Building a winning culture - Bain & Company

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1 A companys key to success is in its heart and soul. Building a winning culture By Paul Rogers, Paul Meehan and Scott Tanner

2 Paul Rogers is a partner with Bain & Company in London and leads Bains Global Organization Practice. Paul Meehan is a Bain partner in Tokyo and leader of Bains Organization Practice in Asia. Scott Tanner is a partner in Bains Melbourne office. Copyright 2006 Bain & Company, Inc. All rights reserved. Editorial team: Paul Judge and Elaine Cummings Layout: Global Design

3 Building a winning culture A companys key to Yet, while business leaders recognize cultures Figure 1: crucial role, our research also indicates that success is in its heart fewer than 10% of companies succeed in Starting point building a winning culture. According to and soul. a Bain survey of 365 companies in Europe, 68% Why has Dell been able to outperform its Asia and North America, even those firms Leaders who believe their culture is a source of competition consistently over the past decade? that manage to foster high-performance competitive advantage Strategy, certainly. Operational discipline, cultures often find them hard to sustain. without a doubt. Talented people, of course. 76% The best companies succeed, we found, on Believe it is changeable But when asked in an interview with Harvard and 65% believe they two dimensions simultaneously. First, every need to change it Business Review what best explains the compa- winning culture has a unique personality nys spectacular success over the years, Dell and soul that cannot be invented or imposed. 81% founder Michael Dell and CEO Kevin Rollins Believe that an organization Based on shared values and heritage, the that lacks a highperfor focused on something else. mance culture is doomed companys character needs to be discovered to mediocrity While Dell does have a superior business from within. model, said Rollins, the key to our success 10% Second, winning cultures usually embody six But fewer than 10% is years and years of DNA development that succeed in building one high-performance behaviors that are common is not replicable outside the company. to all high performersbut only to high per- Source: Bain Survey n = 365 companies in Europe, Asia Added Michael Dell, Culture plays a huge role. formers. (See Figure 2, on page 2.) and North America Theyre hardly alone in their belief that cul- Neither element is enough by itself to sustain ture is at the heart of competitive advantage, a winning culture. A company can have a particularly when it comes to sustaining high strong personality and soul, but still under- performance. Bain & Company research perform if it lacks the values and behaviors found that nearly 70% of business leaders that motivate people in the organization to do agree: Culture provides the greatest source the right things. Similarly, high-performance of competitive advantage. In fact, more than behaviors pursued independently can shift 80% believe an organization that lacks a an organization into permanent overdrive high-performance culture is doomed to and sever the connection that employees feel mediocrity. (See Figure 1.) with the enterprise. Its the combination of both elements that produces a winning culture. At a time when enterprises can stretch around the globe, culture is the glue that A distinctive personality holds a complex organization together. It The personality of an organization is often inspires loyalty in employees and makes taken for granted. Often the values of the them want to be a part of a team. It motivates founder are instilled in the organization and people to do the right thing, not just the easy shape its culture going forward. We try harder thing. At companies with winning cultures, at Avis, or Always low prices. Always, at people not only know what they should do, Wal-Mart are foundational values that have they know why they should do it. become ingrained into the very fiber of each 1

4 Building a winning culture The strongest cultures bind people together Figure 2: Winning cultures combine two across both hierarchy and geography, guiding key elements them to make the right decisions and advance High performance Unique personality the business without explicit direction. One values and behaviors and soul Southwest Airlines employee captured that Significant similarities exist Every highperforming across highperforming company is unique notion well when he said, We all work hard, companies but to do anything else would be like letting your family down. High aspirations and a desire To turn commitment into strong perform- to win ance, a companys personality needs to be Passion and External energy focus complemented by behaviors that motivate Who we employees to excel over and over again. Bain are/what research has identified key behaviors that we value most winning cultures share. First, they aim Individuals Think like who team owners high, so that employees remain fundamentally dissatisfied with the status quo. Energy gets Bias to action focused externally on customers and com- petitors, rather than internally on issues of politics or turf. Employees think and act like owners, taking personal responsibility business, informing day-to-day decisions and for overall business performance, not just behaviors. Procter & Gamble, likewise, has their slice of it. They also exhibit a clear bias managed to place the consumer at the heart to action, with little patience for bureaucratic of the companys culture, which keeps employ- debate. People in winning cultures are team ees focused on touching lives, improving players who display high levels of passion life in every market in which they participate. and commitment, which usually includes Traditions also count. Rituals, heroes and hard work. (See sidebar, Key attributes language give a company its unique feel. of winning cultures on page 9.) One of SC Johnsons defining moments, for Of course, the actual expression of these instance, came during a 1927 Christmas Eve attributes within a company will vary. A con- speech by H.F. Johnson Sr., who introduced a sumer products company, for example, may profit-sharing plan, a 40-hour work week and focus on the customer by blanketing the a pension planunusual benefits in those offices with lifestyle posters featuring its days. The goodwill of the people is the only particular target customers. A professional enduring thing in any business, Johnson services firm might send out a weekly com- said. Eighty years later, his words still hold munication with updates about important meaning in an organization that proudly calls clients. The true test of a winning culture is itself a family company. whether the expectations of high perform- A distinct personality can help a company anceand the desire to winare understood attract people who, in turn, embrace its culture. and widely shared. 2

