1. Why Aligning Culture Matters

SCENE: January, lunchtime. Casimir’s, a classic steakhouse restaurant in the Midwest.

KATZ: It’s great to see you in person again, Alex. And you look terrific. Challenging positions seem to agree with you. How is Toby doing? He has been a dear friend for years. And he seemed very supportive of you.

ALEX: He was. It was gratifying. And I hear that he’s very satisfied with his new role leading the nonprofit and shaking things up already.

KATZ: I’m glad to hear that. And I’m glad the board picked you. How is your new job going?

ALEX: Well, you and I have known each other for a long time, so I won’t put a happy face on it. Most of our people seem happy that we have a new CEO in place. Or at least that’s what they tell me. But seriously, we’ve got a lot of problems. Intrepid has been falling behind. We haven’t hit our top-line or bottom-line numbers in the last two quarters since I became CEO. This is worse than the hit we took some years ago, when Amazon first began to compete with us. We recovered then—the nature of our products means that customers like to touch and feel before they buy, so we’ll always have brick-and- mortar locations. But now sales are drying up again.

Meanwhile, there’s so much we need to invest in. Of course, like everybody else, we need to improve our customer experience online, so we have a digital initiative underway. It’s taking a long time to come up to speed, though, and it’s costing more than we expected. We still don’t do the kinds of analytics that some of the other big chains are doing. We hear that new retailers from China are going to come in and underprice us. And to be frank, we’ve underspent on cybersecurity; I’m terrified someone will hack our credit card files because we’re not really prepared for it.

Everybody loved Toby, but I’ve been shocked to see how many problems he swept aside or played down. We knew there were challenges out there, but we thought we were stronger overall than we really are. Some of the board members warned us all along that we had to move quicker, to be more agile, to be ready to close stores and lay people off. And now they’re warning me directly. My neck is on the line if I can’t make a miracle happen. I don’t think I have much time to turn things around.

KATZ: How are you handling the pressure?

ALEX: Well, I’m doing okay. We’ve had a few victories—a couple of inventory problems that were recurrent under Toby are now under control. I altered some reporting lines, moved boxes on the org chart, and it seemed to clarify who owned the core issue, at least around that specific inventory problem. But I shouldn’t have had to pay attention to details like that. And all sorts of other crises are coming across my desk that should be handled further down the line. I suspect that the top team sometimes escalates an issue to me just to avoid having tough conversations among themselves; we like to slap each other on the back and talk about what a great team we are, how we’re all such great friends, but I’m questioning what the difference is between being convivial and being conflict avoidant.

KATZ: There isn’t really a difference: they’re two halves of the same coin. We’ll get back to that in time. For now, suffice it to say, every CEO I’ve ever known has complained about the top team.

ALEX: [Sighs] I don’t want to be that guy, pointing fingers. Every one of my direct reports is superqualified. They’ve got the right intentions and their credentials are as good as anyone’s in the industry, and I know they tell the truth.

KATZ: But . . . ?

ALEX: But they don’t see how much trouble we’ll be in if we don’t change how we do a lot of things now. And when I address it with them in one-on-ones, mostly they blame each other. So the needle isn’t moving.

KATZ: How about the rest of the company? What’s the culture like? How do people feel about the way things are going?

ALEX: It’s pretty bad. Departments don’t feel recognized. There is a lot of infighting—most departments don’t like working with each other. People complain about one another, then turn around and behave in the exact same way. We need a performance culture to replace our excuse culture!

KATZ: How do you know all this?

ALEX: We’ve done an engagement survey for the past few years. The data shows a general erosion in people’s faith in the direction of the company. Most worrisome to me is a question about how connected the respondent feels to the company’s mission—the number of people who responded positively to that was very low, around 37 percent.

KATZ: I’d be concerned about that too. But I’ll caution you not to rely on engagement surveys alone—they can be a pretty blunt instrument when it comes to cultural challenges. I haven’t seen many leaders make good use of those sorts of scores without supplementing them with other insights.

