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.

Winning HR a Place
in the Culture Battle

Why touch the third rail of management?

Let’s be clear: Culture is not an HR issue. The buck stops with the CEO, and culture is a whole-business issue. But it cannot be conjured into existence with a mission statement, or bought wholesale from consultants. It is a product of people. It is measured through people. And it is fundamental to an organization’s ability to recruit, retain, and motivate people. That puts HR squarely in the frame.

HR’s three key roles.

  • Play police. Even a culture well defined in processes and values, and role-modeled by leaders, can be ignored. Help everyone—especially “marzipan layer” line managers—live it to the full. Don’t like the idea of “policing culture”? Think of it as being a “change agent.”
  • Be a coach. Help managers see where the people opportunities and risks lie within their business decisions. Be confident that your opinion matters—and share it well.
  • Define and measure performance. HR must measure the behaviors that ensure that people, teams, and the organization attain and exceed their goals over the long term. This evaluation will define future culture-management efforts.

Symbolism is the new feng shui.

Let’s get more specific. Even without the “fancier” elements of HR’s culture-management remit, some of its core roles define the management of culture.8

Recruitment. Many firms use analytics to filter for cultural fit at the interview stage. But HR must also ensure managers don’t just recruit “people like us.” Diversity of thought brings innovation and competitive edge. And onboarding sets the compass for new hires off the bat.

Compensation. If “what gets measured gets managed,” then it’s equally true that “what gets paid for gets done.” Targets, bonuses, and benefits all shape the behaviors people will deliver.

Flexible working. Inclusive workplaces bring the “whole employee” to work. Such workplaces need to be flexible and forgiving. HR can ensure presenteeist middle management doesn’t undermine these values, and guard the well-being of employees.

Talent retention. People rarely move jobs just for more pay. Often it’s the kind of organization they want to work for, or career development that makes them want to move. HR systems and policies are powerful messages, and can act as a checking mechanism to ensure the organization’s values align with those of its key people.

Promotion. Development events say a lot about your organization. Who gets promoted and how that’s communicated creates a message about your values and culture.

Office design. Fewer walls, open spaces, even clear conference-room windows—these are all cultural symbolism. HR, along with facilities, can define what they say.

Workplace experience. The choice of systems and modes of work says a lot about what’s expected from people and teams. The right digital and social tools, for example, send a big message about collaboration.

Supporting strategic change. Three-quarters of business transformations fail. And the biggest impediment to achieving a successful corporate-transformation effort is culture. That makes it a perfect vehicle for HR to be at the table for setting strategic direction.

CULTURE AND THE EVP

The six fundamental motivations for employees.

Pay, benefits, work environment, and progression are all crucial to the employee value proposition (EVP). But culture, tone, community, and corporate citizenship are also critical. Employees must now be treated just like customers, building relationships that drive engagement.

The employee engagement experience.

Many organizations worry about the “customer journey,” keen to build their brand, deliver on their promise, and create new ambassadors for their business. HR has the same mission: Map and enhance the employee journey, building passion as employees develop in their careers—and creating advocates inside the business.

According to US research, only 32 percent of the workforce is “fully engaged”—so the other 68 percent are either just showing up, or they’re actively dragging down their colleagues.9

Fully engaged employees Partially engaged Disengaged
Stay with organization longer Concentrate on tasks not outcomes Sow seeds of negativity
Contribute to bottom line Want to be told what to do Sabotage progress
Commit to productivity and quality Do it, get paid, go home Express mistrust and animosity

So what motivates people?

There’s another list every HR professional should memorize. These are the six fundamental motives for employees; half boost performance, half hamper it. They’re the building blocks of a great EVP:10

Play. Not just “having fun,” but freedom to experiment and adapt at work.

Purpose. Connecting employees to their customers’ needs and drives.

Potential. Everyone should feel they have the chance to grow to be the best they can be.

Emotional pressure. The expectations of peers and management, in particular.

Economic pressure. Bills at home, the sense of status defined by pay, the pressure of budgets.

Inertia. Where an employee’s day is defined by habit and routine, not by creating value or growing.

The bottom-line impact of motivation.

We know instinctively that a well-designed workplace where we can get things done is more enjoyable than one that’s bureaucratic and inefficient. One-time McKinsey consultants Lindsay McGregor and Neel Doshi analyzed the effect of process design on employee motivation.11 And the results were startling.

FIGURE 2:

Employee Motivation Varies Widely Depending on Company Process

In many cases, the difference between a well-designed and poorly-designed process is more than 50 points in motivation.

