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December 2010

In addition to speakers from BAE Systems, Vodafone and Hay Group, delegates from a range of public and private sector organisations, including the NHS, United Business Media, Logica, BA, the BBC and about 20 others, debated the role culture can play in organisations and – most importantly – how to change it to ensure that it helps drive results. This document:

n summarises the presentations and discussionsn presents the collective views of the 30+ people who attendedn is designed to help give guidance for others to learn from these ideas and good practice.

The discussions were held under Chatham House rules, so individual contributions are kept anonymous. Where relevant we have also included the Hay Group perspective.

For more information, please contact Matt Crosby or Stephen Welch at Hay Group on +44 (0)20 7856 7000.

Culture: a new approach to driving performance

On 25 November 2010, Hay Group convened a seminar to explore how organisations can improve their performance using culture change.

©2010 Hay Group. All rights reserved

Culture: a new approach to driving performance

Introduction

Although it has never quite made it to the number one of the management fad hit list, culture and cultural change have been on-going themes for many years. Perhaps its durability should tell us something: there is no x-factor but just on-going relevance. Indeed, maybe precisely because it has never been number one, it hasn’t been studied as much as it should. But equally it hasn’t fallen from grace like a manufactured management fad.

In fact, we would argue that culture’s time has come. It is certainly true that more and more of our clients are asking for help in this area. As organisations look to capitalise on growth, or retain efficiency at a time of government cutbacks, there is an increasing sense that something needs to change. After all, changing mindsets – either from cost-cutting to growth (in the private sector) or thinking about delivery methods in the wake of severe cuts (public sector) – is one of the key levers for increased performance. The organisational landscape, too, is changing. There is:

n increased volatility: new media, new technology, new competitors, new events. “The impact of technology and innovation is forcing us to work in a different way”

n increased complexity: regulation, importance of reputation, educated customersn changes in society: refocus and re-emphasis on trust and transparency.

Organisations need to adapt to survive. We believe that the way they can do this efficiently is through culture. The rest of this paper explains why and how.

Culture’s time has come

Culture defines what people do, and how they do it. If you want your people to instinctively do the right things to drive performance and strategy, you need a culture that supports your business and strategy. The great – and awful – thing about culture is that it is instinctive.

This is great news, when culture is aligned to strategy or goals, your people will do the right things instinctively without the need to focus on performance metrics, complicated scorecards, or highly-developed competency models. And you will not have to create detailed reward systems to drive behaviour. It becomes a natural part of how people work and they will voluntarily do things, the right things, that are critical to success. What a nirvana!

But this is awful news when culture is not aligned to strategy or goals, where your people won’t naturally do the right thing. If your culture is wrong, you will need to override it via expensive reward programmes, complicated performance management systems and difficult conversations: all while trying to struggle upstream through the cultural currents. What a nightmare!

The difficulty in changing culture is that it’s so instinctive. There is no quick fix. The challenge is to go back to roots. Culture is created through a long chain of causality which quite often starts off with a series of assumptions about ‘how things are done around here’. Periodically it is helpful for organisations to question those assumptions, and to check if they are aligned with the current strategy and goals. If so, great. If not, culture change is likely to be the answer.

We would argue that culture’s time has come: it is certainly true that more and more of our clients are asking for help in this area.

The impact of technology and innovation is forcing us to work in a different way.

©2010 Hay Group. All rights reserved 2

Kick-starting cultural change

Our experience is that culture change often comes from humdrum beginnings. Quite often the CEO will rock back in her chair, look wistfully into the middle-distance and dream about the future: “if only we could be quicker...”, “if only we could keep our high performers…”, “if only…”. This recognition from the CEO that the business needs to change and then galvanizing the rest of the organisation is, in our experience, typical.

One of our client speakers, Steve Cunningham from Vodafone, talked about exactly this. Vodafone has translated the CEO’s vision into clear cultural memes that will help them achieve their goal of becoming admired. It makes it clear what is expected, and what is not.

It is critical then to have supportive leadership from the very top: the CEO. Without this little will happen. And nothing will happen unless there is commitment, too, from the senior leaders. For they are the ones who can drive the change. “Without a willingness to change some leaders, and being brutally honest about why, then there’s no point starting the journey.” With those words, this delegate identified one of the key elements: the people who got you where you are now aren’t necessarily those who will get you where you need to be in the future.

And of course, it is important to have resources and commitment from the cultural carriers – such as HR or other functions – for they transmit the day-to-day cultural experiences that people encounter. These cultural carriers have the ability to reinforce or reverse cultural initiatives. In Vodafone’s case, these cultural carriers are critical as they are working to ensure that their core processes are consistent with the overall principles.