ALEX: I’d like to hear more about that. But you also get a sense of people’s mood by just walking around the halls. The other day, I stuck my head into the real estate management group and asked a manager, this guy named Michael, why he seemed so out of sorts. “No matter what I do for people here,” he said, “nobody says thank you.” I hate to say it, but I agree with Michael. Even worse, no one takes responsibility. When something goes awry, we point fingers and make excuses. That’s what the culture’s like.

KATZ: What are you doing so far to change things?

ALEX: That’s why I want to talk to you. We need to light some kind of fire to wake people up. So I’ve been thinking about some drastic measures: closing stores, divesting some part of the business, making a bold move with a balance sheet. Just to send a message: “It’s serious this time! You’re holding us back!” [Alex’s voice gets a little too loud, and Katz raises an eyebrow and looks around the restaurant. They both laugh a little, as people do when they’ve known each other a long time; then Alex starts again in a softer tone.] Obviously, I get that that isn’t the right approach. If I started to let people go for holding the company back, I’d have to replace half the company. So we’re looking at a reorg.

KATZ: Moving some boxes on the org chart again.

ALEX: Yes, but with real purpose. And not just doing it to fix one issue, really being bold. Maybe shaking things up and getting a fresh start will help.

KATZ: What was Toby’s point of view on the current cultural situation and whether or not it was working in Intrepid’s favor? What did he say before he left?

ALEX: Toby and the board felt strongly that the company needed to make changes around increasing efficiency and reducing waste—we had some strategy work done two or three years ago that spelled that out in no uncertain terms. A few cross-functional initiatives got started around that time, but they weren’t consistently applied, so it’s hard to see whether they had any effect. Right before he left, Toby sent out a sternly worded company-wide memo, spelling out our strengths, our problems with online and inventory, and the consequences for us if we didn’t raise our bottom line.

KATZ: And the response?

ALEX: Mixed. Most of the people in the company tried to justify what we were doing. “The whole industry is changing; it’s not our fault” or “We’re not paying our people enough,” or “Some other department is screwing up”—that kind of thing.

KATZ: Most people probably just want to keep doing what they’re comfortable doing and hope that somebody else thinks of the brilliant idea that will save the company.

ALEX: Yeah. And it could be that playing it safe is the best option for now anyway: we’re doing well enough to keep from going under this year or next. But I don’t know how long that will last. [Pauses] So what do you think?

KATZ: Well, at least you’re not starting from scratch. A lot of companies don’t even have a clue about what matters most to their people. They think it’s all about the money. Their leaders seldom consider how people actually feel. At least you have identified some of the emotional aspects of the problem already, even though you haven’t said it in those words.

ALEX: What do you mean?

KATZ: The crux of the problem is your cultural situation. What’s holding you back isn’t just outside Intrepid’s doors but inside its walls: the way your people feel, think, behave, and relate to one another. In other words, the way they work together. That’s why everybody’s so frustrated—even you. Look at the way you talked about change. Maybe a reorg. Maybe a few layoffs of redundant staff. You don’t sound convinced that any decisions you make actually could inspire or catalyze real change.

ALEX: I’ve been there before. I want to be optimistic, but in the back of my mind I know it never works.

KATZ: No, it never does. Or rather, to be more specific, you see a few impulsive responses right away, but you rarely see the kind of sustained results that lead to true transformation. [Pauses] Look, you’re a well-established company. Most of your people have been here a long time. None of them are going to change easily what they do or how they do it. Bad habits persist. Culture is stubborn and self-reinforcing.

ALEX: So you’re saying I can’t fight culture. What does that mean? Do we just go slowly into oblivion?

KATZ: No. You have to find a way to get important e mo tional forces in your current culture working with you. You identify and make use of what already exists. You have not yet said much about the positive emotional commitment that many people already have to Intrepid. It has to be there—there is always a reason other than a paycheck that people show up for work every day. Chances are, there are some reservoirs of genuine positive emotional energy lurking somewhere within your current cultural situation that can be harnessed if brought to light.

ALEX: You mean by proclaiming some grandiose mission? Toby did that with his “green store” initiative. Everyone thought he was completely out of touch. They hated that stuff. Posters about recycling and protecting the watersheds were practically flying off the walls when Toby left.