5 Building a winning culture Leading cultural change 1. Set expectations about the necessity for change, the type of new culture required Our research indicates that more leaders fail and how it will result in success. The organi- than succeed at creating a winning culture. zation needs to know what is unique in its Thats because transforming a culture requires heritage and which performance attributes influencing peoples deepest beliefs and most are missing. habitual behaviors. One companys culture may 2. Align the leadership team around be so sharp in its focus on cost efficiencies a common vision and required behaviors. that it stifles a more customer-centric approach While many factors influence culture, the to new-product development. Another may be single most important is leadershipwhat built on a reward system that reinforces cor- leaders do and say, in that order, consistently porate silos when, instead, collaboration across over time. departments is the best way to boost results. 3. Focus the organization on delivering the business agenda. A culture of account- Of course, changing cultures is no easy task. ability is best achieved by holding people Companies, like the people in them, actively accountable for actual delivery, rather than resist change. The challenge is to unfreeze spending energy on a formal culture change established behaviors and create the motivation program. Culture is a means to an end, not to change so that employees can learn new an end in itself. behaviors, and then refreeze those behaviors 4. Manage the culture by managing the over time. Thats why a crisiswhich focuses drivers of culture. Encourage the leadership attention on survival and breaks down resist- team to walk the talk; clarify roles and ancecan be such a potent catalyst for cultural accountabilities for key jobs; replace people change. Similarly, the shake-up that comes where necessary; add performance metrics from new competitors, new technologies or or incentives; and change the performance new regulations can present an opportunity management or recruiting processes. to break down old, unproductive habits and 5. Communicate and celebrate. Culture instill the kinds of behaviors necessary to get change can be a long journeyand one that to the next level of performance. requires tireless leadership. Consistent, sus- tained communication of the required behaviors Compelled by such necessities, companies is critical. Its important to celebrate victo- can change their cultures, provided leaders rieslarge and smallbut never to declare understand that change must start at the top. victory outright. Successful cultural change results from having Winning cultures are best measured through a clear idea about what type of culture the the day-to-day activities of the frontline: the business needs, identifying the specific attrib- ownership of continuous improvement by utes that go along with it, and then focusing lead operators on the factory floor; the pride on managing the drivers that shape and of the deli team merchandising the best qual- influence culture rather than trying to manage ity at the lowest prices; the responsiveness of culture itself. In our experience, building a a bank manager to a customers complaint. winning culture requires five key steps: The frontline is where sustained cultural 3

