Earlier this year, Goldman Sachs’ culture came under fire following an employee’s scathing op-ed piece in The New York Times. The employee lambasted Goldman Sachs for claiming to uphold one set of highly moral written cultural rules but in reality operating on quite another. He wrote about the enormous gap between what employees were told to do and what they actually did when interacting with customers and colleagues.
Unfortunately, corporate cultures, or cultural operating systems, like the one contested at Goldman Sachs are the rule rather than the exception. Powerful and toxic unwritten rules are steering our organizations to year-end reports filled with disgruntled employees, dissatisfied customers and mediocre results.
Cultural operating systems (COS) are the written and unwritten rules that guide employee behavior and influence the bottom-line. The measure of a good cultural operating system is the degree to which it enables an organization to execute superbly and innovate consistently.
Training and development professionals who invest in fostering a potent cultural operating system that enables their organizational strategy reap daily rewards for their investment. Studies suggest that the culture of an organization can account for one third to one half of its growth and profitability. The “Corporate Culture and Performance” study, published in 2011 by Kotter and Heskett, showed that a well-designed COS correlated with 400 to 500 percent increases in revenue, income, and share price growth over organizations with less effective written and unwritten rules.
Four Crucial Functions of a Cultural Operating System
So what makes for a powerful COS? Our research shows organizations need four key skills to enable world-class execution and innovation. Each of these skills addresses a critical competency for individual, interpersonal, team or organizational effectiveness.
- Individual: Self-directed change
- Interpersonal: Open dialogue
- Team: Universal accountability
- Organizational: Influential leadership
The best way to appreciate the necessity of these four skills is to consider the impediment their absence presents to execution and innovation.
The unwritten rule in most organizations is resist change. Most training and development professionals trying to drive improved execution or accelerated innovation encounter cynicism and lethargy rather than enthusiasm and engagement. Ultimately, organizational change requires individual change. And the evidence shows we’re no better at the latter than we are at the former. The “Lake Wobegon at Work” study, published by VitalSmarts in 2010, revealed that fewer than 10 percent of employees are able to change their own deeply ingrained habits—even when their lives or careers depend on it.
Most organizations attempt to compensate for widespread ineffectiveness at self-directed change through supervision rather than leadership. So what’s different in a robust COS? The most basic building block of a powerful cultural operating system is the capacity to effectively engage in independent action. Individuals become skilled at self-direction, which enables their organizations to overcome barriers that stymie their competition. And, with every employee able to think and act on their own, the organization’s capacity to pivot and adapt is profoundly enhanced. The result is unbeatable levels of execution and innovation.
The greatest impediment to leveraging the potential of a workforce of subject-matter experts is people’s innate reluctance to speak honestly about emotionally and politically risky issues. Reluctance and the inability to speak up are a primary cause of poor decisions, half-hearted execution, employee disengagement and stifled innovation.
Innovation is stifled less often because a workforce lacks ideas and more often because of a failure to generate spirited debate among differing ideas. Individuals yearn for the freedom to express their views. They don’t need others to agree—they only want to be listened to respectfully. When training and development professionals take action to develop a COS of candid dialogue, mistakes are caught more quickly, decisions are implemented more effectively, and innovation flows more routinely.
When accountability requires position power, very little accountability actually happens. Few managers see their employees often enough or understand their performance deeply enough to hold them accountable in a meaningful way.
If team members can’t hold each other accountable, then an organization’s capacity to carry out unified action on complex interdependent tasks plummets. Successful organizations depend on creating a culture where anyone can hold anyone else accountable—managers to employees, employees to managers and peers to peers. The core value in this COS is not power but results. This focus accelerates the development of collective competence, dramatically improving execution and facilitating innovation.
We’ve worked in hundreds of organizations over the past thirty years. The most common cultural characteristic we encounter is deep cynicism about leaders’ ability to execute change. Few organizations can drive rapid, comprehensive change—even when an organization finds itself on a burning platform. One change initiative after another fails—not because the strategic ideas were inadequate, but because leaders were incapable of influencing change in the behavior required to execute on the new ideas.
The picture is profoundly different in organizations where leaders are competent in intentionally influencing system-wide change. Training and development professionals can help leaders by thinking deeply and skillfully about the myriad forces that shape behavior, and creatively engaging all of these forces to create positive change. In these organizations, employees hold leaders and training departments in higher regard and feel optimistic that even profound changes will lead to improved future performance.
The question is not whether you have a cultural operating system—every organization has one. The question is whether your COS is one that advances or impedes continuous improvement at execution and innovation.
Training and development professionals who lead the way in creating a COS characterized by self-directed change, open dialogue, universal accountability and influential leadership harness the full potential of their human resources. And in so doing, they leverage what research shows is the most potent predictor of sustained value for customers, employees, shareholders and the world—a high-performance cultural operating system.