KATZ: Well, Toby is a nice guy. Great fun on bike-a-thons. But a top-down approach like what you describe is exactly the opposite of what I mean when I talk about generating emotional commitment. Toby decided what he thought others would get excited about instead of putting a finger to the pulse of the emotional connections people have with Intrepid. I don’t think you’ll make the same mistake.

ALEX: I don’t think it’s possible to make an emotional connection with ten thousand people.

KATZ: Maybe you’re not focusing on the right places or asking the right people. Have you ever really listened to your company’s people down in the enterprise? Do you know what they care about, why they come to work in the morning? How they describe to their kids what they do for a living? Believe it or not, if you’re ready to hear it, people really will open up to you. And you don’t have to ask everyone—just the people who intuitively understand “how things get done around here.” The best thing you can do, if you want to start a movement, is to empower Intrepid people to start solving their own problems—and then get out of the way.

EVERY COMPANY HAS CULTURAL CHALLENGES

Most companies are founded with high energy and lofty aspirations. They need to be. Just earning enough to pay people is a prodigious challenge for startups. They also want to delight customers, produce remarkable products and services, and make a mark on the world—and, of course, turn a healthy profit. But over time, these ideal early aspirations tend to erode. Executives and employees lower their expectations, often without realizing it. They come to believe that only a limited kind of success is practical or realistic. When times are tight, they cut budgets without necessarily considering the long-term implications. When times are good, they become complacent and fail to acknowledge and recognize the cultural forces that enable success. They overlook and even lose the value inherent in their culture.

When corporate boards fire CEOs, the official reason is often a lack of financial success or failure to meet targets. But each is an outcome of a deeper issue: an inability to connect strategic choices and operational shifts to the company’s people in ways that motivate and energize them. The CEO has set goals that people aren’t prepared to meet or has made promises that the enterprise can’t yet deliver. And people can’t perform at their best because they lack direction and operational support, as well as the emotional energy to deliver at a higher level than the status quo.

Cultures are important and powerful because they determine what your company is capable of doing. An organizational culture is a collection of deeply held attitudes, entrenched habits, repeated behaviors, latent emotions, and collective perceptions of the world. Culture is the shared set of assumptions we all bring when we work together—our unspoken expectations of one another. Do people in your company start meetings on time, or is it okay to be a few minutes late? Would eyebrows lift if someone in the room opened and ate a bag of chips, talked openly about a personal situation, or answered emails on a smartphone while listening to the conversation? Does the company have shared stories that “everybody knows,” even shared jokes that wouldn’t make sense to others who hadn’t ever worked there? These and hundreds of other daily choices, actions, and occur-rences are visible examples of behaviors that constitute the fabric of a shared culture. This amalgam builds up over time, influenced and shaped by each individual. Leaders may be in a natural position to have a greater impact, but people at all levels are a part of the fabric. People in organizations natu rally influence and are influenced by those around them; their attitudes, feelings, behaviors, and perceptions come to echo one another, to have a “family resemblance.” The patterns of these interactions take on a presence that is greater than the behavior of any single individual. Everything coalesces into an informal but broad-based and well-established sense of what is appropriate and what is not: “how we do things around here.”

(If you completed the paragraph above and thought, “Wait, so what is the definition of culture?” or are tempted to fold down the corner of this page to come back to later and see if you agree, let us call your attention to the glossary (see page 151), where we’ve tried to provide relatively lucid definitions of the abstract terms like culture on which our methodology is premised. We hope that this will be a useful tool and primer to you, both as you read and as you refer to this book in your future pursuits. In other words, those are the pages whose corner should be turned down.)

It’s also true—and this sounds like a bit of a paradox, but stay with us—that every company has both an overarching, consistent culture and competing, divergent subcultures. To understand this point, it might help to step back for a minute and look at one of Katz’s favorite images, what he likes to call the “three circles” slide (exhibit 1.1). This is an image that has, over the course of the past few decades, been drawn by Katz on more restaurant napkins, PowerPoint slides, and hotel conference room flip charts than one can possibly begin to count. Leaders never seem to tire of it, though, because it makes an elegant point about culture.

