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Demystifing corporate culture in pharma

Having a strong organisational culture is a business advantage that helps generate and maintain top-level performance but, while many try to create one, few succeed

Man in business suit pullng card from sleeveGiven the importance of getting corporate culture right, many organisations invest heavily in shaping their cultures and influencing the behaviours of their workforces. But how many organisations derive maximum value from this investment?

Does the money spent on developing and communicating mission statements and corporate values really change employee behaviour? Or are there hidden, powerful forces at work that neuter this investment? And if the investment in shaping culture does bring about change, is it promoting behaviours that support performance and strategy delivery, or is it inadvertently encouraging sabotage behaviours?

The key to developing corporate culture, particularly one that becomes a source of competitive advantage, requires gaining insight into how culture is formed, including the important role that employees' attitudes and perceptions play in the process. Organisations that take time to understand the process and develop a highly engaged workforce can expect to see significant performance improvements. For those that create a culture aligned with their business strategy, the rewards are greater still: a workforce acting in unison as a dedicated powerhouse, moving the organisation toward its strategic goals.
 
Why it matters
Numerous studies and organisational examples highlight the relationship between a highly engaged workforce and company performance. Highly engaged staff improve customer service, generate more innovation, advocate more for their organisation, deliver higher quality, have lower rates of absenteeism and stay with employers longer. Studies by leading researchers, such as the Corporate Leadership Council and Gallup Group, support this thinking. It is also known that an engaged workforce generates better financial results.

The Employee Engagement Report in 2006 by Towers Watson-ISR found that, among companies with high levels of employee engagement, operating income improved by 19.2 per cent, while companies with low levels of engagement saw their operating incomes decline by 32.7 per cent over the same 12-month period. Essentially, companies with engaged workforces had 50 per cent higher levels of operating income.

Other studies reveal similar results and the experiences of many organisations further reinforce this causal relationship. The 2009 MacLeod Report ('Engaging for Success'), developed for the UK government's Department for Business, Innovation and Skills, for example, is replete with examples of the benefits of widespread workforce engagement.

Having a highly engaged workforce is not enough, however. It is equally important that organisational culture and strategy are aligned. A workforce that is pulling in the wrong direction, one that operates with enthusiasm but contrary to strategic intent, is detrimental to performance. A workforce that operates with enthusiasm and pulls in the right direction delivers improved performance and makes a significant impact on an organisation's ability to achieve its strategic goals.

Getting the right mix of strategy and culture creates a formula for business success. Pursuing a strategy of innovation in a dynamic market can only succeed within an inquisitive culture where the workforce pushes boundaries and management encourages new ideas and constructive risk-taking.

Culture lag
Many combinations of strategy and culture fit are broadly intuitive. What is less obvious is the 'culture lag' that occurs when the culture fails to shift in line with strategy and the performance risk that arises as a result.

Keeping culture aligned with strategy is a significant challenge given the constantly changing dynamics of markets and the need to adjust and redirect strategy as a result.

Culture misalignment is inevitable with any significant shift in strategic intent and direction. Organisations that understand the resulting lag and actively work to reduce the time before culture and strategy are re-aligned are in the best position to succeed. The speed with which this lag is closed improves with an intimate understanding of what drives culture.

Procter & Gamble (P&G) is a good example. When A G Lafley was appointed chief executive in 2000, he inherited a global business with a large product range across a diverse consumer population; but the company had only a 15 to 20 per cent commercial success rate of new brands and products. At the time, most employees viewed their roles broadly in terms of development and delivery. Brand and product innovation was left to 12,000 R&D people and engineers and was considered a core in-house competency that gave P&G market advantage. That year, only 10 per cent of innovation ideas came from external sources, IndustryWeek reported in December 2004.

Lafley recognised a need to change. He put customers at the front of all innovation decisions (prioritising customer experience over technical advancements) and he made innovation integral to the company's strategy. To succeed, P&G needed to ensure that innovation reflected deep understanding of customer needs and perceptions and top executives needed to accelerate the pace of innovation dramatically. This could not be done internally only, and it could not be done at all unless the entire organisation embraced new ways of working. P&G introduced its Connect + Develop strategy, where innovation was developed collaboratively across the organisation and with external partners.

The strategy required a culture of trust and open exchange across the organisation and with key external players. It required the workforce to make fundamental changes: increased focus on the end customer, greater curiosity and openness to new ideas, and significantly more internal and external collaboration. The prevailing culture of 'not invented here' was changed to 'proudly found elsewhere'.

Organisation structures, systems, communications and even recruitment reinforced the new culture and the desired behaviours. The result was a closing of the gap between the old thinking and the new innovation-driven strategy and an organisation that was well aligned for success. Today, P&G's Connect + Develop strategy has resulted in more than 1,000 active agreements with external parties. During Lafley's tenure, sales doubled, profits quadrupled and the company's market value increased by more than $100bn.

The ability to connect emotionally with the workforce and redirect attitudes is a key factor in closing a culture gap, thus changing commitments and behaviours. Steve Jobs did that when he rejoined Apple in the late 1990s as Apple was struggling with competition, troubled products, manufacturing backlogs, lost market share, shrinking revenues and loss of employee talent.

In 1996, Apple failed to make a profit. With frequent changes at the executive level, the company lacked a clear strategy. Customers grew uncertain about what the brand represented. The company's culture became equally unclear. Leadership, management and the workforce were not aligned. A number of products seemed out of touch with customer interests. By 1997, with losses mounting, people began to speak of Apple having lost its way.

When Steve Jobs returned to Apple, he immediately set out to transform the business. In addition to trimming product lines, investing in design, terminating licensing agreements and entering into agreements with Microsoft, he also created a powerful narrative for the workforce around the journey it was taking and the importance of the mission.

He re-energised the innovative culture where the company had its roots and engaged all employees in an emotional commitment to drive and deliver the new strategy of innovation and trend-setting. As part of that, he launched Apple's first major ad campaign in a decade: 'Think Different', a slogan that captured what Jobs wanted both customers and employees to do with the Apple brand. In 1998, the company regained profitability.

Good leadership
The journeys P&G and Apple took are not unusual. Markets change, organisations must realign their strategies to accelerate or recover performance and cultures must be adjusted to help realise new strategies. Getting this right leads to improved performance. Getting this wrong, including failing to move swiftly to close the culture lag, saps performance. Good leaders understand and, even better, predict the possible misalignments that occur at points in their organisational journey and act quickly to correct them.

The triggers that make strategic change, and therefore cultural change, necessary can be external or internal. A typical external trigger might be new regulations on pricing that prompt an increased focus on value-added services and competition and forces a shift from mid-market products to low-cost leadership. Internal triggers that disrupt organisations and cultures include mergers, corporate carve-outs and new product and market entries.

Abstract force
It is one thing to anticipate the triggers likely to cause a culture lag, but how does an organisation measure and evaluate a force as abstract as culture?

Shaping corporate culture is as much about understanding the emotional and interpretive activity that takes place among employees as it is about ensuring that formal mechanisms are correctly framed to encourage desired behaviours. Assumptions, unwritten rules, rituals, personal goals and feelings that develop may be more difficult to grasp than the formal, visible components of corporate culture. Nevertheless, it is possible to analyse these less tangible components and target the formal mechanisms of corporate culture to make positive change happen. Armed with an understanding of how corporate culture is formed, the path to aligning culture and strategy becomes clear.

Leaders can invest with confidence, demystifying the concept of culture and bringing the full weight of their workforce behind improving organisational performance.

Ira-Gaberman
The Author

Ira Gaberman is vice president at A T Kearney  

 

 

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30th November 2011

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