high levels of internal motivation. This is where organizational culture comes to the fore. It is the unspoken norms, personal relationships, shared mind-sets, and informal networks within an organization that carry employees beyond rational compliance and encourage them to make a sustainable emotional commitment to behavioral change. Of course, organizational culture is a double-edged sword. A culture that is well aligned with a company’s strategy and the employee behaviors it requires can generate feelings of pride in the workplace among employees and a genuine desire to achieve peak performance. However, a misaligned culture, especially one that is long-established, can feel like an overwhelming obstacle to change — amplifying deep-seated but counterproductive beliefs and behaviors that are not consistent with the company’s current or future interests. Therefore, to create the kind of lasting behavioral change needed to achieve strategic goals, leaders must examine the culture within their organizations and identify which of its traits can be used to accelerate and sustain change, and which might stand in the way of change. Further, they should identify the specific behaviors necessary to differentiate the enterprise in the customer and talent markets — those actions and interactions which, if more of the company’s people did them more often, would ensure the kind of employee commitment and customer loyalty that ensures ongoing excellence in business performance.
The culture challenge
Working with culture is challenging, but it is both possible and profitable. Every company has a culture, whether it is by design or happenstance. In the GCC, many corporate cultures evolved in the latter fashion and their cultural traits derive from the national and regional societal cultures that have shaped them. No culture is all good or all bad; indeed the most visible positive and negative manifestations are often the two sides of the trait (see Exhibit 2). For example, the region’s historical position as a vital economic link between the East and the West has given rise to a trading
Exhibit 2 All cultural traits have positive and negative implications for employee behaviors
Negative Implications Corporate Cultural Traits Positive Implications
Transactional win–lose mind-set, focus on monetary rewards
Legacy as traders
Naturally entrepreneurial, ﬁnancially motivated
Averse to accountability, uncomfortable giving feedback
Respectful, consensus-seeking, compliant
Natural tendency to silos, distrustful of other groups
Proud, protective, and loyal to own group
Inefﬁcient, complacent, unrealistic
Ambitious, aspirational, ﬁnancially enabled
legacy. On the positive side, this legacy has created a cultural trait that typically results in organizations that value entrepreneurship and financial success. Less favorably, however, the trading mentality can inhibit collaborative efforts and produce an excessive stress on motivating people solely by monetary rewards. Often, leaders think of the cultural traits of their employees as fixed and so, beyond managerial influence. However, wise leaders understand the significant influence that culture has on the success or failure of their strategic initiatives and performance improvement efforts, and consider the ways in which cultural traits can be enlisted to support strategic goals. Wise leaders also realize that the creation and evolution of organizational cultures takes time. Indeed, some common cultural traits found in companies in the GCC, such as those highlighted in Exhibit 2, are deeply ingrained and will not change in a time frame that is helpful to most leaders. Efforts at changing the underlying behaviors of employees typically lag behind other initiatives, such as strategy setting, organizational restructuring, or operations improvement. This is because, in addition to its embedded and enduring nature, culture cannot be grasped purely through quantitative analysis. For example, if a company wants to redefine its strategic objectives, improve the cycle time of its procurement process, or restructure its organizational spans and layers, a rational, data-driven approach is likely to be both appropriate and effective: understand where you stand today, evaluate the opportunity that may be captured by changing, and define an initiative or set of initiatives to make that change. In contrast, addressing specific behaviors is a more intuitive, emotional, and subjective task. Making the case for change also can be more difficult. It is relatively simple to quantify the size of the prize when entering a new business compared to making employees more accountable, innovative, or customer-friendly.
Wise leaders understand the significant influence that culture has on the success or failure of their strategic initiatives and performance improvement efforts.
Although it can be difficult for companies to clearly define “how we do things around here,” it is possible to conduct a structured diagnosis of an organizational culture. When properly conducted, such a diagnostic holds up a mirror to the company. It illuminates the cultural traits that characterize the company and rigorously determines the critical few behaviors needed to deliver on the company’s strategic goals. This information is invaluable in understanding a company’s current capabilities and the gaps that must be filled for it to be successful in future. In our experience, there are a few key principles to keep in mind when conducting a culture diagnosis: 1. Seek fresh input from across the company. A company’s culture is the aggregate of the behaviors and mind-sets of all employees, not just those of senior management or just a few functions, no matter how strategically essential they may be. 2. Focus on a critical few behaviors. Leaders will be frustrated if they try to address more than three or four behaviors at one time. 3. Recognize that the existing culture continually directs and affects behavior. The chosen behaviors should reflect and resonate with the cultural forces already at work within the company, otherwise the risk that they will be rejected increases dramatically. 4. Critical behaviors must be practiced to some degree in the company today. Leaders should depend less on lofty, aspirational statements and instead, seek out models of desired behaviors that they can point to as exemplary. 5. Quickly get to a working answer and iterate. You will not arrive at the best answer or most resonant wording at the first attempt.
The choice of words in how you articulate the critical behaviors is crucial. Leaders should seek to describe their “critical few behaviors” in ways that employees will acknowledge and want to emulate because of the results they imply and the positive feelings they generate. The description of behaviors should be worded in a way that resonates across the company and with employees at all levels. It also should clearly describe the desired behaviors, without excessive detail (which can create the impression of an inflexible, top-down dictate) or resorting to catchy slogans and one-word captions (which smacks of a “flavor of the month” fad and can undermine the seriousness of the effort).
