In The Loop-Chapter 17: The Culture System

11 min read

Culture is a meta system. Culture embodies the real values of the company at any given time. It emerges in the dynamic interplay between leaders and followers. At every stage on the journey of company building, culture evolves. Leaders set direction and establish expectations. They lay down a track record of actions in response to the issues of the day. In the crucible, they reveal what they will and will not tolerate. Followers respond, expressing their needs and concerns. They observe and adapt. Their adaptations form the culture.

Whether you’ve worked on it or not, your company has a culture. It is shaping behavior right now — for good or ill. In The Loop leaders consider the shaping of culture of supreme importance. Employees are your most precious asset. For every role and every employee, you seek the full measure of devotion. You want to fully tap human potential. But employees will only give all when motivated to do so. Research shows that human beings are intrinsically motivated when work feels like play, sparks curiosity, prompts personal growth or promotes a valued purpose. In a healthy culture, a virtuous vision, mission and values spark intrinsic motivation.

Redpoint Ventures partner Tomasz Tunguz notes that a healthy culture depends on the interaction between values, attitudes, beliefs, and customs. Values impact attitudes. Attitudes impact beliefs. And beliefs impact customs.¹ The most basic value of a healthy culture is respect for human dignity. Absent this, no culture can be healthy. Tolerance for personal attacks, public shamings and all forms of abuse will ensure a toxic culture. The second value in a healthy culture is support for personal development. All human beings seek to work in an environment where their aspirations for growth are encouraged and nurtured.

Assuming these basic “healthy culture” prerequisites are in place, the third cultural realm is “our way of business” — company-specific values and expected behaviors. Human dignity, human development and our way of business come together in culture. They are expressed in stated company values, expected in behavior and reinforced in actions.

Like this:

What is your way of business? It’s on you to decide the behaviors most critical to your company’s success. Your circumstances are unique, but the fit systems enterprise boasts leaders and workers who possess certain attributes. They:

  • Are customer obsessed
  • Think generative first / adaptive next
  • Possess a systems centric view of the enterprise
  • Are business outcome focused, not process output focused
  • Value performance, constantly seeking to increase the density of high performers
  • Are transparent and expect transparency
  • Are data driven
  • Are agile in managing change and creating software
  • Are self-organizing, maintaining team autonomy while aligning with enterprise purpose

Vision, Mission and Values

Vision, mission and values come as a package. A virtuous vision paints a picture of the future. Mission explains what you will do, for whom, and why. And values describe how you will behave as you go about doing it. Vision, mission and values are your north star. Whenever you lose your way, hold your sextant up to them to reset your course.

It’s true that each employee in the company has a different economic value. There should and will be stark differences in the compensation of a top executive and a frontline employee. Top sales executives and talented software architects will make a lot more money than accounts payable clerks. That’s appropriate.

But vision, mission and values democratize. Through open door policies, town hall Q&As and regular pulse surveys, employees at every level can keep leaders honest, calling out inconsistent behaviors and actions. In the fit systems enterprise, an accounts payable clerk can respectfully challenge a CEO on values adherence without fear of reprisal.

In a social media world, businesses and their leaders live in glass houses. Facebook, Twitter, Glassdoor and other platforms are windows into every company, capable of revealing good, bad and ugly behaviors and actions. Unethical behaviors inevitably become visible to employees and external audiences. In The Loop leaders think deeply about the legitimate interests and rights of all stakeholders. They make sure these rights are encoded in ethical principles. In the fit systems enterprise, these principles are infused into its vision, mission and values.

The Relationship between Business Performance and Culture

No matter how noble its values, it’s not possible to have a healthy culture if the business itself is broken. Bad business performance undermines a healthy culture. If a company lacks product / market fit, that signals problems with its vision and mission — or its capacity to execute. Financial pressures are sure to rise, resulting in layoffs. People at every level adopt a scarcity mindset, protecting turf and obsessing about job security.

