The Culture Recipe

In February of 2012, more than 2 million Americans quit their jobs, the most since November of 2008. The vast majority simply gave perfunctory notice to their employers before moving quietly to their next ambition.² In more than a few cases, the real reasons for departure may never have been disclosed, because employees are often loath to burn bridges with former employers, especially in a job market still recovering from the recession. But, in March, one U.S. employee resigned his post in a decidedly noticeable way. In a New York Times Op-Ed piece entitled, “Why I Am Leaving Goldman Sachs,” Greg Smith, the firm's Executive Director and head of the United States equity derivatives business in Europe, the Middle East, and Africa, offered more than 1,000 copious words as to his reasons for leaving his employer of nearly 12 years. Smith could hardly be described as an average employee, or human being, for that matter. He attained a full scholarship to go from South Africa to Stanford University, was a Rhodes Scholar national finalist, and a bronze medalist at the Maccabiah Games in Israel (known to fans as the “Jewish Olympics”). At Goldman Sachs, Smith's accomplishments were equally impressive. He spent more than a decade recruiting and mentoring employees. He was one of only 10 employees (out of the company's more than 30,000) selected to represent the company in its recruiting video, played on every college campus visited around the world. He managed the firm's summer internship program in sales and trading in New York for the 80 college students selected out of the thousands who applied. In short, by all appearances, Smith was a model employee, one loyal to his company and passionate about recruiting and training the next crop of leaders.

To compel such a dedicated employee to quit, yet alone broadcast his reasons to a world of strangers, is significant, to say the least. Yet, Goldman Sachs managed to instigate one of its most fervent supporters to extreme measures nonetheless. As Smith opined, the reason for his departure had nothing to do with compensation or even a better opportunity at a place promising greener pastures. The reason for his disgust and ultimate departure came down to Goldman Sachs's culture. He wrote:

If any leaders in the business community were themselves skeptical about the role of culture in affecting company performance, Smith's piece—and its immediate negative $2.15 billion effect on Goldman Sachs's market value⁴—gave them reason to pause. In a study of more than 100 business leaders and human resources (HR) professionals administered a few months following the public Op-Ed resignation, three out of four respondents believed corporate reputation to be substantially driven by internal corporate culture, yet only 5 percent thought their organization's culture strong enough to preclude reputational crisis, like the one experienced by Goldman Sachs. Of the sample, more than three-fourths believed that Smith's letter had a negative impact on Goldman Sachs' reputation, only 3 percent attributed it to an isolated incident on the part of a single disgruntled employee at the company, and two-thirds expected to see more of the same for other companies in the future (a sobering possibility given that only 74 percent believed their own employees were committed to their company's culture).⁵ Indeed, there are more Greg Smiths walking the halls of businesses who have also lost their pride in their companies. According to the 2010 General Social Survey, nearly 10 percent of people are not proud of their employers.⁶

If such an event is likely to be repeated, companies should learn a lesson from Smith and Goldman Sachs before finding themselves the next potential target of an Op-Ed excoriation. According to Smith, the defining moment when he realized his time was up was when, “I realized I could no longer look students in the eye and tell them what a great place this was to work.”⁷ Indeed, finding that special je ne sais quois that makes a company special has been the Holy Grail eluding firms for decades. One organization, in particular, has a unique perspective on demystifying what makes a company great. Since 1980, the Great Place to Work Institute has made it its mission to build a better society by helping companies transform their workplaces. Committed to this goal, the Institute has studied thousands of businesses and surveyed millions of employees to find the recipe that defines a great workplace. Each year, it publishes its results in a stack ranking of the top businesses to work for in the United States and many other countries. The list includes small and large enterprises across a wide range of industries experiencing different degrees of growth. On it are companies that pay top dollar for talent, share their profits with employees, and offer some of the most sensational perks imaginable (including onsite day cares, gymnasiums, café bars, and concierge services). But, although any of these benefits would be desirable to the average employee, the Institute has determined that none really matters when it comes to determining what makes a workplace great. As it turns out, the complicated recipe in creating a work environment worthy of being considered among the top in the country comes down to one essential ingredient—trust. According to the Institute:

Trust is a currency. It is traded, accrued, and lost. In Smith's case, he lamented Goldman Sachs's erosion of trust among its client base. In the Institute's findings, internal trust yields dividends to companies in other performance categories. However, when contemplating esoteric terms like trust, the challenges in measuring exactly what a company gets in return can be difficult at best. Fortunately, the Institute's decades of research provide an arsenal of results whereby intangible cultural characteristics, like trust, can be quantified. Furthermore, to satiate critics quick to dismiss such fluffy terms as irrelevant to a firm's going concern, the Institute and others have measured the financial impacts associated with healthy cultures. Researchers at the Wharton School of Business compared the stock performance of companies making the Institute's list against their peers over a period of 25 years. Even when controlling for mitigating factors like industry performance, risk, outliers, and firm characteristics, the study found that companies on the Institute's list generated statistically significantly higher stock returns (2.4%–3.7% per year) than their counterparts—an outcome based on the cultures of these great places to work.⁹ At the same time, other esteemed lists of companies that use more socially acceptable business criteria, like financial metrics, cannot claim the benefit of longitudinal performance discovered in the Wharton analysis. In fact, even the seemingly indomitable monoliths on the Fortune 1000 list have not benefited from the same success, with approximately 70 percent of companies expected to be replaced within a decade.¹⁰ Although surprising, it appears that soft cultural metrics are actually the leading, lasting, and predictive indicators to financial performance.

Yet, despite its importance, culture is easily one of the most misunderstood aspects of a firm. Academic definitions suggest that it is a collective framework of attitudes, beliefs, behavioral norms, and expectations. Still others put it in simpler terms. Bain & Company succinctly define culture in this way: “A company's culture is essentially the organization's soul, shaped through success and setback.” They attribute it to the way employees behave in an organization when they think no one is watching. They metaphorically describe it as the company's fingerprint—something unique to every firm and the singular quality protected from competitive duplication. As Herb Kelleher, founder of Southwest Airlines, once said, “Everything [in our strategy] our competitors could copy tomorrow. But they can't copy the culture—and they know it.”¹¹

Still, the vast majority of firms fail in building high-performance cultures, perhaps by underestimating the role that culture plays, relegating it as the exclusive domain of a human resources team or miscalculating the route to getting there. The perceptual gap between employees and management is sufficient to throw well-intentioned companies off the track of cultural success. As an example, in a 2012 Deloitte study of more than 1,000 employees and 300 managers, the latter cohort ranked competitive compensation and financial performance as the top factors influencing work culture. In contrast, regular communication and accessibility to management topped the list of most important cultural building blocks for employees.¹² Employees get that the thousands of horizontal and vertical connections made each day form the prism through which culture is refracted. As the Deloitte study shows, they value these interactions. And, as discussed in Chapter 4, relationships built and nurtured over time have the propensity to build trust, the critical ingredient to a healthy culture, per the Institute's battery of research.

Technology is playing a part in determining how these interactions are created, nurtured, or thwarted. However, technology no more defines culture than do the ostentatious amenities and top compensation packages from the Institute's greatest places to work. The trouble is that some leaders are turning to technology as a poor substitute for a rich foundation of cultural values, relying on its usefulness in building connections that are rendered meaningless without broader company context. Consider that 41 percent of executives in the Deloitte study believed social media to be important in building and maintaining workplace culture, yet only 21 percent of employees felt the same way.¹³

If technology is not eulogized for its capacity to build connections effortlessly, it is otherwise vilified for enabling an always-on work culture that never rests. In 2006, Columbia University economist Sylvia Ann Hewlett looked at “extreme jobs,” those that required 73 hours a week or more of work. She found that nearly half of the managers in top multinational companies had them, and she blamed technology, at least in part, for enslaving a population of work drones, “Driven by globalization and always-on technology, increasing amounts of upper-echelon workers are giving huge amounts of their hearts and minds to the job.” And, despite the increased hours, multiple studies have failed to find a positive correlation between labor input and output.¹⁴

Inspired to understand the complexities associated with technology's role (or lack thereof) in facilitating culture—by reducing organizational friction, increasing workplace flexibility, or disrupting the delicate work-life balance—the 2012 Alcatel-Lucent study canvassed more than 2,800 U.S. employees and decision makers. It asked a series of questions about the cultural attributes of the respondent's company (including, but not limited to, how decisions are made, rewards are dispensed, communication flows, values are modeled, strategy is clarified, and technology is embraced) and clustered the responses into behavioral segments that define organizational culture as follows:

• Dinosaur organizations—These represent 15 percent of the population and are characterized by uncommunicative upper management, a lack of strategic planning, non-established company values, and a very unhelpful IT organization that is viewed as a cost center with little to no interaction with other departments.
• Stodgy and strict organizations—These comprise nearly 23 percent of the population and have strictly defined hierarchies that address issues ahead of time and with lots of management and peer oversight. These companies have very established values and primarily use an analytic approach to decision making. Employees are afforded very little technology or web freedoms, such as those associated with personal devices or applications in the workplace or flexible work arrangements offered through telecommuting benefits.
• Top-heavy bureaucracies—These represent more than 9 percent of companies and are depicted by free-flowing hierarchies with no entrenched values or ways of doing things. They are characterized by considerable internal competition between employees and departments with commensurate oversight. In these companies, IT is fairly isolated from other departments but is also seen as helpful.
• Unrestricted companies—These are companies with relaxed hierarchies, risk-taking cultures, and unrestricted web and technology policies. They comprise more than 27 percent of the population, and their employees consider their cultures to be fairly healthy.
• Cultural gurus—These represent more than 25 percent of the population. Employees at these companies evaluate their cultures as healthy. Upper management is communicative, the companies address issues with strategic planning, and IT is an extremely engaged and helpful strategic asset to the firm.

Beyond measuring the intangible qualities comprising a company's culture, the study also evaluated the financial success of firms. Although respondents were selected from a variety of functions and levels in the organization, all had to be familiar with their company's financial performance (including directional trends in revenue, profitability, and employee growth). When mapping the impact of cultural characteristics on financial results, the 2012 Alcatel-Lucent study validates the work done by the Institute, Wharton, and others in confirming culture as an essential component of success. Specifically, 50 percent of failing companies (those characterized by poor performance across a wide range of financial indicators) are dinosaurs. This compares to just 8 percent of cultural gurus finding themselves in a comparably abysmal financial situation. In contrast, 40 percent of the top-performing financial companies are cultural gurus compared with only 7 percent of dinosaurs finding themselves in such fortune. Clearly, although culture is a predictive value for success, it does not render an organization bulletproof to external pressures. As the Alcatel-Lucent data demonstrates, any organization can find itself the victim (or beneficiary) of market conditions. However, the Wharton data takes a longitudinal view of company success over time to compensate for such variability and again proves the critical role of culture. Where the 2012 Alcatel-Lucent study is potentially helpful is in going beyond correlating cultural attributes with financial success to determine the habits of highly successful companies and their approach in adopting technology. Although trust is the essential ingredient for any successful culture, the top-performing companies in the 2012 Alcatel-Lucent study appeared to be using it as part of the following recipe:

• Successful companies place high-end mobile technology in the hands of their employees—Employees at successful companies are much more likely to use mobile technology for work purposes. In particular, they have a greater propensity to use 4G LTE devices (4th Generation, Long Term Evolution—the next generation of mobile broadband services) and tablets. Such a technology philosophy is particularly attractive among younger workers and those about to enter the workforce ranks, the digital natives who have never known a life without mobility. Beyond simply being more inclined to encourage wireless in the workplace, successful companies are more likely to pay for such services on behalf of their employees. As such, these companies are characterized by a more mobile workforce, with nearly one in three employees classified as heavy telecommuters, based on a set of criteria evaluating how much time is spent away from a traditional office. But one cannot infer causality from correlation (in other words: Do companies with a more mobile workforce pay for these services out of need? or Does equipping the workforce with these services free them to be more mobile?). However, although correlation does not imply causation, there is evidence to support that leading companies are more optimistic about the opportunities that a mobile workforce affords. Specifically, nearly two in five dinosaurs indicate that more people working remotely would have a negative impact on company culture, compared with just one in five gurus. Furthermore, employees at these culturally advanced companies are more likely to feel liberated, rather than enslaved, by the technology that surrounds them. Nearly nine in 10 of those employed by gurus agree that technology gives them the freedom to work when and where they want. In contrast, just over 60 percent of employees at dinosaurs feel the same.
• Employees at successful firms are leveraging personal technology—Employees at successful firms are much more likely to use web solutions offered by Dropbox, Amazon, and others. They are also more likely to use cloud-based services (50% frequently use the cloud compared with 39% of the average). And, rather than retaliate against or resist the consumerization trend, the IT departments of these firms are willingly embracing it—60 percent of IT professionals in successful firms indicate that the migration of personal technologies into the workplace has allowed them to be more strategic, because they are no longer consumed with purchasing and maintaining hardware for employees in the company (compared with 45% of average IT professionals who feel the same way).
• IT departments at successful companies equip employees with innovative tools to help foster a healthy culture—Nearly three in four successful companies consider IT essential in enabling culture, as opposed to just 30 percent of those in failing companies—a noble cause given that employees at successful firms are almost four times more likely to say they have a very healthy corporate culture than those at failing companies. Nearly 70 percent of IT departments at successful companies saw budget increases in the past year compared with 42 percent in other companies. Again, although causation cannot be inferred, it is not farfetched to believe that these increases have at least something to do with IT's esteemed value in the company. In fact, nearly three in five top-performing companies indicate that senior management is very involved in adopting new IT solutions, compared with less than one in three failing companies.