Within a company, we all agree that business strategy is our driving direction, the grounds on which we all have decided that we are best positioned to compete. And our operating model is how we plan to get there—the way we structure our reporting relationships and governance such that it will best support the kinds of activity that will help Business strategy us achieve that strategy. Culture is the third component: the motivation that drives and supports both other elements. It’s the emotional commitment people feel (or don’t feel) when the leaders describe the strategy. It’s the commitment and passion that people bring to their roles, to the daily actions that will support any direction. When we say that no culture is all good or all bad or that the highest intent of leaders should not be to fix or change their culture but to align it with their strategy, this is the delicate balance that we always picture—the triad of business strategy, operating model, and culture.

The Katzenbach Center conducts a broad global survey on culture and change, with responses from more than two thousand participants. Repeating this survey allows us to track how ideas evolve over time. Year after year, the survey demonstrates that leaders at all levels view culture, strategy, and operating model as interdependent. In fact, most respondents even assert that culture is more important to the success of their enterprise than the other two. And significantly, each time we run this survey, the percentage of respondents who assert this increases. The fact that culture determines an enterprise’s success is an idea whose time has come.

If you agree that strategy, operating model, and culture are all interdependent, then you’ll likely accept the next point as well: just as no complex company has one singular strategy or operating model, no company has a single monolithic culture. Strategies shift and evolve in real time; people make decisions that mostly line up but sometimes diverge—and this can be chaotic, or sometimes it can lead to innovation. Operating models are drawn on paper, but we all know that no org chart ever really captures the complex, organic ways that working relationships thrum and churn. Every company has a cluster of strategies and operating models working in dynamic tension. Sometimes this is explicit, and sometimes it’s implicit. The same is true of any company’s subcultures: they exist and bounce up against each other like branches of a family tree at a reunion. Is this a problem? Not unless serious friction or misalignment exists.

Leaders of large companies are trained to recognize and address any signs of misalignment between operating model and strategy. They also tend to try to tinker with these if anything about the way that their organization is operating seems to be out of sync. (Think of Alex and how his first idea was that he could fix his culture issues through a reorganization.) The cultural forces are much more difficult to recognize and far harder to address. Therefore, even leaders who nod their heads vigorously at the “three circles” image let the topic of culture slide way down to the bottom of the agenda. But even if nobody talks or thinks about it, every company still has a strong cultural situation that needs to be co he sively aligned with the other elements.

The driving forces of any cultural situation are emotional rather than rational. This is why culture feels so unfamiliar and mysterious to most leaders. Culture doesn’t respond to the same levers and pulleys as other types of organizational elements. It tends to elude the traditional change management approaches that many company leaders adopt: large, wholesale transformation efforts. These approaches can be very useful at rechanneling the formal aspects of an organization. They can help roll out communications during a merger, articulate the case for change to a large organization in trouble, or realign incentives to fit a company’s strategy. But when it comes to emotional energy, traditional change management efforts can fall short. They don’t catalyze the deep and lasting changes that a company typically needs most, those that depend on the authentic emotional engagement of the people involved.

If you are truly interested in having your company transform—if you genuinely want a high-performance organization with a broad cadre of people committed to the success of the enterprise—then you need to become conversant with the emotions, behaviors, and deep-seated attitudes that exist in your company. You need to know what employees feel strongly about, both positively and negatively. We call this knowledge “cultural insight”—it’s the clarity that allows you to truly see what motivates your people. Then, with this knowledge fully in your grasp, you can move to what we call “cultural action,” targeted interventions that influence how people behave from day to day. These actions are what can influence the whole climate of how employees behave, think, and feel, bringing it into dynamic coherence with the company’s strategic aspirations. To put this simply, first you need to understand your culture; then you can work within it. This is how to bring out the best in your organization.

Fortunately, this is easier to do than it might seem. And the payoff is immense. Imagine that you are part of a company with a truly vibrant cultural situation: a place where people have paid attention, in the right way, to the attitudes, beliefs, and behaviors of others throughout the enterprise. This is a business with positive urgency—the kind of atmosphere you get when people feel a high level of emotional energy and a commitment to what they do and how they do it. Employees want to move the enterprise forward, not just because they have been given incentives to do so, but because they have a collective sense of responsibility to helping achieve the stated goals. They believe that their own daily actions contribute to these goals and that they will be recognized for their contribution. They have a strong sense of mutual accountability; they don’t want to let each other down. They are rarely bored, stressed, or anxious; they demonstrate inspiration and energy in everything they do. They collaborate willingly and naturally—and feel good about doing it. When you ask if they are aware of the reasons for the organization’s success, they don’t just say yes—they start talking about it at length and expressing their feelings about it in different ways. And then, before long, they are talking about how they can make it better still.