6 Building a winning culture change can have the greatest impact on a That was very different from many of the The strongest companys performance. It takes strong lead- major banks, where they have traditionally ership at every level of an organization, deter- devoted lots of lip service to the customer cultures bind mination and a willingness to make culture a experience, Kelly said. At St.George, the people together top priority. The elements behind a winning passion was real. culture can be managed by using some prac- across both tical guidelines. And the payoff is high. As Setting expectations hierarchy and Lou Gerstner, the former chairman of IBM What St.Georges culture lacked, Kelly discov- put it: Culture isnt just one aspect of the ered, were the performance attributes that geography, gameit is the game. systematically drive better results. An early guiding them culture audit showed that, while St.George The vine and the trellis: Building excelled when it came to customers, its man- to make the a culture of service and results agers werent used to being held accountable right decisions at St.George Bank for delivery. They lagged in boldness and firm and advance Australias St.George Bank provides a clear decision making. Decisions were taking too example of how to build a winning culture. long to make, there was too much searching the business When Gail Kelly became St.Georges CEO in for consensus and there was a lack of urgency, without explicit 2002, she recognized immediately that the Kelly said. Sydney-based bank had much more potential direction. than was reflected in its stock price. The new Worse in Kellys mind was a shortage of ini- strategy, Kelly quickly decided, was to create tiative and a lack of courage to profit from a strong focus on delivering excellent service the banks superior customer relationships. to customers. That would require preserving Despite close ties to its clients, St.George the banks friendly, outgoing culture while trailed its larger rivals when it came to win- introducing a new, more rigorous set of per- ning a bigger share of wallet. Employees formance-minded values. It would take firm, in the branches were uncomfortable offering decisive leadership, new levels of accountabil- additional products to loyal customers or ity and a vision dynamic enough to excite asking them for referrals. Even some senior all 8,500 of the banks employees. The key executives balked at a branding exercise that to achieving the change, Kelly knew, was put emphasis on the attribute of winning. building a stronger culture by working Their concern: If someone wins, someone with the grain of the existing one. else loses. Because St.George is smaller than Australias I almost fell off my chair, Kelly said. Big Four banks, it had long been the focus of Job No. 1, she realized, was defining a strategy takeover speculation. But Kelly was convinced that promoted a new understanding of cus- the bank could perform better than its peers tomer service and a commitment to deliver it. and thrive on its own. St.George had one A stronger, more proactive bank would add key element of a high-performance culture: value to peoples lives by figuring out prod- a strong and enduring heritage of taking ucts they wanted and providing them with care of its customers. better service and more flexibility than the competition. 4

7 Building a winning culture Aligning the team them focused on customer service and cus- tomer loyaltyto assure a new level of rigor Kelly knew that a crucial step to create a at St.George. winning culture was to build a cohesive management team. Without a tightly knit At St.Georges business-banking division, group of managers adopting the new cultural Greg Bartlett, the division leader, asked his attributes and living them in their day-to- staff to make double-digit improvements in day actions, the values of the bank could not year-over-year profits and operating income. take root throughout the organization. In return, he extended a new degree of trust to managers who were held accountable for She discovered that the team as it existed running a profit center and making decisions was organized into discrete silos, with little as if it were an independent business, not incentive to cooperate and build additional merely an appendage of a larger organization. revenue from one anothers customer rela- tionships. She also found a couple of high- Scorecards became an integral part of the level cultural terrorists who had to be evaluation process at the bank, and metrics moved out of the organization in order that tracked customer service and advocacy for the new culture to take hold. became at least 15% of each employees scoreincluding Kellys. Managers were In forming her own team Kelly chose four required to come up with explicit customer- executives from within the organization and service strategies to shift the cultures focus four from outside, reinforcing the message away from creating discrete financial products that she respected St.Georges heritage but and toward service strategies and cross-selling. that she expected the company to create In Bartletts organization, especially, it was something new. The new team jointly defined important to make customers feel valued. the cultural attributes they all wanted to see He placed key managers in the profit centers in the bank. Then Kelly let the executives so St.George could approach important loose to drive that message into the organiza- customers as a unified team, and he got tion with a single voice. The groups energy to know most of the banks larger business quickly began to attract attention. The Australian customers personally. financial press referred to the new team as The Kelly Gang, an ironic reference to Managing the drivers of culture Australian folk hero Ned Kelly, who ran a gang of Robin Hoodstyle bank robbers. Accountability, of course, began at the top. Delivering the business agenda My style of leadership is to have strong, accountable executives around me aligned Kellys next step in building a high-perform- in values and not frightened to say what they ance culture was to demand accountability think, said Kelly. They have to be transpar- and create the organizational framework to ent, consistent and honest with energy to get support it. The process began at the top. She up and go. assigned one of the newly hired executives, Peter Clare, to come up with a new set of Energy is Kellys personal signature and crucial metrics and tracking measuresmany of to her effort at cultural transformation. She 5

