MANAGING
ORGANIZATIONAL
CULTURE:A Guide for HR Leaders

For HR leaders, corporate culture is a conundrum. On the one hand, it’s vital. Happy, motivated employees working toward shared values deliver a consistent experience to customers, bringing tangible financial rewards.

Brand perceptions stem from an organization’s culture. Employees want a good cultural fit—they want viable work/life solutions. Organizations that want employees to bring their whole selves to work need to demonstrate an open and adaptive culture.

On the other hand, it’s hard to change culture. It cannot be spoken into existence; it’s a product of behaviors, symbols, and mindsets. The tone at the top is critical. Ultimately, culture is a product of behaviors learned and passed down from the CEO and board. But departments, divisions, and subsidiaries also set their own tone, and it shifts as people, products, and customers evolve.

For organizations that want to change—to adapt to new business models, new markets, new employee expectations—culture ought to be a powerful lever. But leaders can only use culture to transform the organization if they understand these interrelationships.

But we can say with certainty that culture is a function of people. And that, if nothing else, makes the management of organizational culture a central issue for HR leaders.

Further reading.

If we seem to be missing three big-ticket items, it’s because they’re covered elsewhere in this series. Check out our three digibooks on Career Management and Development, HR Data and Analytics, and HR Transformation.

Who will find this digibook useful?

HR leaders. Culture goes beyond HR. But it’s also an intrinsically human affair. The behaviors and mindsets that define corporate culture are shaped and policed by HR policies and practices. So own it.

C-level execs. No one shapes organizational culture as much as you. It starts with the behaviors of the CEO and their C-level colleagues, then filters down. Understanding how and why that happens is critical if culture is going to supercharge performance, rather than poison it.

Line management. Leadership talks big on culture, and it sincerely wants the best. But making it live day-to-day in teams and departments? It’s hard. HR can help. From compensation to employee surveys; from recruitment to diversity; it’s the go-to function to translate fine words into practical policies.

Why Culture Is
Taking over the World

“Culture eats strategy for breakfast.”

This maxim is commonly ascribed to management guru Peter Drucker. But is it true? And what do we mean by “culture” anyway? Organizations need to create a clear idea of why their corporate culture is important, what it looks like, and how it will be defined and delivered.

Why culture matters.

Here are four touchstones to remind people why they should care, a lot, right now:

  • Change is a constant now—from disrupted industries and economic uncertainty, to tech-driven transformation and the skills gap. Organizations with engaged employees and strong values are better placed to adapt—and to attract the right talent to meet new needs.
  • According to Fortune’s annual “Best Company to Work For” study,1 leaders at the best employers are focused on culture as a competitive tool. In one survey, 82 percent of senior managers said culture is a potential competitive advantage.2
  • Great companies to work for also deliver better shareholder performance3 (see chart, below). And Gallup says organizations with above-average employee engagement see 147 percent higher EPS.
  • Kotter’s 2011 work on culture and performance used 11 years of data to show firms that manage their culture well had revenue increases of 682 percent versus 166 percent for those that didn’t.4

Great Culture Delivers for Shareholders.

Figure 1:

Culture Endures: The Stock Performance of Fortune’s “100 Best Companies to Work For” outstrips the S&P 500 2:1.

  • % average annual growth in stock price, 1998–2015 Source: Fortune.
  • S&P 500
  • Buy and sell each year’s leading companies
  • Buy and Hold 1998’s culture winners

Empirical research at the University of Southern Florida5 summed it up. As the study team summarized: “Culture causes performance, not vice versa.” And in Deloitte’s Top 10 Human Capital Trends for 2016,6 culture trumps everything but leadership and organizational design. Amazing, then, that in the same study only 28 percent of executives said they understand their own organization’s culture.

Culture defines behavior.

Culture is no longer soft and fluffy. HR needs to think how it affects its organization’s regulatory position. Even the accountants are getting in on the act. The UK’s Financial Reporting Council7 (FRC) has a seven-point guide to building a strong corporate culture. It’s a great guide for HR, too:

  • Recognize its value. “Culture is a valuable asset, a source of competitive advantage, and vital to the creation and protection of long-term value,” says the FRC. The board needs to be serious about it, and not just when it’s under external scrutiny if there’s a problem.
  • Demonstrate leadership. “Leaders…must embody the desired culture, embedding this at all levels and in every aspect of the business.” Put another way, you’ve got to walk the talk. The FRC adds that the board should act if executives aren’t doing so.
  • Be open and accountable. “Good governance…should be demonstrated in the way the company conducts business and engages with and reports to stakeholders.” And that includes employees.
  • Embed and integrate. HR “should be empowered and resourced to embed values and assess culture effectively. Their voice in the boardroom should be strengthened.” (Sounds like these accountants are OK, after all.)
  • Assess, measure, engage. Leaders need to “understand behavior throughout the company and challenge where they find misalignment with values…[and] devote resources to evaluating culture and consider how they report on it.”
  • Align values and incentives. Rewards “should encourage behaviors consistent with the company’s purpose, values, strategy…[and explain] this to…stakeholders.” Again, HR is the glue here—from compensation design to internal comms.
  • Exercise stewardship. “Effective stewardship should include engagement about culture and encourage better reporting.” Break out the companion digibook on analytics: HR is going to need clear and reliable metrics.
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