Why culture change?
Disruption has pushed companies into building resilience and developing agility like never before.
But even the most innovative, highly resilient companies can hit a growth plateau. In 2014, Microsoft hit a wall—stagnant growth, perpetuated by a toxic, highly competitive internal culture.
Many organisations find themselves in a similar scenario, driven to adapt and transform, in order to survive business disruption, pursue new growth opportunities, or wiggle themselves out of flat/poor business performance.
And like CEO Satya Nadella of Microsoft, leaders may realise that their internal culture has been the culprit. And that culture change is a vital part of their much-needed transformation.
But changing culture isn’t easy, and it takes time.
In The Irrational Side of Change Management, McKinsey’s survey of 3,000 executives found that only 1 in 3 organisational change efforts succeeds.
And culture change efforts, to be more specific, are noted to have even lower odds of success.
Challenges faced in culture change
These are some reasons behind the low success rate of culture change:
1. Resistance to change
Humans are naturally comfortable with the status quo. To change an established culture (and one that was previously successful) is to fight against nature.
2. Lack of understanding
“Our research, studying culture transformations at numerous organizations, finds that many executives don’t fully understand what truly drives culture change, and that’s why so many of those initiatives tend to fall short of their goals,” Accenture says, in New Rules for Culture Change
An Egon Zehnder CEO Study reported in 2018 that “50% of CEOs found that driving culture change is more difficult than expected.” In many cases, leaders have underestimated the commitment needed and found themselves unprepared for the reality.
3. A top-down approach to change
Accenture Strategy research has found that “driving change too much from the top can actually be highly counterproductive,” resulting in the rest of the organisation to be less engaged.
4. Poor role modeling
When leaders’ actions do not match their words it sabotages the culture change efforts.
Heartset: the missing factor in transformation
A common mistake in approaching organisational transformation and culture change is to focus solely on behaviour and mindset change, and ignore the emotional side—the heart change that is needed.
Leaders cannot ignore the emotional aspect of the change process. Our emotions filter our perceptions and affect how we think. Emotions influence our actions and shape what we believe, what we value. Values play a key role in establishing culture.
Emotions are one of the strongest drivers of change. Acknowledging emotions is acknowledging the people side of change, and that is necessary to make things work.
The role of culture in transformation
The Chobani yoghurt brand is an example of a transformation that hinged on establishing a heart-driven culture. Founded in 2005, Chobani manufactures Greek yoghurt, GMO-free, with all-natural ingredients and is currently the top-selling Greek yoghurt brand in the US.
The company embraced a new goal: to expand into new geographies and business lines. To transform from simply “a yoghurt brand” to “tomorrow’s food company.”
To make this happen, its founder Hamdi Ulukaya envisioned “a new kind of business leadership, one that fuses competitiveness with an unusually strong sense of compassion,” Fast Company says, in How Chobani Founder Hamdi Ulukaya Is Winning America’s Culture War.
The heartset was established by the company’s purpose: “Better Food for More People.” Ulukaya says: “Our purpose is to make universal wellness happen sooner. We’re totally and deeply committed to playing an active role in transforming our food system for the betterment of our planet, our people, and our communities.”
Ulukaya walks the talk by how he runs his business, inspiring a new way of building a strong team: showing compassion not just for customers but for one’s staff.
Some of Chobani’s radical heart-driven practices are:
- A programme that awards 10% of Chobani’s equity to employees
- Six week parental leave for new parents, including foster and adoptive parents
- Above-average wages (twice the minimum wage for factory workers)
- Employment for refugees
“Today, about 30% of the company’s 2,000 employees are immigrants, hailing from more than 15 different countries. ‘It’s a good thing to do,’ Ulukaya says, “and on the business side, it’s a smart thing to do. These are the most hardworking, patriotic, honest people. They will give everything they have.”
“The impact has gone way beyond just solving staffing shortages; it has proven to be a morale booster, contributing to a spirit of community—a feeling among employees that the company stands for much more than just profits,” says Fast Company.
What motivates change?
1. The Why: purpose-driven desire to change
Dr Reddy’s is a 33-year-old company headquartered in India that grew from a manufacturer of APIs (Active Pharmaceutical Ingredient) to a global pharmaceutical brand, producing affordable generic medication. “The company’s goal has always been singular: to ensure expensive medicines are within the reach of patients,” says GV Prasad, Co-Chairman and CEO.
When the company decided to pursue growth opportunities beyond generic medicine, they determined that a culture shift was needed.
