Culture Creates Lasting Value

I recently heard from my old friend and past boss Klaus Entenmann, Chairman of the Board of Daimler Financial Services. He sent me and a couple of my past colleagues an email to let us know the large-scale culture change we started in 2005 has become part of the lifestyle of the organization. Nine years after we had our first meeting to determine what would energize the culture, the company has incorporated those values and principles as its own. This culture is delivering results as proven by the fact that Daimler Financial Services is the first German company to make it into the top 25 Great Places to Work and are continuing year over year to produce strong and impressive business results.

This is the challenge of culture change. Often leaders are focused on an immediate need and as a result, read some new leadership book and then buy into the idea that changing the culture will fix that immediate need. In most cases, it doesn’t work that way. Culture is established over a long period of time. The rules of the new culture have to be established and then tested over and over again. If we say that we are now customer-focused, we have to have those hard moments when customer-focus is difficult. When we say we will only accept integrity, we have to have those moments where costly decisions are made in the name of protecting integrity. This is how we determine if the new value is real

With a short-term focus, these “values” end up being seen for what they are…great ideas, aspirational goals, and transitory. Leaders who are playing the long game and truly trying to change the way their organization lives and breathes understand this. They actually look for those opportunities to show their followers they mean exactly what they say and they are willing not only to invest in this new direction but to pay the price of their commitment.

The other lesson to gain from this is that culture change is enabled from the top. Sometimes it starts there, sometimes it starts at the grassroots level, but in either case, if the leadership of the organization does not commit, it just isn’t going to happen. In the case of Daimler Financial, a huge investment was made in bringing the senior leadership along into this new culture. For some, it was no longer a good fit and they moved on to other things. For others, it was exactly what they had envisioned when they first decided they wanted to become leaders.

Culture is hard to understand and to wrap your arms around. It’s that white space between decisions, it’s a belief system and it’s a set of rules that are unspoken but understood. Culture requires faith in your own leadership and in the abilities of your followers. And rather than a management function, creating the environment where a strong culture can evolve is pure leadership. To be a small part of a significant and lasting culture change is a unique experience but well worth the effort.

Does your culture create value? We would love to hear about it so please share!

Welcome to the Tribe. Really?

staffI have recently had the great opportunity to join a Chamber choir in my hometown. Yes, I know that reflects the tremendously exciting life that I live, but it’s fun. It’s also an interesting study in how groups work. In fact, the similarities to this highly talented, but volunteer group are amazing when you compare them to the work place. See if you can relate:

This choir has been together for many years and has a really tight group of very talented singers. On an individual basis, each of them is a truly delightful person. But as a group, there is a “membership effect” that makes it difficult for new members to assimilate.

For one thing, a fairly large percentage of their repertoire is made up of songs that have been performed at some point in the past. This common experience prompts reminiscing which, by definition, excludes anybody who was not around when the piece was originally added to the list.

There are also many rules that are not formally presented in any way but are discovered with time. Some are small rules—when to open the folder, when to sit during a performance, or whether or not a bottle of water can be on stage. Some are large rules—do we actually start rehearsal on time, how do you speak to the conductor, how hard do you practice.

Learning all of these rules is part of becoming a member of the group. The more forthcoming group members are about the rules, the faster a new person becomes a member of the tribe. The harder it is to determine what are the norms of the group, the harder it is to be accepted.

How many barriers do you have in accepting a new member to your team? More importantly, do you have time for a long acclimation process or do you need them to be collaborating and working with each other quickly? Chances are, if you leave the team to it’s own devices, the assimilation of new talent can be a long and costly process.  The longer it takes, the more the new member questions whether or not this is a team they want to run with. One of the first rules of any organized group of people is to preserve their identity. A new member challenges that preservation.

Orientations are great and you should keep doing them in order to let the new people know what the basic rules, policies and procedures for their position are. Even more important is to arrange opportunities for the new folks to learn the hidden rules. If you’re the boss, some of these rules will be hidden from you as well since your membership is specified by a role.

Arrange time for lunch or dinner between new team members and the rest of the team. Don’t gang-team them though…as a group the members will be more likely to inadvertently show how different they are rather than similar to the new person. Arrange for some casual one-on-one team with various members of the team and the newbie. If you really want to do it right, figure out who the leader of the tribe actually is (it’s not you by the way) and make sure that this person gets some alone time with the new member.