8 Building a winning culture relentlessly communicates and celebrates the the CEO and her team are serious about new ideal with big gestures that model new change. Im trying to show by my behavior behavior. When Kelly talks about how St.George that I am tackling these issues, Kelly said. had to change, she does so with a clear and gentle analogy: a vine and a trellis. St.Georges Kelly is as solicitous with employees as she passion for the business and its care for its is with customers. She encourages employee customers was a fantastically growing vine emails and answers them personally. Her she told employees wherever they gathered. messages often include personal details about The trouble was, she said, the bank lacked a her vacations or children, and employees firm trellisthe framework of management, respond in the same spirit. Senior managers discipline and strategy to keep the vine grow- get calls on their birthdays, building cama- ing in the right direction. Bigger banks had a raderie. And staff is encouraged to bring all rigid trellis but little vineultimately a weak- of themselves to work so that they connect er position, she said. The key was to build a at more levels with colleagues and customers. trellis to help the vine grow in the right areas Kelly also makes it a point to celebrate achieve- and with the right support. ment whenever its appropriate. She has Communicating results championed a traditional peer-based recogni- tion system called the Star Awards, which, Kelly communicates her customer-centric in the past, sometimes celebrated seemingly message directly to customers by getting out unprofitable behavior. Kelly kept the awards, and talking to them. She makes a habit of but now they reward the kinds of customer calling a dozen or so customers each week, focus we want to encourage, she said. holding lunches with St.George clients and visiting bank branches regularly to shake None of these wins translates to a new culture hands and hear concerns. At customer func- overnight, but the results show that St.George tions, Kelly can often be seen with a notebook is clearly pointed in a new direction. We talk in hand, working the room and scribbling about it as a journey, Kelly said. Not a 100- down issues that end up in communiqus meter dash, not a marathon. Kelly and her to the appropriate business leaders urging team have consistently delivered double-digit that problems be addressed quickly. Positive earnings growth over the last four years, and feedback is delivered the same way. the stock recently hit a new high. The trans- formation has improved staff and customer She expects other executives to have closer advocacy levels and delivered outstanding contact with the frontline as well. Bartlett returns for shareholders. (See Figure 3.) and David Gall, head of the companys retail bank, frequently visit customers and twice a Discipline and accountability: year, 100 of the most senior managers attend High expectations at ABB whats called The Listening Post. They sit in the customer-service center, listen to calls Not all cultural transformations are as orderly and debrief afterward. as St.Georges. At the Swiss engineering giant ABB, a sharp decline in financial per- These gestures certainly make for good PR. formance in 2002 provided the catalyst for But they also send a powerful message that something closer to a cultural revolution. 6

9 Building a winning culture Figure 3: St.George Bank has outperformed the market Indexed share price 150 St.George Bank Australian Allshare Index 125 Australian Bank Index 100 75 2002 2003 2004 2005 We have great products but anyone can copy those; what they can't copy is our culture, our customer service. During the 1990s, ABB grew quickly. But to drive accountability down through the expansions into Asia and Eastern Europe organization. One cost program, called Step coupled with numerous acquisitions, some Change, encouraged employees at all levels of which exposed ABB to years of asbestos to root out and eliminate inefficiencies. litigationeventually created serious opera- Another, called The Group Strategy Program, tional difficulties for the company. In 2002, focused the entire management team around after two CEO changes and with only two building the core businesses and striving for months of cash left, ABBs board convinced sustainable growth. With his Friday emails, its chairman, a low-key, no-nonsense turn- Dormann reminded the companys 100,000 around specialist named Jrgen Dormann, employees of ABBs priorities and how it to step into the CEO role and rebuild ABB. was progressing. The first step of building a winning culture After spending two years stabilizing the setting expectationsbecame an early focus company, Dormann replaced himself as CEO for Dormann. From day one, he worked to with Fred Kindle, an outsider who studied become a convincing role model for a new the company with Dormann for four months culture of discipline and accountability that before taking over his role. Then he began would focus on analytical rigor and steady solidifying a culture that valued profitability growth in two core businesses: power sys- over rapid expansion. At the end of the day, tems and automation technologies. While Kindle said, our aspirationmy aspira- he shed countless acquisitions and trimmed tionmust be to generate profitable growth, seven major divisions, he also began programs and not growth for growths sake. 7