If work processes are broken, employees face constant rework and unhappy customers. No employee likes working in such an environment. Too often, leaders respond to problems by seeking blame. Or they attack symptoms with whack-a-mole responses that don’t fix root causes. This causes workers to lose confidence in leaders. In such situations the most talented employees leave first; others follow. Culture suffers.

A healthy culture can only grow in the soil of a healthy business.

How to Define Cultural Values

Your vision and mission will guide you towards the values that express “Our Way of Business.” Southwest Airlines is in the business of continuous in-person customer engagement. Every year, one hundred fifty million passengers experience the company’s core value of “love.” It comes through. Similarly, Starbucks sells experiences. Anyone who has enjoyed a coffee at a Starbucks can attest that the company’s first value, “Creating a culture of warmth and belonging, where everyone is welcome” is taken seriously.

But where do these value statements come from?

As the CEO or top executive of your company, it’s on you to lead. Culture springs from vision and mission. Your values need to accentuate the attitudes and behaviors most critical to business success, given the business you’re in.

But it’s not enough to come up with the right values. The way you come up with them is also important. Remember that the end is mind is not a values list. The end in mind is deep buy-in and behavior change. For that reason, in the formation of your value statements it is helpful to engage frontline employees. Walk around. Talk to people. Hold group meetings, test your ideas and gather feedback.

An employee-engaged approach to the development of cultural value statements will generate helpful feedback, and — most important — it will increase buy-in. Employees will appreciate the fact that you have taken their inputs into account.

As you engage people across the company, you will find that certain values hold universal appeal and relevance. But you’ll also find that there are subcultures within your company, each with its own unique values. Engineers and product managers will live by different cultural values than salespeople or accounts payable clerks. As you clarify the values that are universal, make sure you leave room for subcultures inside the different operating systems, domains and functions of your company.

When Culture Needs to Change

While cultural values are meant to be enduring, they do sometimes need to change. There are two events that can precipitate the need for a cultural reset:

  • An acquisition
  • A pivot

An Acquisition

An acquisition brings together two separate cultures. In a scale acquisition, where a similar company is acquired to grow market share, the acquirer is dominant. The top team is often kept on only briefly, and the goal is to absorb the acquired company into the acquiring company’s existing culture as quickly as possible. Leaders need to be clear about expectations, and must invest time to help employees in the acquired company learn the values that matter to the acquirer. It’s a wedding of unequals; the acquirer is in control. Acquired company employees need to adapt.

The more difficult type of acquisition is a scope acquisition. Here the acquirer’s thesis is to gain access to capabilities it doesn’t already possess. In scope acquisitions the acquired company needs autonomy, especially early on — including cultural autonomy. As integration proceeds, the two cultures will slowly merge into one — often with as much change occurring within the acquirer’s culture as in that of the acquired.

A Pivot

Sometimes your position in the ecosystem shifts so significantly that a strategic pivot is required. Your pivot might involve a change in product, business model, market segment or organization structure — or all of the above. In such situations, “Our Way of Business” may need to change. A change in core company values can be traumatic to existing employees. In The Loop leaders are sensitive to these feelings of loss and confusion, and support employees through the transition.

When I was at the Star Tribune in the mid nineties, we executed a major strategic pivot. We made big changes to our organization, our go-to-market strategy and our product line. Suddenly we weren’t just a newspaper anymore. We launched websites and magazines to serve diverse consumer market verticals, such as cars, real estate, help wanted and apartments.

When the strategic shifts were announced, Joel Kramer (the publisher at the time) took time to honor the culture we were saying goodbye to, before turning our attention to the culture we were being asked to accept. It was like a funeral, in the best sense of the word. The people that had been successful in the old way of doing things weren’t ostracized; rather, they were honored for doing their best under the previous way of doing things. We all paid our respects to the old culture before we were asked to embrace the new one.

A pivot will likely lead you to new cultural values. Preside over a funeral first, honoring the past, before you turn to the future. Explain why new demands on the enterprise require a new culture. Your new cultural values will be more welcomed if people feel you have respected the passing of the old ones.

