How to build a winning company culture

How to build a winning corporate culture innocent smoothies

Do workplace perks and better engagement help create a more productive company culture or does success ultimately depend on leadership style?

Workplace engagement specialist Best Companies will publish lists this month of the top businesses to work for in the UK. Now in their 11th year, the league tables, published by the Sunday Times, identify organisations that have created dynamic, effective and highly engaged workplaces. Top of the list of small companies to work for last year was IT solutions business Softcat.

When Softcat chairman Peter Kelly founded the firm in 1993, he was ridiculed for saying he wasn’t interested in how much money the business made. He just wanted staff to be happy. This year his 300-employee company is on track to turn over £200m.

Kelly instilled a democratic ethos from the start, involving staff in company-wide decisions and communicating everything that goes on in the business to employees. When managing director Martin Hellawell missed an all-staff meeting last year Kelly announced it was pay review time. He declared Hellawell’s basic salary and bonus and asked employees to vote on whether he should get an increase the following year. “They voted that I shouldn’t, so I didn’t,” says Hellawell.

Every quarter around 50 of Softcat’s top-performing staff are treated to lunch at one of the UK’s best restaurants, while last November the company took 37 staff to help build a school in Cambodia as part of its annual incentive trip. Staff can also bring shirts to work and have them ironed.

Passionate staff

Hellawell explains that every part of the business has been thought through to make it work for employees and he says this approach puts Softcat ahead of competitors. “There are plenty of companies that offer the same as us. The only way we can differentiate ourselves is with customer service. Our customer satisfaction is extraordinary. You can only achieve that if your staff are passionate about the company and want to represent it in the best possible light,” he says.

This year 1,165 companies applied for a place on the Best Companies list. Jonathan Austin, founder and chief executive of Best Companies, says more firms understand the importance of corporate culture. “Over the last few years, businesses have recognised they have to do more with less. The only way they can do that is by creating a strong, willing culture,” he says.

Yet Gareth Jones, professor at IE Business School, Madrid, believes corporate culture remains a neglected source of competitive advantage. And even more so in an age where other sources of advantage—such as technology—can be copied and exceeded easily. A lot of research has been done to try to define culture, but Jones prefers the simple explanation of “the way we do things around here”.

Company culture ‘can’t be copied’

David Ferrabee, managing director of management consultancy Able and How, agrees culture is important because it’s something other companies can’t easily copy. He explains: “If you’re making widgets and I’m making the same widgets, I can make them and sell them the same way as you but I can’t copy your culture. If your culture allows you to make more widgets faster at lower cost, you’ll be more productive. Culture drives that.”

Ferrabee reckons one of the reasons culture doesn’t receive the attention it deserves is because we don’t “make stuff anymore in the western world”. We no longer pay attention to total quality management and how to reduce production times, explains Ferrabee, but we haven’t switched attention to improve productivity through people either. He also says culture can be a minefield that chief executives don’t want to touch.

John Childress, founding partner of consulting firm The Principia Group, agrees that many senior executives aren’t skilled or trained to deal with culture. He believes another problem arises when executives have spent years inside one organisation and become blind to its culture. But the crucial factor is the “shadow of the leader”, a phenomenon where the culture is a reflection of the senior team. “Nobody wants to be seen as the odd one out and so subconsciously the behaviour of the senior team is mirrored down the organisation,” he says.

Events such as the Christmas party and the trend for staff perks such as basketball courts and free doughnuts give culture a bad name, Ferrabee adds. “It’s the wrong answer to a totally different question,” he says. “People come into work to work. To say culture has to be about everybody being happy and high-fiving is a distraction. Happy cows don’t make better butter.”

Ferrabee says culture should focus on the work people are doing. “The company’s job is to clear the way for people to be successful in their work. How many obstacles does the business present that stop you from getting your job done?” he asks. His view is that companies need to create an organisational culture where employees are always listened to, their ideas taken on board, and they are encouraged to do a certain amount of autonomous working. “None of us like to be in jobs where we are told what to do and we are just executing someone else’s ideas,” he says.

It’s a view that returns to the essential argument of what culture means. How it’s defined affects the way companies create a culture. Childress describes culture as “the almost unconscious, repetitious ways we go about solving problems and treating each other”, while Ferrabee says there is a consensus over the general components of a culture—from leadership style and organisational structure to job titles and whether or not the stationery cupboard is locked.

Attracting talent

A key element of building a strong culture is the people you attract, recruit and retain. Childress says here again, the “shadow of the leader” looms large. “When you hire someone they are either going to fit the culture or not,” he says. “Most people will work to fit in. If you have a strong-willed person they will probably end up leaving.” An even more powerful shadow cast by members of the leadership team is how they behave with each other. Childress explains: “If there’s no trust at the top or a lack of direction or infighting, all those behaviours cascade down the organisation adversely impacting performance and productivity.”