10 Building a winning culture A rally cry: Aligning the elements The change in focus from operations to service of Rotechs organization began to show up on the frontline. The old culture emphasized productivity, prompting Dramatically shifting corporate culture can be drivers to move quickly from one stop to the a long, tough slog. But sometimes a company next. Some drivers had not routinely paused is ripe for cultural change. In the case of to engage older customers in conversation. Rotech Healthcare, a Florida-based supplier Rotech adjusted its productivity targets of respiratory and other home healthcare accordingly, providing extra time for each services, frontline employees were hungry for delivery specifically for customer service. a new cultureand the management team Drivers soon began to spend extra time chat- moved quickly to capitalize on the opportunity. ting with the customers. Those stronger rela- Rotechs new leaders were brought in to tionships helped to identify opportunities for run a company with high costs and poor Rotech to provide additional clinical services, performance. The critical first step was to such as beds and wheelchairs. become more efficient. But after cleaning up By visiting branches regularly and creating back-end processes, the companys revenues tip sheets on better customer-service tech- continued to decline in an industry that was niques, Rotechs leaders evangelized the growing 5% annually. Rotechs employees effort and celebrated its successesanother were so focused on operations, they had lost critical step in building a winning culture. sight of what mattered most to the physicians The early results are encouraging. In May and patients who were their customers: 2006, one year after embarking on the cul- high-quality service. ture change and new growth strategy, Rotech But Rotechs employees were ready for a more reported 16% growth in its key products. meaningful connection with their customers. No culture is forever, of course. Change First, company leaders aligned the entire requires commitment on the part of a com- organization around Rotechs business prior- panys senior leadership, and the job is never ities. They identified best practices in all the really finished. But the payoff is substantial. areas where employees touched customers Little else in this age of globalization provides and made those behaviors standard procedure. a company with an edge that competitors Then the COO, Michael Dobbs, instituted cant simply copy or buy. Culturethe force a comprehensive customer-service training that determines how people behave when program for existing employees and focused no one is lookingis one such competitive recruiting efforts on attracting service-orient- advantage. When people want to do things ed candidates. Dobbs and his team reworked right, and want to do the right thing, compa- job descriptions and tied incentive programs nies have an invaluable edge. to customer-related metrics such as customer satisfaction surveys. We Care about Patient Care, the new slogan coined by CEO Philip Carter, became the companys rallying cry. 8

11 Building a winning culture Key attributes of winning cultures While the five steps described in this article map the journey to creating a winning culture, the emergence of some key attributes will signal that youve arrived at your destination. Our analysis of 200 companiescombined with case studies of three dozen high performersconfirmed our findings and helped sharpen our focus on the common elements of winning cultures: High aspirations and a desire to win: For employees in highperformance cultures, good is never good enough. They are always pushing to go farther, better, faster. Its not just about shortterm financial performance. Its about building something truly special and lasting. External focus: Companies with highperformance cultures focus their energies externally on delighting customers, beating competitors and caring for communities. They dont get caught up in internal politics or navelgazing. A think like owners attitude: A hallmark of a highperformance culture is that employees take personal responsibility for overall business performance. They strive to do the right thing for the business, putting aside issues of personality or territory. Bias to action: Highperformance cultures are impatient to get things done. They are doers, not talkers, keeping an eye on where the value is to ensure their actions will enhance the business. Individuals who team: Winning cultures encourage people to be themselves and help individuals develop to their full potential. They also recognize the importance of teamwork, being open to other peoples ideas and debating issues collaboratively. Passion and energy: Everyone in a highperformance culture gives 110%, striving to go beyond adequate to exceptional in the areas that really matter and bringing an infectious enthusiasm to everything they do.

12 Bains business is helping to make companies more valuable. Founded in 1973 on the principle that consultants must measure their success in terms of their clients financial results, Bain works with top management teams to beat their competitors and generate substantial, lasting financial impact. Our clients have historically outperformed the stock market by 4:1. Who we work with Our clients are typically bold, ambitious business leaders. They have the talent, the will and the open-mindedness required to succeed. They are not satisfied with the status quo. What we do We help companies find where to make their money, make more of it faster and sustain their growth longer. We help management make the big decisions: on strategy, operations, technology, mergers and acquisitions, and organization. Where appropriate, we work with them to make it happen. How we do it We realize that helping an organization change requires more than just a recommendation. So we try to put ourselves in our clients shoes and focus on practical actions. For more information, please visit 2006 Jeremy Banx. All rights reserved. Amsterdam Atlanta Beijing Boston Brussels Chicago Dallas Dsseldorf Hong Kong Johannesburg London Los Angeles Madrid Melbourne Mexico City Milan Munich New York New Delhi Palo Alto Paris Rome San Francisco So Paulo Seoul Shanghai Singapore Stockholm Sydney Tokyo Toronto Zurich

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