As the leader of the team, you can’t really force the process of assimilation of new members. You can, however, create an environment where new members are welcome and given every opportunity to connect with not only the team, but the individual members on the team. It may take a little time, but it will pay off in employee satisfaction and productivity fairly quickly.

Culture Truly Matters

How ambidextrous is your organization? If you want it to be around for awhile, the answer should be “Very.” Take a look at this recent article, written by Marina Krakosvky and reprinted by Quartz.com.

The one thing that makes a company last forever

By Marina Krakovsky, Stanford Graduate School of Business June 5, 2013

IBM’s survival tactic: innovative thinking. AP Photo/Focke Strangmann

All companies hit rough patches from time to time. But only a few manage to survive decade after decade—some of them in a form that bears no resemblance to the original organization. Nokia began in 1865 as a riverside paper mill along the Tammerkoski Rapids in southwestern Finland. In the late 1880s, Johnson & Johnson got its start by manufacturing the first commercial sterile surgical dressings and first-aid kits. And in 1924, the founder of Toyota came out with his company’s first invention—an automatic loom.

What explains the longevity? Stanford Graduate School of Business professor Charles O’Reilly calls it “organizational ambidexterity,” the ability of a company to manage its current business while simultaneously preparing for changing conditions. “You often see successful organizations failing, and it’s not obvious why they should fail,” O’Reilly says. The reason, he says, is that a strategy that had been successful within the context of a particular time and place may suddenly be all wrong once the world changes.

Staying competitive, then, means changing what you’re doing. But the change can’t be an abrupt switch from old to new—from print to digital distribution, say, or from selling products to selling services—if that means abandoning a business that’s still profitable. Hence the call for ambidexterity. You can’t just choose between exploiting your current opportunities and exploring new ones; you have to do both. And the companies that last for decades are able to do so time and time again.

O’Reilly’s work builds on that of other organizational scholars who have noted the value of a two-pronged survival strategy. In a seminal paper published in 1991, Stanford professor James March wrote about the need for organizations to do two things at once, and articulated the challenge. “Both exploration and exploitation are essential for organizations,” March wrote, “but they compete for scarce resources.” That means organizations that try to do both face difficult trade-offs, choosing one only at the expense of the other. Harvard professor Clayton Christensen went a step further, pointing out in The Innovator’s Dilemma in 2011 that the very things that make an organization successful today will actually work against it as conditions change. It’s not just that resting on your laurels is tempting, or that managers are blind to the changes around them. Rather, innovation can easily seem like a threat to a business that is already working well.

When Christensen wrote The Innovator’s Dilemma, he saw no way out, O’Reilly says, except to spin out the innovative part of the organization. According to that approach, the best way for Wal-Mart Stores Inc., for example, to cope with the advent of internet retailing was to continue to focus on its brick-and-mortar stores and to spin off website Walmart.com as a separate company, as it did in 2000.

But a spinoff doesn’t really solve the problem, O’Reilly says, because it doesn’t help Wal-Mart make money in the long run. A better way, his research suggests, is to run the mature business alongside the newer business under the same organization—but, crucially, to do it in a way that makes smart use of the organization’s resources.

A good model is the way in which Wal-Mart is rolling out its Express stores, the much smaller alternatives to the company’s behemoth supercenters and among its best hopes for continued growth. This venture, which is moving in on the turf occupied by the likes of CVS and Walgreen, seems likely to pay off, O’Reilly says, because Wal-Mart’s senior managers aren’t merely moving into a new, related business; they’re leveraging “the strengths of the mother ship” to do so. For Wal-Mart, those strengths are in real estate, purchasing, logistics, and information technology—all capabilities that will be useful in the drugstore business, too.

Christensen, O’Reilly says, now sees ambidexterity as the solution to the innovator’s dilemma, but not everybody does. The idea that organizations can reshape themselves to adapt to change runs counter to a decades-old tradition in organizational studies that says, in effect, that organizational survival is a matter of luck. That school of thought, influenced by evolutionary theory and known as organizational ecology, holds that the companies that survive today are products of natural selection. These organizations have the right features to thrive in their current environment, organizational ecologists say, but sooner or later, the environment is bound to change. And if it changes in ways that favor a different set of traits, the argument goes, an individual business can’t adapt any more than a zebra can change its stripes.