The company has grown to 7 business units in 27 countries. With more than 20,000 employees, “decision making had grown more convoluted and branches of the organization had become misaligned,” Harvard Business Review says, in Changing Company Culture Requires a Movement, Not a Mandate. “Over the years, Dr. Reddy’s had built in lots of procedures, and for many good reasons. But those procedures had also slowed the company down.”
Leadership knew that major internal changes were needed before they could become the nimble, innovative, and patient-centred team they wanted to be.
As part of a brand overhaul, Dr Reddy’s team worked with IDEO to “learn about the needs of everyone, from shop floor workers to scientists, external partners, and investors. Together they defined and distilled the purpose of the company, paring it down to four simple words that center on the patient: Good health can’t wait.”
GV Prasad said that the phrase “lends new meaning to our core purpose of accelerating access to affordable and innovative medicines.”
The articulation of the company’s renewed purpose triggered emotional responses from the team: inspiration, excitement, enthusiasm, a desire to serve and help, and strongly highlighted the sense of urgency to develop new pharmaceutical solutions to help customers.
With their newly distilled purpose, “Good Health Can’t Wait,” each employee was challenged to deliver on this purpose in their own way. The 4 simple words gave a new-found clarity on what success meant.
HBR says Prasad saw a change in the company culture right away:
“After we introduced the idea of ‘good health can’t wait,’ one of the scientists told me he developed a product in 15 days and broke every rule there was in the company. He was proudly stating that! Normally, just getting the raw materials would take him months, not to mention the rest of the process for making the medication. But he was acting on that urgency. And now he’s taking this lesson of being lean and applying it to all our procedures.”
“In terms of organizational culture change, simply explaining the need for change won’t cut it. Creating a sense of urgency is helpful, but can be short-lived,” HBR says.
“To harness people’s full, lasting commitment, they must feel a deep desire, and even responsibility, to change.”
Dr Reddy’s did this by framing the change within the organisation’s purpose, giving employees the why that they needed to motivate them to change.
2. People-centred leadership
2014 was not a good year for Microsoft. “Windows’ market share had declined, Microsoft had missed the mobile wave, and competitors—and customers—were moving aggressively to the cloud. The company’s inhospitable culture was depicted in a now-famous meme showing managers in different corners of the organization chart shooting guns at one another,” BCG says in The Head, Heart, and Hands of Transformation.
Microsoft’s business strategy was not working. Meanwhile it was plagued with toxicity and internal competition.
CEO Satya Nadella initiated a much-needed transformation and re-organisation in Microsoft, shifting the business strategy from 'Devices & Services’ to 'Mobile & Cloud,’ where the market was headed.
In order to achieve this, Nadella had to extinguish the ultra-competitive, toxic culture. Business units could not more forward if all their energy was spent in competition with one another.
After years of internal division in Microsoft, Nadella united the company, inspiring the team with a new purpose.
Nadella gave the company “a new north star,” as Quartz put it.
Nadella “articulated a new purpose—’to empower every person and organization on the planet to achieve more’—and fostered a new culture and leadership model, thus tending to the heart of transformation.”
“He also unleashed new ways of working that have not only enabled execution but also have spurred innovation and agility; that is, he equipped the hands of transformation,” BCG says.
After the transformation, “revenues (particularly cloud-based revenues) have soared, the company’s stock price has more than tripled, market capitalization is approaching $1 trillion, and annualized TSR, at 26.5%, is twice that of the S&P 500. Perhaps most important, the company now boasts a visibly new culture of cooperation and a renewed commitment to innovation.”
Sustained transformation needs both mindset and heartset change
In both cases—Dr Reddy’s and Microsoft—transformation was successful because of a people-centred approach.
As with any change initiative, people need to be at the centre. And addressing the heartset is crucial because people are ruled by the heart.
People are motivated by a why, more than anything.
Transformation and sustained change is only possible when there is both mindset and heartset change.
“Culture needs to come from compassion,” ROHEI’s CE Rachel Ong says. “We need to approach people as a whole, looking at the different roles that people play. To move people, we would need to explain the whys.”
“At ROHEI we have a framework called the 6 Responsibilities of a Leader, and it is a progression of steps. There are no shortcuts in people-centred initiatives—you can’t jump from Step 1 to Step 5, which is ‘take action.’”
There is a lot of listening that needs to be done, and courageous conversations to be had, in order to set the direction right, and know what the heartset change needs to be.
But knowing that it’s about the heart—that itself is a step in the right direction.