Childress says that while behaviour is important, there is also a great deal of cultural significance in the causes of certain behaviours. These are often the things we do every day such as budgets, filling in expenses, the hiring process, and capital allocation. But these are often overlooked. “Those everyday business processes drive behaviour because people want to behave according to how the process works, nobody wants to do it the wrong way. Over time that creates a strong culture,” he says.

“You can change culture quickly,” Childress adds. He cites the example of a Ford executive he worked with whose entire building burned down. “Fortunately, no one was hurt. He’d been having terrible problems between departments. There were barriers that meant information wasn’t flowing. He had to quickly rent new premises and all he could find was an open-plan building. The culture changed overnight because of the different ways of working.”

Childress believes that it is difficult to implement a new strategy and organisational structure without adjusting the company culture. Where business change projects fail it’s because the leadership team doesn’t pay attention to behaviours, systems and processes. “The reason the failure rate for mergers and acquisitions is 70 to 75 per cent is due to the focus on finances and not thinking about the consequence of two cultures being merged,” he says.

Sociability and company culture

Back at IE Business School, Madrid, Jones reckons that creating the culture that’s right for your business is about influencing levels of sociability (how much we like each other) and solidarity (the ability to cohere around shared interests). He believes that in small firms sociability can undermine solidarity because people get to like each other too much. The risk is that if you are friendly with a subordinate who is no longer performing well, you may find it hard to fire them.

On the other hand, if your boss asks you to work late to finish a project you’ll feel obliged to agree because of that friendship. Jones says small companies can also struggle to maintain their culture if they grow quickly because new staff are seen as outsiders.

He adds that there are also spectacular examples of businesses that have grown into giant corporations but maintained their strong culture. He cites technology companies Hewlett-Packard, Apple and Cisco as key examples. “Some senior Cisco executives are worth about $50m (£31m),” he says. “They don’t need to work. They stay because they like it.” Austin at Best Companies disagrees that small firms struggle with culture. He maintains that it can be easier to create a strong culture in a business based on a single site. The ability for leadership to be visible makes it easier than in a global organisation. Others, though, suggest that larger organisations have the advantage of holding more resources. Indeed some bigger companies try to simulate a small-business culture within their organisations.

Austin points to the example of travel agency Flight Centre. “By using small teams that work fairly autonomously, Flight Centre enjoys the benefit of a large company but makes it feel localised and also employee-orientated,” he says.

Good stories boost company culture

Stories and symbols are always important in creating a culture. Austin cites Microsoft as an example of a large business with a strong culture. “Microsoft is good at telling stories about the impact it is having on the wider world,” he says. “It’s not unusual to go around Microsoft’s offices and see a picture of someone in a mud hut in Africa taking roll call on a laptop using Excel.”

Austin says organisations that do well over time are clear about their purpose, the principles of how they operate and their aspirations. “Those organisations that have created clarity so that everyone understands why they are there, how they should behave, where they’ve got to get to, and how they’re going to do it are the ones that are doing well,” he explains.

Ferrabee says high-rated businesses such as Coca-Cola and General Electric constantly assess their culture, fine-tuning it and finding ways to improve it in order to make their organisation more adaptable and ready for change. If a company wants to adjust its culture, Ferrabee suggests a good place to start is to take an inventory, assessing how the business manages processes, rituals and structures. Tools such as the Cultural Web, developed by Gerry Johnson and Kevan Scholes, help analyse and improve company culture. Their model consists of six elements that together influence the cultural paradigm, including organisational structure, leadership role models, power and control mechanisms, rituals and routines, symbols (language), and stories and myths. Next, says Ferrabee, think about what you would like to see and consider how that would manifest itself through the way in which the company is organised. “Once you know the difference you can try to make adjustments,” he says.

Culture change should always come from the top, adds Childress. “It’s about leadership and making decisions that are consistent with the culture you want to create. It’s about carrying over the new culture into all activities of the senior team—from meetings and budgeting to the way they treat each other and their staff,” he says.

But Childress believes that culture on its own won’t make a company successful. “If you have a great culture and a lousy product, you’re still going to fail. It’s a building block to help you rise above the rest of the crowd, but it’s not everything,” he says.

Ferrabee agrees. He gives the example of a company that in 1999 was listed as having an envied corporate culture and won awards for the way in which it managed its systems and people. The company was Enron. “There are companies that get everything right but the underlying proposition is wrong,” he says. “But there are businesses which are great places to work and that are doing great work as well.”

By Sarah Nicolas, March 2011: Director Magazine

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Director is the magazine for business leaders. Free to IoD members and available to purchase through subscription, each edition is full of insightful interviews with entrepreneurs and company directors.

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