Sustaining behavioral change
Once the critical few behaviors have been identified, the real challenge begins: To get more employees to exhibit more of those behaviors, more often. To achieve this, leaders of behavioral efforts often must work in unfamiliar ways. First, the change cannot be imposed from the top down only; it also needs to bubble up from within the organization and spread across it through informal and social networks. Second, behavior change requires willingness on the part of the leadership team to experiment, which also assumes a willingness to accept and correct missteps when they occur. There are too many unknowns in behavior change to expect a flawless implementation of a fixed plan. To create and institutionalize behavioral change, leaders must use a combination of programmatic, interactive, and sustaining mechanisms (see Exhibit 3).
Exhibit 3 There are three kinds of behavioral change mechanisms
Formal & Programmatic Mechanisms Organization, Roles & Training Processes & Workﬂows Systems & Tools
Informal & Interactive Mechanisms Role Modeling Peer Inﬂuencing Performance-Driving
Programmatic mechanisms Programmatic mechanisms are operational tactics that create the formal infrastructure that supports new behaviors. They include process redesign, revamped policies, and training, among other “hard” tactics. Most leaders devote the vast majority of their transformational efforts and resources to programmatic mechanisms. This is understandable because these mechanisms are a more tangible and familiar means of implementing change. Certainly, they can be less daunting compared to the perceived emotional investment and time commitment required to change hearts and minds. Interactive mechanisms These mechanisms are soft tactics that depend on informal and social interactions within an organization. Although the emotional component is sometimes more daunting to leaders, especially those with a bias toward command-and-control management, it is typically the most powerful and effective means of implanting new behaviors within a culture. These mechanisms work from the bottom up and the top down, demonstrating behavioral change and promulgating new behaviors at every level of the organization. Based on our experience, there are three simple interactive mechanisms that are highly effective at creating behavioral change: • Role modeling: Doing instead of telling through senior role modeling and other visible actions. The behaviors and actions of senior leaders are closely watched by employees and they have an enormous effect on their behavior, especially in the GCC where respect for hierarchy and personal relationships tend to be strongly reflected in corporate cultures. When senior leaders model behaviors and take other actions that signal their importance, it gives everyone else in the organization “permission” to move away from previously accepted norms and behave in new ways. • Peer influencing: Enlisting exemplars to spread behaviors. There are always pockets of employees within companies who are already exhibiting the few critical behaviors that leaders are trying to encourage. They should be identified, brought together, and placed at the leading edge of designing and implementing behavior change. When these exemplars are given the means to spread their behaviors to others throughout the company, they can become powerful sources of insight and energy, and highly effective change agents.
• Performance-driving: Launch pilot projects that create impact and momentum. Inevitably, the critical few behaviors will deliver greater returns in some parts of the organization than in others. For example, although the entire organization might benefit from an enhanced customer focus, it will have an outsized effect among customer-facing employees. Thus, these high-benefit groups are ideal for launching pilot projects. These groups will be most receptive to change and will best demonstrate the value of the behavior, helping to speed its spread throughout the organization. Sustaining mechanisms Finally, to reinforce desired behaviors and help establish them permanently, sustaining mechanisms, such measurement and feedback systems, ongoing communications, and sound program management systems and skills are needed. Existing cultures can exert a strong pull back to old behavioral norms. Sustaining mechanisms counter this force by showing that progress is being made and that new behaviors are having a positive impact on performance and results, and by continually reminding employees of what they should be doing and why. Used together, programmatic, interactive, and sustaining mechanisms create ripples of behavioral change that flow through an organization. With time and support, these ripples can become self-sustaining, recurring waves that wash away counterproductive behaviors and create a beachhead on which to build a stronger corporate culture.
Existing cultures can exert a strong pull back to old behavioral norms.
Wielding the Behavior Change Mechanisms to Drive Improvement
After years of being crippled by production line rework and warranty costs, a large manufacturing company needed a step-change improvement in its product quality. The company established formal training programs and it adjusted its performance measurement and management system to make quality more transparent and to incentivize right-firsttime quality over unit output quantity. In doing so, the leadership team noticed that some shifts were delivering better quality out of the same production lines than other shifts. They discovered a few key differences in the behaviors of the frontline leaders of these more successful shifts: They were encouraging their teams to see the results of their work through the eyes of the customer; they were making their teams accountable for the quality of their own stations by not allowing them to pass on defective products; and they were conducting weekly team meetings, in which recurring barriers to quality were discussed and addressed. Rather than try to instill these behaviors through formal training, the company asked its frontline leaders of the highperforming shifts to form Quality Communities with their peers to discuss and share these practices. The communities rapidly grew, from an initial group of 10 to a vibrant network of over 300 in a matter of months. Soon, they also were suggesting ideas to management, such as adopting the catchphrase “What would our customers expect us to do?”; adding quality updates to performance reviews; and explicitly retelling quality success stories in their day-to-day interactions with their direct reports. Within six months, the company not only met its own ambitious target for reducing defect interventions rates by 10 percent, but also upwardly revised its first-year target by 50 percent. In parallel, the company reported significant reductions in the number of customer service complaints and notable improvements in employee job satisfaction.
Using culture and changing employee behavior across large organizations is challenging work that offers attractive rewards. Leaders of GCC companies who use their cultures to spread behaviors that support their strategic goals will obtain an advantage in the race with their global competitors. Moreover, they will fully realize the benefits of their previous investments in structure, business processes, technology, and talent. By taking some simple steps to understand and work with their organizational cultures, GCC leaders will gain the key to unlocking the emotional commitment of their employees and greatly accelerating the behavioral changes needed to achieve and sustain world-class results.
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