So, CEO, leaders and cultural carriers. These are three of the keys to unlock cultural change and performance. An informal survey we ran with the delegates highlights some clear challenges. Although almost all delegates felt there was a need for cultural change in their organisation, barely a third told us that both the CEO and the senior leaders were ‘on board’. We would argue that it is only those 35 per cent of organisations which stand a chance of making the leap.

In another third of cases, although respondents told us they felt there was a need for culture change, it seems that neither the CEO nor the senior leaders agreed. It’s clear that, unless the respondents embark on an arduous campaign to convince the whole senior population, little will happen in these organisations. Furthermore, those respondents tell us they don’t have enough resources to drive through cultural change. Well, no wonder: if the business doesn’t see it as a priority, why devote resources to it? “So you need to make the business case, and pursue an influencing strategy. Culture isn’t a human resources issue, it’s a business improvement issue.”

Culture: a new approach to driving performance

Culture is assumption

Assumption is comfort

Comfort is habit

Habit becomes institution

Institution creates identity

Identity is defended

Culture StICkS

How culture is created

Our experience is that culture change often comes from humdrum beginnings.

Culture isn’t a human resources issue, it’s a business improvement issue.

©2010 Hay Group. All rights reserved 3

In the remaining third of cases, there appears to be a conflict. In these organisations, either the CEO wants change and the rest of the leaders aren’t supportive. Or leaders see the need for change but the CEO doesn’t. This is the most interesting from our point of view. Logically either the organisation needs change or it doesn’t. Either the culture suits the strategy or it doesn’t. So someone is wrong. “Many CEOs can vision the future, but don’t know how to change the organisation to hook up to it: that’s where others – such as HR – can prove their worth.”

Cultural change is like navigating a car. In order to arrive at the destination, there needs to be common agreement between the occupants about a) where the journey starts, and b) where the journey ends. Without this common understanding too many organisations get lost. If you are trying to get from Bristol to London, the route is “Two hours M4 east”. But if some people in the car think they are starting from Birmingham, or Cardiff, or Gatwick airport, they will suggest a very different route (“M40, three hours M4 east”). And if they then think the destination should be Southampton, not London, well…you can imagine the argument.

But our informal survey and Hay Group experience shows that this argument goes on almost every day in organisations up and down the country. Because they don’t have consensus and alignment on the direction of travel, little progress is made. It’s not that difficult to get people to do new things or do things differently – the trick is to get everyone changing their behaviour at the same time and in the same direction.

Making the journey

Our second speaker, Paul Johnson from BAE Systems, talked about the challenge of creating momentum. Once top-level alignment has been achieved, the next challenge is communicating and demonstrating to all employees why things need to change. This often takes a surprising amount of time. And leaders often forget that they have just been through a personal journey of alignment and understanding (which sometimes takes a few months); and they are therefore surprised when people ‘don’t get it’ after being exposed to one email with a ppt attachment.

It takes time for employees to understand - at least as much time as it took the leadership to. Often longer. BAE Systems helped accelerate this via a different approach to change; using drawing and pictures to facilitate a discussion about where the business was going and why it needed to change. Their engineering heritage naturally gravitated towards flow charts, bullet points and process. But through the medium of pictures – and human-to-human conversations – they were able to get to the emotional elements of cultural change and make the journey.

When we work with clients, we emphasise the emotional element as much as the rational. As we saw above, culture is identity. The flaw in many organisations is when they try and apply rational management and business tools to deep-seated questions of identity, status and belief. If your employees are human beings then it makes sense to communicate with them in a personal way. “No one ever changed their belief system after reading a powerpoint email – or a poster, or a ‘values card’. “The old notion of change programmes seems mechanistic: it is about making sure things pull in the same direction at the same time.”

One way of doing this is about creating ‘threats’ or dissatisfaction. One delegate talked about, “communicating that there is a ‘threat’ can be effective in selling the need for change – get them to face reality”. Unless there is a clear need to change, why bother? Cultural change will only come about when people are dissatisfied with the current situation, see the need for change, and have a clear vision for the future. If there are some practical steps they can take, too, so much the better. “How do you drive culture when you don’t have a burning platform?” One organisation we work with found themselves in slow, but gentle decline. There was no crisis to precipitate change, so little was happening. Once they created an artificial crisis, people started to see the need for cultural change and it started to happen.

Another factor to consider: “Culture is sometimes too big and ethereal. We started in a much more tangible place, with the climate created by individual leaders. And we focused on using Hay Group’s tools to measure and change these climates that, together, equal culture.”

Culture: a new approach to driving performance

Culture is sometimes too big and ethereal. We started in a much more tangible place, with the climate created by individual leaders. And we focused on using Hay Group’s tools to measure and change these climates that, together, equal culture.