Many companies have, to some extent, cultures like this. They feel very different from one another because healthy cultures are distinctive. For example, at Zappos, the online shoe store owned by Amazon, employees feel personally engaged about their relationships with customers. They apply creativity and ingenuity on the job, knowing that customers appreciate it and feeling proud of what they can do. At paradigm-shifting Airbnb, people in every role believe passionately in the company’s mission of hospitality as a radical idea of feeling at home anywhere in the world and look at every aspect of their business as an opportunity to support and further that idea. At a financial-services institution we have advised in South Africa, employees feel a similarly strong sense of emotional commitment—but in this case it’s to their shared mission to help Africa, “our home.” The institution has a history of supporting and building the economies of the continent that has lasted for more than a century. A similar outlook exists at one of the largest energy companies in the world. Other companies with strong cultures, such as USAA (an American insurance company for military employees, veterans, and their families) and Southwest Airlines, are known for the way the company cares about customers’ feelings and energizes its employees: not just the top management but all employees are encouraged to fulfill their aspirations.

Successful companies can have widely divergent cultures, even in the same industry. Consider, for example, Starbucks and Dunkin’ Donuts, two retail chains that serve coffee and food. They are both known for their continued growth and their ability to satisfy customers. Starbucks built its culture around the concept of a “third place,” besides home and work, and everything about it is oriented to premium conviviality. Dunkin’ Donuts has a culture built around ef fi ciency, frugality, and getting things done. Its slogan, “America runs on Dunkin’,” is not just a marketing message. It reflects the culture of the chain. The business has shaped the culture, but the culture has also shaped the business.

You could make a similar comparison across Apple, Intel, Google, and Microsoft—all in the technology industry but with four very different cultures—or Aetna and Geico; FedEx, UPS, and DHL; Unilever and Procter & Gamble; Burberry and Brooks Brothers; Delta, British Airways, and Southwest Airlines; and Four Seasons Hotels and Airbnb.

Even when people agree on a high-level direction for an organization or support a strategy intellectually, they have to make a next step: asking how their own actions and decisions and working norms need to alter to make that strategy work. “Emotional support” enters the picture here: people’s in-the-minute reactions and choices are mostly responses to emotional stimuli rather than abstract rational thinking. This is why leaders need to consider what drives people emotionally, as well as rationally, to make a difference in how work gets done. An organization chart—in other words, the formal side of how things run—is never the whole picture. Our survey results spell this out very clearly: 52 percent of respondents agree or strongly agree that in their organization, the way things get done, the real chain of command, is not consistent with how things “should” work, on paper. People will move in new directions, outside their comfort zones, only if the culture supports them in doing so. Thus the famous Peter Drucker expression, “Culture eats strategy for breakfast.”

You can move a company forward only by working with and within the current manifestations of your cultural situation: guiding it, aligning key aspects as it evolves, fostering improvement, enhancing existing values, and showing its relevance. Katz and Zia Khan’s 2010 book, Leading outside the Lines, encourages leaders to take a bilateral view of both the formal and informal sides of organizations and to consider how they support and enhance each other. The authors urge leaders to aspire to a kind of aligned leadership that is “a holistic style that moves organizations to places they couldn’t otherwise go.” To do this, you need to find ways to identify and then capitalize on existing positive emotional elements embedded in that culture that are overlooked or underutilized, which can then help you accomplish a state of alignment between how people behave and feel and what makes the company successful. We call this “cultural coherence.” Explaining how to achieve this is the purpose of this book. It is a step-by-step guide to harnessing the critical few elements that will help align your culture—its on-paper, formal and elusive emotional, informal elements—and put it to work.