That view is too fatalistic, O’Reilly believes, because it ignores managers’ power to learn and change. If Wal-Mart is continuing to grow while Sears is in decline, it’s because Wal-Mart’s leaders are deliberately doing the right things.

O’Reilly and his colleagues, especially his close collaborator Michael Tushman, of Harvard Business School, have found what some of those things are. Above all, an ambidextrous organization needs a leader with an “overarching vision,” or clarity about why different businesses within the organization are important. But their research also shows that problems arise when other senior managers disagree with that vision. Therefore, the leader must also “make sure that everybody is singing off the same hymnal,” O’Reilly says.

Managers must make sure their organizations actually align with that vision, as well—a difficult feat, given that different business units’ cultures and incentives might be tugging them in different directions.

The best leaders manage to pull it off. One example is Glen Bradley, who in the early 1990s led Ciba Vision, a maker of contact lenses that was losing ground to Johnson & Johnson. Johnson & Johnson had the economies of scale to defeat Ciba Vision in the market for conventional lenses, so Bradley redirected his organization’s resources toward developing innovations, such as contacts that people could wear while sleeping. At the time, the concept of extended-wear contact lenses was to conventional contacts what digital photography had been to Kodak’s film business: If successful, many feared, the new product would kill the old one.

To make clear why the old business should support the exploratory projects, Bradley crafted a new vision for the entire company: “Healthy Eyes for Life,” a statement whose breadth conveys the idea that the company should pursue whatever technologies and opportunities they had to promote healthy eyes. To forestall conflicts over resources, he set up a separate organization for each project, each with its own research and development, marketing, and finance group, and each headed by a leader given free rein to create the right culture to meet that organization’s goals.

At the same time, Bradley wanted to make sure the new projects benefited from the expertise of the old business, so he put all of them under the control of a single executive, who knew the old business and had the personal relationships to facilitate sharing across divisional boundaries. Bradley also revamped the company’s incentive systems, to reward managers mainly for the performance of Ciba Vision as a whole. Thanks to these efforts, the new project teams became remarkably productive: Besides new types of contact lenses, Ciba Vision successfully introduced a drug to fight eye disease and pioneered a manufacturing process that greatly reduced the cost of making lenses. In the first 10 years after Bradley’s move to ambidexterity, the company’s annual revenues grew from $300 million to more than $1 billion.

Ciba’s experience shows that with deft ambidextrous leadership, an underdog can stand up to a powerful rival. But Johnson & Johnson could have done what Ciba did. We often think of large organizations as lumbering bureaucracies incapable of swift change, a notion perpetuated by highly visible David-and-Goliath stories in business. (Think Netflix trouncing Blockbuster, which had years to respond to the little company with the red mailers.) In fact, large companies are often better-positioned for ambidexterity than small ones, O’Reilly says, because one bad bet won’t wipe them out. “If you’re a small company, you place all your chips on this one thing, whereas a large organization can do lots of experiments,” he explains.

IBM, an organization that O’Reilly has studied extensively (and for which he and Tushman have consulted), is a case in point. In 2000, the company’s leaders, acknowledging that running their existing businesses with incremental improvements wasn’t enough to grow revenue, launched a project to foster more exploration. Called Emerging Business Opportunities, the initiative might sound like just another stuffy big-company acronym. But reading O’Reilly’s descriptions of the EBOs makes them look almost like startups within Big Blue, with each reporting to a division head and to the head of new growth opportunities—somewhat the way entrepreneurs remain accountable to their funders. Like actual startups, some of these organizations failed to bear fruit. But there were enough of them (seven in the beginning) that in the first five years alone, the EBOs added $15.2 billion to IBM’s top line, O’Reilly and his colleagues report, or more than twice as much as acquisitions did.

A recent study by O’Reilly and colleagues suggests that while IBM’s experience was extraordinary, the company does have something in common with other thriving organizations. The researchers looked specifically at what type of corporate culture was associated with growth in revenue and net income, and found that more adaptive cultures, or ones that emphasized speed and experimentation, did much better. “A culture that says, ‘We don’t have all the answers; we’ve got to try these experiments’—that’s the type of culture that promotes ambidexterity.”

