“Culture Eats Strategy for Breakfast”
What Is Work Culture?
What is culture when we apply to it the workplace? The best definition is the most simple: “the way we do things around here” *. Each company or other organization has a unique culture and that usually flows from the personality, values and beliefs of the leadership. Since it is all about how everything is done (and what is done and not done) in an organization, we can measure it, usually with surveys, and compare it to the past, or compare it to what others do and how they do it.
Why Is Culture So Important?
Lets start with what gives a company a competitive edge: increasingly, research shows that it is culture that makes as much difference as anything else. Culture is what made Apple not Dell, Google not Yahoo and so on. Of course a great product or service is also essential, but how does that come about? The culture makes it happen, as in the famous phrase “insanely great”. Steve Jobs’ personality has been endlessly documented and, especially since his death, millions have read his words of wisdom. He created the culture of Apple, and, as we know from history, when he was not there the company’s culture changed, and Apple went downhill and almost did not survive. I am not the one who decided this was all about culture, it was Jobs himself who said so:
“John Sculley ruined Apple and he ruined it by bringing a set of values to the top of Apple which were corrupt and corrupted some of the top people who were there, drove out some of the ones who were not corruptible, and brought in more corrupt ones and paid themselves collectively tens of millions of dollars and cared more about their own glory and wealth than they did about what built Apple in the first place — which was making great computers for people to use” (emphasis added)
Culture and Execution:
As the Peter Drucker quote which starts this post says, the best strategy in the world is not going to be successful if you cannot execute it. You can say you want to run the London marathon, but if you aren’t in shape you wont even make it the first mile. Culture is about being in shape….or not. It alone determines whether your people will choose to be engaged with their jobs and the organization. All of this together means that culture drives performance….period. I’m talking about customer satisfaction, profitability, productivity and even worker health. That is why it should be of crucial interest to every investor, if that investor wants an edge. Due diligence on the company’s financials is all very well and totally necessary, since a great culture and lousy financials will still land a company in bankruptcy; but due diligence on its culture is much less frequent and equally powerful.
Where to Get Information on Culture:
As a consultant in the field of culture, morale and engagement, I have had lots of opportunity to look at companies’ cultures over many years. But such inside, confidential information is usually not available to the average investor. So how can you do it? The secret is to read a lot, do some research, find out what you can about what customers and employees think about these companies. There are some websites where this information is discussed, but be careful: making an investment based on some disgruntled workers whose opinions may not represent the whole company is a very mistaken approach. Unless that worker voice becomes so loud that it is clearly more than a few people, and becomes a trend. Another course is the “Best Places to Work” contests which are carried out in the US (published in Fortune magazine) and UK (published in the Sunday Times), for example. While they hardly use scientific data, they are a step up from some other sources. Google usually wins the US horse race, and of course over time has been a great investment.
Better information is available from people who write books, sometimes about their own companies; others, like me, do in-depth research into companies’ cultures for books and articles. An example of an insider talking about his company culture is John Mackey at Whole Foods, who has written both books and done interviews on the subject. I recently featured Whole Foods Market and BMW in a book on culture, and would recommend any investor take a look at these companies based on their excellent cultures, which include a strong focus on good relationships with their people. More about them in the next post.
A more recent source might be the companies themselves, especially in the financial sector: as a result of the Crash of 2008 and the subsequent “great recession”, regulators are looking in depth at how the companies’ cultures played a role in this and whether more disclosure of this kind of information would be useful as a leading indicator of problems. We’ll see if it happens.
What Parts of Culture Are Important?
Not all things which are done in an organization are equal in terms of the effect they have on people who work there. The biggest impact is how an individual sees the ability of their boss and how they feel that person treats them. Quite a bit of research, including work I have done, shows that this can explain as much as 85% of the variability in how much people choose to engage at work, or their level of morale. Other things which affect worker morale and engagement include whether people see fairness, for example, in pay, promotions, day to day treatment, assignation of tasks, and so on. I will add something else here; executive pay. I can’t prove it, unfortunately, but some things in this field are common sense. If an executive gets up and says “we’re all in this together” and he (usually he) is making 500x the average worker in the company, what do people think and feel? Things which I would rather not repeat here, but they are not positive….now lets be clear, the number 500 isn’t pulled out of the air, it is the actual ratio of CEO pay to the average worker in the 500 biggest companies in the US. Far higher than in Europe (25:1) or anywhere else. So what I am saying is that if you start to hear that people are dissatisfied with the way they are managed, or the pay of their CEO is way above average while the performance in no way justifies it (which is very, very common)….steer clear as an investment.
Investing for culture is a great idea, even if the sources of information are limited. Great cultures produce great results and great results are rewarded in the stock market. In the next post I will go through some companies whose cultures merit positive attention by investors, and one which should alarm all of us.
David’s book (co-authored with Professor Sir Cary Cooper) on the Crash of 2008, the effect work culture had on this, and how we can learn from this to do much better, is titled The High Engagement Work Culture: Balancing ME and WE and is available worldwide from Macmillan. Visit David’s website for all things engagement, culture and emotional intelligence at work: www.davidbowlesphd.com
* quoted in the excellent book “Corporate Cultures: The Rites and Rituals of Corporate Life” by Allan A. Kennedy and Terrence E. Deal
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.