Culture as a System

A systems view of culture helps leaders understand what it takes to keep it healthy. Leaders must attend to the system’s stocks, flows and feedback loops:

  • Cultural values are stocks. Adherence to any given company value can rise or fall; these can be measured through pulse surveys.
  • Flows are the actions that increase or decrease value adherence.
  • Feedback loops provide data to actors about the status of stocks; this data informs action.

The performance of an employee inside a given role is a function of the person’s competency, motivation and energy. The job of the culture system is to increase all of these. In the enterprise, a key factor in the health of the culture system is the competency, motivation and energy of the CEO. A CEO proves commitment to culture in daily acts. No matter how elegant the words that convey stated values, deeds are more powerful than words. This starts with the CEO’s personal behavior, and extends into CEO decisions. Values become real when employees observe CEOs making painful and even costly decisions in the defense of values.

Expectations cascade down. If a CEO holds senior executives to account on adherence to company values, these execs will do the same with their direct reports. In the fit systems enterprise, the executive team takes proactive steps to ensure the culture system is continuously improved. As with any business system, these interventions may involve people, workflows, technology and money flows.

People

Culture is advanced through words and action, repeated time and time again in different forums and contexts. In the fit systems enterprise there are many message bearers — the CEO, all top executives, mid-managers and frontline employees.

The human resource function plays an important role in a healthy culture. It might launch learning programs and values-based affiliation groups that advance the cause. From time to time it might sponsor a tiger team to conduct a culture health assessment. HR plays a vital role in hiring, ensuring that new employees are a fit with the culture; and onboarding, where key cultural values are communicated. It’s also responsible for the performance management system, where it can ensure cultural values are front and center in employee assessment.

HR is also involved in advancement decisions. Employees watch closely to see who gets promoted; these decisions clearly communicate the values that are most important to top leadership. Even though hiring managers and executives have final say, a strong HR leader will provide input. In a healthy culture system, the CEO and executives are as concerned about values alignment as is the HR team.

Google has conducted research into the attributes most associated with effective leadership in the company. As a result of this research, the company has developed a list of 11 leadership evaluation questions to be asked of team members who work under a leader. The data gathered is used in leadership assessment and promotion decisions. Here are the 11 questions, answered on a scale of 1 (strongly agree) to 5 (strongly disagree):

  • My manager gives me actionable feedback that helps me improve my performance
  • My manager does not ‘micromanage’ (get involved in details that should be handled at other levels)
  • My manager shows consideration for me as a person
  • The actions of my manager show that he / she values the perspective I bring to the team, even if it is different from his / her own
  • My manager keeps the team focused on our priority results / deliverables
  • My manager regularly shares relevant information from his /her manager and senior leaders
  • My manager has had a meaningful discussion with me about career development in the past six months
  • My manager communicates clear goals for our team
  • My manager has the technical expertise required to effectively manage me
  • I would recommend my manager to other Googlers

Then there are two final open ended questions:

  • What would you recommend your manager keep doing?
  • What would you have your manager change? ²

The practice of asking team members to conduct leader evaluations is an indicator of a healthy culture.

Workflows

In a healthy culture, values are reinforced time and time again in both informal and programmatic ways. Awards are given in monthly all hands meetings to people who have uniquely demonstrated commitment to one or more values. Performance reviews assess commitment to values. Employee pulse surveys track perceived adherence to values. When an employee leaves the company, the exit interview will seek to capture candid feedback.

It’s hard to overestimate the importance of feedback loops in a healthy culture system. It is all too easy for leaders and teams to miss slippage. A monthly employee pulse survey, trended over time, is an example of a feedback loop keeping leaders and teams tuned in to cultural health. The same is true with team peer review surveys. Spotify’s development teams regularly conduct such surveys to assess the health of squads:

Google’s annual Googlegeist survey, which measures employees’ perceptions of the state of the company and performance of its CEO, is another example of such a tool.

Technology

Rented systems such as pulse survey tools, employee communications tools and collaboration tools support a healthy culture system. Even the HR information system plays a key role in maintaining healthy culture; it keeps track of employee performance and compensation.