What determines the ideal balance between exploration and exploitation is one of the big open questions in the research on ambidextrous organizations. It’s safe to say, though, that the right amount of experimentation has much to do not only with a company’s resources, but also with the pace of change in its industry. “If the industry isn’t changing rapidly, doing 100 experiments is unproductive and expensive. But if you don’t do experiments, you’re likely to be in trouble if the industry is changing.”

This piece was originally published by the Stanford Graduate School of Business and has been reprinted with permission. Follow the school on Twitter at @StanfordBiz

Marina Krakovsky is a Bay Area writer whose work has appeared in Discover, the New York Times Magazine, Scientific American, Slate, Stanford Magazine, and the Washington Post.

John Kotter on Management and Leadership

managers leadersAs some of you have been subscribers for awhile, you know my take on the argument of the difference between managers and leaders. For the most part, it’s a difficult, and in my opinion useless, argument because it confuses what one does with who one is.  Our language gets us stuck since there is manager vs leader, managing vs leading, and management vs leadership. Those people who are most informed, or who are students in my classes, will argue that John Kotter makes a distinction between managers and leaders. While that may have been the case with some of his initial writings, his intent I believe has always been about the action of management and leadership.

I hope to have Dr. Kotter on one of my future “All Things Leadership” podcasts, but in the meantime, consider his comments that were published in the Harvard Business Review earlier this year:

by John Kotter|11:00 AM January9, 2013

A few weeks ago, the BBC asked me to come in for a radio interview. They told me they wanted to talk about effective leadership — China had just elevated Xi Jinping to the role of Communist Party leader; General David Petraeus had stepped down from his post at the CIA a few days earlier; the BBC itself was wading through a leadership scandal of its own — but the conversation quickly veered, as these things often do, into a discussion about how individuals can keep large, complex, unwieldy organizations operating reliably and efficiently.

That’s not leadership, I explained. That’s management — and the two are radically different.

In more than four decades of studying businesses and consulting to organizations on how to implement new strategies, I can’t tell you how many times I’ve heard people use the words “leadership” and “management” synonymously, and it drives me crazy every time.

The interview reminded me once again that the confusion around these two terms is massive, and that misunderstanding gets in the way of any reasonable discussion about how to build a company, position it for success and win in the twenty-first century. The mistakes people make on the issue are threefold:

Mistake #1: People use the terms “management” and “leadership” interchangeably. This shows that they don’t see the crucial difference between the two and the vital functions that each role plays.

Mistake #2: People use the term “leadership” to refer to the people at the very top of hierarchies. They then call the people in the layers below them in the organization “management.” And then all the rest are workers, specialists, and individual contributors. This is also a mistake and very misleading.

Mistake #3: People often think of “leadership” in terms of personality characteristics, usually as something they call charisma. Since few people have great charisma, this leads logically to the conclusion that few people can provide leadership, which gets us into increasing trouble.

In fact, management is a set of well-known processes, like planning, budgeting, structuring jobs, staffing jobs, measuring performance and problem-solving, which help an organization to predictably do what it knows how to do well. Management helps you to produce products and services as you have promised, of consistent quality, on budget, day after day, week after week. In organizations of any size and complexity, this is an enormously difficult task. We constantly underestimate how complex this task really is, especially if we are not in senior management jobs. So, management is crucial — but it’s not leadership.

Leadership is entirely different. It is associated with taking an organization into the future, finding opportunities that are coming at it faster and faster and successfully exploiting those opportunities. Leadership is about vision, about people buying in, about empowerment and, most of all, about producing useful change. Leadership is not about attributes, it’s about behavior. And in an ever-faster-moving world, leadership is increasingly needed from more and more people, no matter where they are in a hierarchy. The notion that a few extraordinary people at the top can provide all the leadership needed today is ridiculous, and it’s a recipe for failure.

Some people still argue that we must replace management with leadership. This is obviously not so: they serve different, yet essential, functions. We need superb management. And we need more superb leadership. We need to be able to make our complex organizations reliable and efficient. We need them to jump into the future — the right future — at an accelerated pace, no matter the size of the changes required to make that happen.

There are very, very few organizations today that have sufficient leadership. Until we face this issue, understanding exactly what the problem is, we’re never going to solve it. Unless we recognize that we’re not talking about management when we speak of leadership, all we will try to do when we do need more leadership is work harder to manage. At a certain point, we end up with over-managed and under-led organizations, which are increasingly vulnerable in a fast-moving world.

