So if a focus on delivering the numbers is a given, does the cost-benefit of actively creating a motivating culture stack up?
A safe way to invest in the soft stuff.
The majority of large-company business leaders I have worked with proselytise an accountancy driven theory of management whose mantra might be ‘What gets measured, gets managed’. There is often also a judgement on whether an individual is in the gritty business camp, or the side of the pious and fluffy.
Many staff instinctively dislike the apparently cold, mechanistic approach. They criticise the effect of numbers driven management as corrosive and destructive to a motivating company culture. But noticeably let go of their ideology if they progress further into higher management.
The implication to be derived from the breadth and sincerity of this belief is that rather than being a self serving ideology, its genuine intelligence coming from practical organisational learning.
The easy analysis is that most higher management cadres have some sort of financial or career incentive to hit the numbers, below a certain level the connection is more tenuous. For those without a hard incentive, an attractive company culture becomes more personally relevant than the numbers. The prevailing assumption is that this underlying current of dissatisfaction is inevitable, and coming from relatively low skilled (replaceable) people – it isn’t commercially important.
The simple fact to be derived from my experience of companies is that no-one is ever successful without a very firm eye on the numbers. If there is a hierarchy of business strategies then its jejune to say that ‘delivering the numbers’ is the first rung of the pyramid – which makes sense of the business culture trends I see.
Boeing planes are a useful case in point, where Airbus invested heavily in perfectly smooth wings to reduce drag and therefore fuel costs, Boeing produced heavily riveted wings as an acceptable trade-off, enabling them to produce cheaper planes with at least a comparable drag. A focus on numbers, rather than innovation, produced better results.
There is an assumption within these views, that an attractive company culture is inimitable to a profitable company. Put another way, nice people don’t get to be rich people, or perhaps only as the exception rather than the rule. We need to come back to this.
So if a focus on delivering the numbers is a given, does the cost-benefit of actively creating a motivating culture stack up?
The base scenario for this thinking is a corporate environment which safely delivers on ‘delivering the number’. This is far from being the norm. Even the most established companies or those benefiting from a bubble in their industry (for example mobile phone companies in the nineties) suffer cyclical setbacks and very stiff competition.
In this scenario, an attractive company culture, can only be seen as a ‘nice to have’. Where such cultures do exist, for example Google or Nike, they rest on a safety net of profitability.
Innocent drinks is a less clear, and therefore perhaps more interesting example. The company’s founders have made a point in interviews of emphasising their commitment to an attractive culture. This is despite the possibility that their growth into profitability could perhaps have been made easier with a more orthodox approach. The thinking behind their approach has perhaps been validated by Coca-Cola by their investment for expansion, with promises of very low interference.
I would argue that behind the reality and the PR of Innocent’s management approach there must be a very close management of the numbers. That like Google and Nike, their emphasis on culture is only possible because of an underlying security in the numbers. Their resistance to diversification, reflecting the approach of Red Bull, is testament to a clear-eyed understanding of how to drive the numbers.
So culture can not be relied on to create a great company. However, great companies with some security in delivering their numbers do turn towards using culture in the search for new opportunity, defending share and increasing profit. In the case of Innocent drinks, they take the bold step of focussing on culture while also working on delivering a steady base in the numbers.
Returning to the question of whether attractive culture and profit can mix; I believe that an attractive culture that’s just there to make people feel warm and cuddly will fatally divert attention from hitting the numbers – but one which inspires interest and motivation around how the business creates profit can be useful.
For many people this seems like an idealistic truism that is flies in the face of their daily experience. Its hard not to sympathise with the view, based as it is on nothing but practical experience. However, I believe that the sophistication of large businesses has reached the point where moving beyond a pure accountancy approach is necessary – and that a practical approach can overcome the issues behind these reservations. The key, and the ambition for this article, is to identify such an approach.
So the answer to our headline question, derived from observation, is that world leading companies do use culture but very strictly only when its built on or alongside a firm foundation in delivering the numbers.
The potential cost of creating an attractive culture is primarily one derived from organisational risk, rather than wasted capital investment. No new ‘stuff’ is required. The cost would be in terms of diverting valuable time and energy, it also implies that it can’t be supplied by any current ‘off the shelf’ service.
A business leader considering initiating a culture change is faced with the potential of investing very large amounts of human resource with no measures of progress by which to manage the process. And, all for an intangible benefit which which if it does appear as, for example, a service innovation would be difficult to link with proof to any culture programme.
So moving from our base case, to an augmented scenario of driving the numbers and creating an attractive culture is a very difficult decision to make.
I believe that having an attractive culture is fundamentally a very attractive proposition when put in the right context, of driving the numbers. The difficulty is getting there. One route to achieving it is a dominating personality whose personal vision ensures it – for example a Richard Branson or Steve Jobs. In the potential absence of this desirable but unpredictable resource, there is the possibility of creating an attractive culture safely through hard signal actions and seed projects.
Hard ‘Signal Actions’ & Seed Projects
Hard Signal Actions:
A great example for this is the incentive plan instigated by Lou Gerstner at IBM. Faced with a fragmented and cannibalising organisation he created a shared bonus pot for senior executives. For the first time, the heads of businesses would be rewarded based on their colleagues performance from completely different parts.
The single, hard action sent an unmistakable signal to those managers that they must integrate – as per Mr Gerstner’s corporate strategy.
You can think of tactics like these simply as financial incentives (like the highly effective London Congestion charge for example). Although its primary use lies in the fact that hard incentives are much more effective than soft ones in creating change, there is more. From an organisational point of view I believe that it also serves as a signal of how serious the supported being strategy is. Of course, it is very important here that the incentive very clearly supports a known strategy. Preferably one that isn’t going to happen any other way, there’s no point spending money when it not needed!
To briefly consider the example of city bonuses, these created incentives for a level of risk taking that was in fact company strategy. So the bonuses were effective and well aligned, it was the strategy which was flawed. On a general note, I believe that such schemes are largely irrelevant to bonuses in most companies where the culture, base salaries and potential bonuses on offer will be different by orders of magnitude.
Seed Projects:
Hard signal actions are vital for creating a ‘burning platform’, or the real will to change. To be effective, it makes sense to smooth their operation by supporting seed projects that emerge from the new focus.
By limiting their scope the potential downsides are reduced to manageable proportion. The key is to manage the level of executive attention. Too much will waste precious resource, too little will signal a low importance and guarantee failure.