  

• Successful companies seek out leaders with poise, not drones—There are considerable differences between attributes that are considered attractive by successful and failing companies when evaluating candidates for employment. Whereas successful companies find confidence (cited by 29% of these respondents) and leadership (28%) desirable employee characteristics, in failing companies, neither quality is highly valued (confidence was mentioned by 5% of respondents and leadership by 18%). Respondents in failing enterprises value people capable of following direction, with nearly two in five indicating this as the most desirable quality in a new recruit. These struggling companies are more likely to offer technology to senior leaders, rather than equip their front line with the tools and technology that may be needed.
• In successful companies, HR and IT communicate to improve the culture as well as employee recruitment and retention—Almost three in five HR decision makers in successful cultures say that there is a connection between themselves and IT to work at improving the culture (compared with less than half of all HR decision makers, on average, who state the same). Beyond culture, HR leaders at successful companies also recognize the role that technology can play in helping to attract and retain employees. Two in three HR decision makers from the most successful companies recognize this connection; only two in five at other companies see the same. And, given that culture, recruitment, and retention are too important to be relegated merely to IT and HR, business decision makers in successful companies also see the linkage. Nearly two in three business decision makers in successful companies admit to a great deal of communication with IT, compared with less than one-half in other companies.
• Successful companies have employees who know when to take a break—Almost seven in 10 employees at the most successful companies use social media and other web activities as a valuable break to make them more productive. In addition, as an indirect gauge of internal trust, seven in 10 also agree that allowing their coworkers to do the same provides a deserved breather. Trust is bidirectional between management and employees as well, with 80 percent of cultural gurus affording some technology and web freedom to employees, compared with less than two out of three dinosaurs.
• Successful companies have forward-leaning cultures that break from the norm—These companies respond well to changes in their market environment and involve many people in the decision-making process, thereby increasing the likelihood of diverse viewpoints and mitigating the risk of poor decisions more typical of homogeneous, entrenched organizations (as discussed in Chapter 4). They encourage employees to take calculated risks without fear of reprimand in the event of failure. They dispense rewards based on clearly defined measurements of employee performance, not subjective management evaluations. They use a deliberate planning process to anticipate future needs. Finally, they view IT as a strategic asset, capable of delivering competitive advantage, and offer employees the flexibility to work from wherever and whenever they choose. In addition, to relieve the concern expressed by Hewlett and her ilk, it appears that these companies have employees who are indeed working smarter with the technology, not harder. Employees at successful companies in the sample indicate working an average of 44 hours per week, compared with 42.5 hours for the average employee at a failing enterprise.

There is much to be learned by watching successful companies. Despite the uniqueness of culture in the mix, there is no doubt that this intangible quality has a very meaningful and enduring impact on a company's success. Inherent in successful cultures is trust, and, although technology can be the channel through which it is bestowed vertically and horizontally within an organization, it is merely that—a channel. Culture is much bigger than technology, although the latter certainly plays a part as the walls of the enterprise are increasingly virtualized. Although the forward-leaning companies in the Alcatel-Lucent study provide a recipe of sorts for those interested in mimicking their success, any attempt to do so is futile if the primary ingredient of trust is missing.

Even when trust is present, cultural recipes are not tweaked overnight. It takes time and fortitude to reverse deeply entrenched beliefs, attitudes, and ways of an organization—something consultants in the field attempting to assist companies longing for healthier cultures know all too well. Peter Bregman is one such advisor to companies. He points to a study in the late 1970s by University of Illinois researcher Leann Lipps Birch, in which she conducted a series of experiments on children to see what would get them to eat vegetables they disliked. Explanations as to why these vegetables were healthy for the child were inconsistent in getting results. The same goes for proper modeling by an adult to encourage the child to consume the distasteful foods. As Bregman explains, there was one consistent way in which Birch was able to attain success in her goal:

Indeed, culture is a reflection of the human beings comprising it. And, although peer pressure is yet one more ingredient in the cultural soup of a firm, a winning recipe is possible and profitable for those committed to success.