THE CONCEPT OF THE “CRITICAL FEW”

If you work in any large or well-established organization, you already know how seemingly impassable an entrenched, repeating set of behaviors can become. A full quarter of our survey respondents reported that a culture effort initiated at their organization had resulted in no visible results. It takes persistence and attention to shift those habits, just as it does for personal habits like smoking and overeating. People don’t change their habits quickly or easily, even when they have excellent reasons to do so. But habits can be changed, and cultures do evolve. And this can be guided by you.

You may be a CEO, another member of the C-suite, a middle manager, or a frontline worker—whatever role you hold in your company, you have the power to evolve the culture. You don’t have to accept the culture as it is. You can accentuate the best of it and use it to help your organization overcome patterns that seem to be interrupting your progress toward your goals. The road to that end involves selective and targeted alignment, rather than dramatic repeal and replacement.

Once you find basic cultural elements that motivate your workforce, you can cultivate them and align them with your goals. These elements tap the emotions that bring a culture to life. They are broad enough to resonate across the whole organization but focused and simple enough to encourage real actions in people’s daily lives. They fall into three basic categories (all of which will be elucidated in later chapters, as well as explained in brief in the glossary):

• Traits: A set of shared characteristics that represent the “family resemblance” of your entire enterprise— the qualities that transcend subcultures and are at the heart of the shared assumptions people bring to work and their emotional connection to what they do.

• Keystone behaviors: A few carefully identified things that some people do, day after day, that would lead your company to succeed if they were replicated at greater scale.

• Authentic informal leaders (AILs): A few people, or at least a reasonably small percentage of your company’s people, who stand out because they have a high degree of “emotional intuition” or social connectedness. (AILs are discussed in chapters 4 and 5.)

In our experience, a sharp focus on these critical few elements reduces complexity and begets a positive, informal, and lasting cultural impact on performance. Most importantly, this approach takes the emotional dimension of human behavior into account and exploits the power of simplicity. It amplifies community connections because it encourages the workforce to look to peers and colleagues for insight, support, and encouragement. When people you trust and admire model and enable a few key behaviors and help others do the same (and feel good about it!), those behaviors spread quickly, and they stick.

A focused approach like this can feel counterintuitive. Most other methodologies meet complexity with comprehensive thoroughness: initiatives, ideas, frameworks, and change plans all premised on the idea that a culture can be forcibly pushed toward some set of external standards whose achievement means that the culture work is complete. We have yet to meet the leader who can describe to us how a very comprehensive approach changed the way things really worked. Complexity is distracting; comprehensiveness is wasted energy. You need crystal-clear simplicity and a small group of elements that will carry everyone forward together. You don’t need a lot of targets to hit or results to generate. You need to unify your organization’s people around a common, clear cultural movement, driven by a core of keystone behaviors and positive emotions.

But simplicity requires discipline. As a leader looking for ways to help those in your sphere of influence align with the company strategy, you must make many difficult choices: resonant traits, compelling behaviors, influential “authentic informal leaders.”

To recognize how hard this is, consider what would happen if you had to pick, right now, a few keystone actions your company should take immediately to build a better culture. We’re sure you can easily name twelve. It’s much harder to boil them down to three or four; often, you’ll have a good reason to include every one of the dozen. Yet if you can’t narrow down the list, you’ll be overwhelmed when you start to work with them, and so will everyone else in the organization. Moreover, it will be very difficult to measure any change; you won’t even know which new behaviors have catalyzed new results. If you want to be effective at change or boosting performance, you can’t encompass multitudes. You need to focus your attention on the critical few.

More likely than not, the single act you will best be remembered for in the course of your career is the way in which you managed to impact a cultural situation, whether you are a leader close to the front lines or a CEO. If you identify and deploy a critical few elements within the cultural situation in your work environment, you will create clarity and meaning for others. People around you will be more likely to make an emotional, not just a rational, commitment to change. They will trust and respect your choice of direction, and they will look for ways to follow it. You will elicit enthusiasm and creativity and build the kind of powerful company that people recognize for its innate value and effectiveness. And most of all, what you do with respect to your cultural challenges will be much more important than what you say. That’s the essence of emotional resonance. The rest of this book will show you how to achieve it.