©2010 Hay Group. All rights reserved 4

Dead ends

Even once the journey has started there are still dead ends to avoid. Cultural change initiatives fail when leaders:

n forget to align other elements of the organisation behind the cultural change. These include processes, ways of working and most importantly reward. Reward – in its widest form – is the most powerful signal of what is valued.

n don’t role model the ways of working and behaviours they’re asking their people to demonstrate. “Middle managers have accountability as role models”

n forget that the existing culture is strong, and become divorced from day-to-day reality. They think their view of the world – based on the people they see every day – is true. But this isn’t the experience of most employees

n think that they can drive change via catchy posters, wallet cards and smoothly-written values statements. As one participant told us, “senior leadership must take up the mantle to do as much work ‘on the business’ as well as ‘in the business’”

n don’t listen to feedbackn don’t give it time to stick and move quickly on to the next thing. One client of ours – Belron – has

done a great job of avoiding this trap by focusing incessantly on leader behaviour in a consistent way for the last 10 years. This helped them ignore the recession and achieve double-digit sales and profit growth while others were floundering. By giving it time to stick, they succeeded.

Summary: the right route

“Start with the end in mind.” Key lessons from our experience, and from conference delegates show that, while the journey can be hard, there are plenty of things that can make it easier. You can use this checklist to see where the priorities are for your cultural change programme.

Culture: a new approach to driving performance

Item Description Yes or no in your organisation?

target culture Agreement on current situation, need for change, and the destination. Culture is often defined top down but it’s important to create energy bottom-up. Defining a target culture is best when inclusive.

Communicating the target culture Typical channels are leadership conferences, competency models and performance management discussions but the real power comes from storytelling – not just the story but the telling. You need ONE story for everyone: staff, their families, investors, press. “We’re struggling because we haven’t got a key story or message for people to rally around.”

Symbolic actions from the CeO and other leaders

You need these ‘moments of truth’ for staff and for everyone. “Each change journey should start with a single symbolic step.”

rewarding people for working in the right way

Typical methods are reward strategies, employee award schemes. These are good but you also need new heroes, awards that create experiences that can be retold, and remember, value is in the eye of the beholder.

Aligning systems and processes to the target culture (and your strategy)

Often, the hardwiring gets missed. Processes, structures, your operating model, needs to be aligned too. Otherwise the messages don’t ring true.

think about the impact of small and large things

The point being that people are very sophisticated – they notice when the small and the big things don’t align.

the culture journey must link to those you serve: customers, your community

The people and culture story must align to your brand and to your customer proposition. Make it real.

©2010 Hay Group. All rights reserved 5

Cultural change is not easy, but it can be done. And done right, the rewards are great. Hay Group has worked closely with many of our clients who have done fantastically well at transforming their culture – and, as a result, their performance. We’ve also observed from a distance many others who have tried to change, but failed, wasting millions of pounds of shareholders’ or taxpayers’ money in the process. And that is a price few can afford.

How can Hay Group help?

1. Getting clear about your target culture, your current culture and the journey you want to embark upon. We have a range of tools and techniques which we can use in a diagnostic way or through facilitation to help executives create a shared understanding of why and what they need to change.

2. Building the business case and return on investment. You need to build the case so that others can buy into it – this needs to contain the business returns but must also include your customer proposition and the case for staff.

3. Getting you started. Using our experiences of working with other clients and drawing on our extensive Culture Change Toolkit© we can help you to shape and prioritise the interventions you need to make to have the biggest impact on culture.

4. Getting you there quickly. For some clients it is about making a big impact quickly – they have no choice. We can advise on the things that will make a dramatic and symbolic impact.

5. keeping you moving and re-energising your efforts. You may be already doing things but are they joined up? And are you doing all of the things that are necessary for your culture to shift? We can talk you through all of the levers you can pull to really capture hearts and minds that go above and beyond the systems and process changes of a typical ‘change programme’.

6. knowing that you’re succeeding. Many organisations feel they are making progress but are they? And are there unwanted casualties? Hay Group can help you incorporate measures and feedback from customers, staff and leaders so that you can understand whether culture change has genuinely fed through to behaviours and customer experience.

Culture: a new approach to driving performance

About Hay GroupHay Group is a global management consulting firm that works with leaders to transform strategy into reality and to help people and organisations realise their potential.

For more information contact your local account manager or visit www.haygroup.com

For more information on how your organisation can benefit from cultural change – and how to make it happen – please contact:

Matt CrosbyUK head of practice: Building effective organisationst: +44 (0)1275 813 607e: matt.crosby@haygroup.com

or

Stephen Welch Global director, communications media and technology consulting t: +44 (0)20 7856 7558e: stephen.welch@haygroup.com

Cultural change is not easy, but it can be done. And if done right, the rewards are great.

©2010 Hay Group. All rights reserved 6