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Culture eats strategy for breakfast
- Peter Drucker
Culture is the foundation the business
- Fal A. Diabaté
In the above cited quote, Peter Drucker, the renowned management consultant, emphasizes that a strong culture surpasses even the best strategy. This sentiment echoes the notion that culture, particularly robust ones, serve as the precursors to various strategies. Along similar lines of thinking, I firmly believe that culture forms the cornerstone of any business.
Despite possessing ingenious and profitable solutions to business challenges, many entrepreneurs, often commit the fundamental error of overly prioritizing strategy and products at the expense of culture. In my humble opinion, culture underpins every aspect of business operations. The destiny of your innovations, strategies, products, operations, marketing, sales, and partnerships is closely intertwined with the culture cultivated within your organization. Simply put, business culture also known as organizational culture constitutes the bedrock of your enterprise. What exactly is business culture? And why does it deteriorate?
Put simply, business culture embodies the identity, the core or soul of a company. It articulates the purpose of the company's existence and encompasses a set of beliefs that guide employees’ behavior and their professional relationships with colleagues, customers, and ecosystem partners. Organizations with strong cultures have clearly defined statements of vision, mission, and values. These statements serve as the organizational constitution or moral compass, steering the company away from unethical practices. It is imperative that all employees, from the CEO to the newest recruit, adhere to these guidelines in their behavior and work. Hiring decisions, promotions, demotions, and terminations should all be made in accordance with the principles outlined in these organizational statements.
When the foundational framework is not sound, the entire structure of the organization is compromised, leading to incremental loss of values and potential business collapse. When business leaders fail to take their organizational statements seriously, or when they treat them as mere formalities, or when they prioritize short-term financial gains over long-term integrity, enforcing desired behaviors becomes challenging. Consequently, the culture deteriorates, rendering strategies ineffective and eroding the organization's competitive edge.
The collapse of Enron in 2001 serves as a classic example of what happens when executives disregard their own stated values, allowing unethical behaviors to become the norm and corrode the culture. Enron's executives engaged in deceptive accounting practices due to their lack of commitment to a culture that prioritized financial growth through ethical means. More recently, Wells Fargo, a longstanding and respected banking institution in the USA, faced a scandal in 2016 when employees opened millions of unauthorized accounts to meet unrealistic sales targets, highlighting a misalignment between the company's culture and its business objectives. Similarly, Theranos, a once-promising biotech startup, collapsed in 2018 following revelations of fraud stemming from a culture of secrecy, opaque organizational structure, and intimidation by its executives.
Similar scenarios could arise when business executives fall into the synergy trap and pursue mergers and acquisitions ventures without carefully considering cultural preservation or cultural integration. A classic example is AT&T's acquisition of NCR for a little over $7 billion in 1991. This merger ultimately failed due to various reasons, including strategic misalignment, overvaluation of NCR, and integration challenges. The primary obstacle to successful integration was the cultural clash between the two organizations: AT&T had a hierarchical and bureaucratic structure, while NCR maintained an open and entrepreneurial culture. AT&T's executive leadership's inability to establish, adapt to, or adopt a cohesive culture ultimately led to the failure of the acquisition. After four years, AT&T spun off NCR into an independent entity.
Business cultures, or organizational cultures, serve as the nervous systems of companies. Every organization establishes a set of ethical statements centered around integrity and fairness. To embody these beliefs and values, companies typically organize themselves in one of two or three ways: a traditional top-down hierarchy, a flat organizational structure or a complicated hybrid structure. In his book "The Open Organization," Jim Whitehurst, former CEO of Red Hat, addresses the why, how, and what questions for the first two structures. According to Jim, top-down organizational structures begin with what (command and control, central planning) then move to how via hierarchy, titles, and rank (which are deemed important), and finally address why for promotion and pay. Conversely, the open organization starts with why, to ignite passion, foster engagement then focuses on how, by emphasizing meritocracy, encouraging diverse perspectives, before concluding with what, to facilitate inclusive decision-making.
Startup companies and many large companies with a startup mindset often center their cultural themes around innovation, collaboration, risk-taking, speed, work-life balance, meritocracy, product focus, growth, insurgency, and disruption. They typically adopt a flat organizational and decision-making structure to foster agility and velocity. Conversely, traditional large companies predominantly adhere to a top-down hierarchical organizational and decision-making process. Their cultural themes typically revolve around customer-centricity, product and process orientation, numerous internal rules, and minimal work-life balance considerations. While this list is not exhaustive, it is fair to say that the lack of swift cultural adaptation impedes the success of many large organizations.
Regardless of whether a company is a startup, semi-mature, or fully mature, the key ingredient for its success lies in the ethical quality of its employees. It is paramount that company founders, executives, and all decision-makers steadfastly believe in and adhere to the strong and well-defined cultural values they establish. By consistently embodying these values, they earn the title of leaders in the eyes of their employees and partners. Conversely, failure to align behavior with cultural statements invites accusations of fraudulence. How can an organization effectively compete, and inspire people's energy and creativity for the greater good if it lacks integrity? How can it achieve its objectives if decision-making is hindered by a complex, multi-layered chain of command?
As founders and progressive business leaders, it is imperative to cultivate organizational cultures that adhere to both the letter and spirit of their missions. Providing a structure that efficiently aligns with the company's strategic objectives is crucial. Leading by example in this regard will inspire other employees and partners, fostering a virtuous cycle of success. Culture serves as the invisible secret sauce of a company; a magical glue that binds employees, customers, and ecosystem partners together. It holds as much significance as the product or service that addresses customer challenges, beginning and ending with people. The combination of your products or services and your culture forms your competitive advantage, with one being visible and the other sensible; all of them powered by people.
Until we meet again, continue to enhance your culture.
Fal Diabaté
Managing Partner, Barra Advisory Group
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