  • Company process
  • Total motivation factor
  • Role design For a poor
    process
    87 For an excellent
    process
  • For a poor
    process
    Organizational identity 65 For an excellent
    process
  • For a poor
    process
    Career ladders 63 For an excellent
    process
  • For a poor
    process
    Community 60 For an excellent
    process
  • For a poor
    process
    Workforce and resource planning 53 For an excellent
    process
  • For a poor
    process
    Leadership 50 For an excellent
    process
  • For a poor
    process
    Compensation 48 For an excellent
    process
  • For a poor
    process
    Adaptive governance processes 42 For an excellent
    process
  • For a poor
    process
    Performance review 41 For an excellent
    process

Source Primed to Perform

MEASURE AND REWARD

The simplest ways to change culture.

You can’t manage culture if you don’t understand it—so measurement is your vital first step. And if the wrong behaviors are rewarded, they’ll never go away. Your pay and perks are the glue that holds your culture together (or gets you stuck in the old ways).

Listening is learning.

A positive culture will show up in financial results, retention numbers, and reputation analysis. But that can all take time, especially if you’re transforming the culture. In the meantime, listen. Here’s how to do that beyond the annual appraisal12—warning, technology ahead:

  • Surveys that have an impact. Surveys that change nothing hurt employee sentiment. Plan in advance how the results will feed into action or change. Also, once a year is not enough; “pulse surveys,” quarterly or monthly, might work better.
  • Sentiment analysis. Social media and internal network monitoring—if done ethically13—can tell you a lot about the culture. The latest approach is “emotion monitoring”—giving employees an app on their phone that prompts for an instant “happiness” grading at regular intervals.
  • Think tanks. Often called “employee resource groups,” these help frame realistic context for organizational culture, and set fresh, grounded targets.
  • Focus groups. These take employees out of the day-to-day to discuss organizational goals, processes, and culture.

Nine questions for employee surveys.

  1. Do you understand the organization’s strategic goals?

  2. Do you know how you can help meet those goals?

  3. Is there a clear link between your actual work and the company’s goals?

  4. Does your team inspire you to do your best work?

  5. Does your team help you to complete your work?

  6. Do you have the right information to do your work?

  7. Do you understand the structures and processes in the organization?

  8. Do you know whom to ask for help when something unexpected happens?

  9. Would you recommend this company as a place to work?

Rewards are the biggest behavioral marker.

If you promote or reward an employee who hits all their targets but leaves a mess in their wake, what message does that send?

The aim, then, is to link rewards to the cultural behaviours you support, and to link those behaviors to organizational performance.14 Only HR can link all those pieces and ensure they are working. Some examples of how that works in practice:

  • Hierarchical bonuses: Are you rewarding people simply for being more senior? If your culture supports lateral movement, that can’t be right.
  • Perks: Are benefits (a company car, say) offered by grade level, role requirements, or “by right”?
  • Pension plans: Out of fashion, but a powerful signal about employee life outcomes and long-termism.
  • Performance bonuses: Is your culture about individual and team performance? Structure these accordingly. And reward the behavior you most want to encourage—sales, cashflow, productivity, and customer satisfaction can all do different things as bonus metrics.
  • Contract status: How confident does it make people feel? How much is about compliance and protection (either way), and how much is about commitment to a relationship?
  • Terms of employment: Do employees feel they can take holiday and use flexible work arrangements? Are these even offered?
  • Benefits: Health, wellness, financial support—and whether these benefits apply to loved ones. These are very powerful cultural drivers.

Focus on a few behaviors first.

Like a bloated mission statement, promoting too many different behaviors can be confusing and contradictory. Pick two or three. For example:

  • Take extra steps to delight customers.
  • Value performance instead of seniority.
  • Support one another.

Every part of the organization ought to be able to turn these desired behaviors into specific actions relevant to their function. Critically, leaders and management must recognize and celebrate examples where employees showed genuine delivery. They must be role models, too.

Ethics, Inclusion, and
the Need for Empathy

Doing the right thing is everyone’s duty, but it’s HR’s problem.

Diversity and inclusion (D&I) is a particularly important aspect of culture management. Organizations today need a culture that values equal opportunities for everyone—or they risk losing their credibility and license to operate, quite apart from wasting resources.

Covering the bases.

  • Play police. Even a culture well defined in processes and values, and role-modeled by leaders, can be ignored. Help everyone—especially “marzipan layer” line managers—live it to the full. Don’t like the idea of “policing culture”? Think of it as being a “change agent.”
  • Be a coach. Help managers see where the people opportunities and risks lie within their business decisions. Be confident that your opinion matters—and share it well.
  • Define and measure performance. HR must measure the behaviors that mean people, teams and the organization attain goals and outperform over the long term. This evaluation will define future culture-management efforts.