Dr. John P. Kotter is the Konosuke Matsushita Professor of Leadership, Emeritus at Harvard Business School and the Chief Innovation Officer at Kotter International, a firm that helps leaders accelerate strategy implementation in their organizations.

See full story on hbr.org

Hurricane Sandy reveals True Leadership

The devastation of Hurricane Sandy over this last week is nearly immeasurable. Having just seen some of the post-storm photos of areas throughout New York, Connecticut and New Jersey are not only beyond description, they represent only a small fraction of the challenge that faces the area now as the clean-up and rebuilding begins.

Leaders emerge in a crisis

While these are indescribable tragedies, these are also the times when true leaders emerge and stand out from those who are just filling a position.  I’m not just talking about the willingness to of people to engage in helping each other, but leaders that inspire others by their actions ofLeaders emerge in a crisis optimism, courage and engagement of others.

Take Mayor Cory Booker of Newark, NJ. Regardless of where you stand on his politics or his prior statements, you have to admire his willingness to back up his statements with action. Mayor Booker himself was among those who went out into the streets of Newark to encourage residents to evacuate and for the homeless to come into the shelters.  He used the tools available to him, such as Twitter, to communicate actively with his public without all of the steps of hierarchy between him and his constituency.

In many cases, the heroes and leaders in a disaster like this will always go unknown due to the fact that they are focused more on the outcome than the recognition.  These are the individuals that not only take care of their neighbors, but inspire those neighbors with their actions to rise above their fear and loss long enough to come to the aid of those even in worse shape.

And this is where leadership and morality again come together. I am currently in a debate with some of my graduate students (God bless ’em) who chose to believe that leadership has no moral component. I can only hope that they are wrong, because in times like these, it’s the morality that will save lives and create an peace where there is only chaos

The Excitement of Day One

What would be the difference in atmosphere, excitement and focus if today were the opening day of your business rather than day 15,428? Whether you are the manager of a small department or the CEO of a large company, can you envision what it would be like if it were founding day?

The bread is great, the experience greater

I had the joy of visiting a new entrepreneur’s venture yesterday on the day before grand opening, Jim and Louise Westcott’s Great Harvest Bread in Lake Orion, Michigan. (They are at 1015 South Baldwin Road, by the way…you should really check them out!). When I walked in, there was no question that I was in a bakery. The smell of fresh baked bread, the open kitchen where they were preparing dough, the fragrance of fresh coffee, the tables, the shelves of jams and spreads…I did not mistake it for an office supply place. Everything was sparkling, and people were working hard, very hard, and they were enjoying every minute of it.

I spoke with some of the folks who were going to be sandwich makers, bakers and servers and every single one of them were not only excited about opening day (today) but knew exactly why they were there and the experience they wanted to provide to their new customers. Janet Tatarka, Director of Franchise Services for Great Harvest Bread, was there with her crew to coach and instruct, but there was no question that this store belonged to the staff that was preparing to open it. They were exhausted, happy and excited.

New Lake Orion Great Harvest Bread

The New Great Harvest Bread in Lake Orion, MI

How long has it been since the atmosphere with your team has been excited, happy and focused on the experience they want to provide to their customers? Whether they are in Sales or Human Resources, do they know exactly what experience they should be providing? Or is it possible that they have gotten bogged down in the day-to-day activities of their roles and have lost sight of the vision of what you are doing.

You could predict that eventually the folks working in this bakery will also begin to lose the excitement of opening day. Of course they will as they find that the fun stuff comes with struggles and challenges as well. There will be unreasonable customers, unexpected expenses, or projects that don’t work as planned. That’s life and some of the things that come along with being a leader are not predictable and are entirely out of your control.

As a leader, I would suggest that there are three conditions you need to create for your employees that will help create the day one excitement. These were all true in the staff yesterday and, if they stay true, it might be that the excitement can continue. Focus on creating an environment where your employees:

1. Know they are wanted.

2. Know they are appreciated.

3. Know what they are expected to deliver.  

These are simple statements that are sometimes difficult to do, but if you can ensure that they are all true with your employees, you will find that the problem times are much easier to deal with. The excitement of Day One is an asset that you don’t want to lose, and if you’ve lost it, it would be worth your time to try to bring it back.