Money Flows

Maintaining a healthy culture system costs a small amount of money. Allowing a culture to become unhealthy costs a lot of money. A bad culture will reduce the motivation and productivity of all employees. It will cause your best people to leave and make it hard to replace them with top talent. It will hurt your brand identity and damage your competitive position.

Modest investments in support of a healthy culture are “no brainer” decisions. Teams need small budgets to get away from the office for fun and bonding. Occasional employee events and training sessions keep values fresh and real. Don’t be penny wise and pound foolish: make regular investments in a healthy culture.

The In The Loop Leader’s Role in Culture

Culture is an ever-evolving dynamic interaction: the follower’s response to the leader’s words and actions, and the leader’s response to the follower’s insights and needs. A CEO strongly influences culture, most powerfully by deeds. The words you use to describe vision, mission and values are meaningless if you don’t live by them. Employees will quickly detect gaps between words and actions. Especially when it comes to cultural values, they are proven in the breach.

Companies with healthy cultures are stocked with leaders who take cultural values seriously and act to ensure alignment. In hiring, talent development, goal setting, compensation and performance reviews, they consistently emphasize expected behaviors and the importance of the company’s stated values.

Values express the essence of your aspirational culture. In The Loop leaders live by them and evangelize them. Values act as a rallying cry, said with few words, to:

  • Clarify
  • Direct
  • Expect
  • Inspire

Every person in the company is a deep reservoir of talent. Clear vision yields commitment and perseverance. Clear mission yields strategic and tactical alignment. Clear values yield a “shared way” of working together.

Asana is a successful next-generation project management platform company. The company’s co-founders decided to treat culture as they would a new product. Dustin Moskovitz and Justin Rosenstein engaged in an employee-involved process to design, test, iterate, and debug their culture. They articulated a clear set of values, something most companies do. But at Asana, leaders went further, creating employee-involved teams to evaluate the company’s progress towards living the values. Asana conducts regular employee surveys to discover “culture bugs.” When one is detected, the leadership team takes quick action to address it.³

In the eighties and nineties, before it went off course, Hewlett Packard grew into a highly respected tech giant. Its culture was guided by the HP Way. A former HP employee, Bob Apollo, describes it this way:

“At the time, the principles must have seemed radical — revolutionary even — to most other companies. They established the importance of respect for the individual, the value of leadership, the importance of integrity, the power of teamwork, and the need for adaptability. These principles drove HP to leadership in many of the markets it chose to compete in. But most important of all, they were not just idle words on a page: they truly reflected the way that the company behaved.”⁴

A great culture emerges from the daily actions of diligent, committed leaders — most importantly the CEO. It is transformative. It catalyzes performance and drives business success. In The Loop leaders make the development of a healthy culture a first order priority.


To view all chapters go here.

If you would like more CEO insights into scaling your revenue engine and building a high-growth tech company, please visit us at CEOQuest.com, and follow us on LinkedIn, Twitter, and YouTube.


Notes

  1. Tunguz, Tomasz. “The Intense Power of A Strong Company Culture.” Tomtunguz.com, June 14, 2017. http://tomtunguz.com/company-culture-at-scale/.
  2. Haden, Jeff. “Here’s How Google Knows in Less than 5 Minutes if Someone is a Great Leader”. Inc.com, April 19 2019. https://www.inc.com/jeff-haden/heres-how-google-knows-in-less-than-5-minutes-if-someone-is-a-great-leader.html
  3. Lorenz, Taylor. “How Asana Built the Best Company Culture in Tech”. Fast Company, March 29, 2017, https://www.fastcompany.com/3069240/how-asana-built-the-best-company-culture-in-tech.
  4. Apollo, Bob. “5 Timeless Principles: Revisiting the HP Way”. The Inflection Point Blog, September 30, 2011. https://www.inflexion-point.com/Blog/bid/74097/5-Timeless-Principles-Revisiting-the-HP-Way
Tom Mohr

Leave a Reply

Your email address will not be published. Required fields are marked *