Symbolism is the new feng shui.

Focusing on one of two underrepresented groups can address cultural problems for them—but leave culture damaging for others. Don’t be exclusive in your inclusivity. Factor in:

  • Race
  • Ethnicity
  • Gender
  • Sexual orientation
  • Religious affiliation
  • Generation
  • Disability
  • Personality type
  • Thinking style

The last two are often overlooked. For example, does your culture—and your HR team—guard against racist bias, but allow introverts to be routinely overlooked? The problem is not as visible. Finding ways to design career progression around personality types that traditional HR methods or line managers might write off as “unengaging” creates a much more diverse culture.

Four steps to diversity using HR.

Senior leadership often get it. Organizations that are not diverse and inclusive are impeding their battle for talent, losing out on innovative approaches and detaching themselves from their stakeholders. In a survey of 1,800 managers last year, only 15 percent of board directors said they saw diversity as a tick-box exercise.15

But wait: In the same survey, 38 percent of junior managers said they viewed it that way. HR has to step in to bridge that gap. Four key roles:

Point out unconscious biases. Most people would not self-identify as racist or sexist. But unconsciously they apply biases toward groups (even their own). This is particularly destructive in recruitment. Use tools to anonymize candidate selection, and invest in unconscious bias training.16

Prevent groupthink. Teams built with dominant cultural types undermine innovative approaches and co-opt even those who join the team from outside the dominant culture. Performance reviews and enforcing organizational values on behavior can supplement diversity on the team.

Punish rule-breakers. Legislation mandates equality in many areas of business. But HR has a role to question and hold to account line managers whose hiring and promotion activities display biases. Good data and analytics are crucial to culture: If you can’t spot problems, you can’t address them.

Promote the benefits. McKinsey has evidence that might convince skeptics. It found companies in the top quartile for racial diversity are 35 percent more likely to have financial returns above their peers. In the UK, for every 10 percent increase in gender diversity in leadership teams, earnings are 3.5 percent higher.

A lesson from Late Night.

In a recent Rolling Stone interview,17 Late Night host Samantha Bee explains how she has addressed her own show’s culture and diversity using recruitment. She used a blind application process with a standard form for taster scripts, which meant writers without any experience weren’t identifiable. Result? A staff that’s 50 percent female and 30 percent nonwhite.

The lessons?

  • Use blind applications—which means also removing names from résumés.
  • Use standardized evaluations against objective measures of the organization’s aims.
  • Banish preconceptions of what “the right team” looks like.

Building your
action plan

Use this checklist to build your action plan. As you select each item, they will build into a comprehensive set of next steps for you.

Which of the following do you need to do?

Check those that apply.

Your action points

  1. Find clear ways to articulate the importance of culture to the organization.

    • Break down the ways the organization shows, expresses and thinks about itself.
    • Look for role models among peer organizations renowned for employee engagement and satisfaction. What are they doing right? What’s the effect?
    • Use the regulatory guidance on culture to test leadership, management, and HR’s approach to employees (and other stakeholders).
  2. Position HR clearly within the culture-management debate. Culture is people.

    • Map out the definitive roles HR must play: policing, coaching, and measuring culture.
    • Address HR’s areas of core competence first. Its choices will define culture.
    • Link HR’s core responsibilities to the wider expression of culture in the organization.
  3. Set out a clear employee value proposition linked to performance.

    • Design employee interactions in the same way your organization addresses customers: with respect for their motivations, their pain points, their outcomes.
    • Clarity over roles and connection to others are key. HR must facilitate a whole-employee experience, not just compensation.
    • Build in wider community engagement—from wellness to volunteering.
  4. Rethink any mechanistic or tick-box approaches to managing culture.

    • Dump bland mission statements and find ways to be clear about what your organization does and is. That defines culture.
    • Weigh up the cultural impact of every aspect of compensation. How you reward people defines behaviors; and they define culture.
    • Don’t try to change everything at once. Focus on a small number of behaviors and work out how they will be expressed at every level.
    • Find more and more sophisticated ways of measuring employee sentiment—as well as wider cultural drivers.
  5. Revisit diversity and inclusion as cornerstones of cultural change and management.

    • Ensure D&I aren’t missing out key constituencies.
    • Define HR’s roles around D&I—especially policing poor recruitment and promotion decisions.
    • Address unconscious bias among managers, ideally with formal training or use of tools.
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