To win today you need to change faster than the world around you – but in a world moving faster than ever, how?
The answer isn’t sexy, its counterintuitive, perhaps a bit dull and ultimately comes down to some basics… but executing them brilliantly is anything but basic.
In Parts 1 & 2 we explored how every team pulling hard in the same direction, behind a simple, stretching strategy, accelerates execution.
In part 3 we look at how to sustain that energy through a culture of continuous rapid improvement.
A culture of continuous rapid improvement
Healthy cultures, like effective strategy, need purpose. From the Romans to Kodak, history is littered with cultures that became bogged down with dogmatic rules, disconnected from reality and highly resistant to change – losing sight of the bigger picture.
A business’ culture is healthy only to the extent that it enables your purpose and strategy, helping your teams to drive meaningful and sustained change, fast enough to stay ahead of the world around you. Harnessing 10,000+ people to drive change in the moments that really make a difference is a far greater accelerator than relying on the top 1% of leaders to do it top down.
In a 2018 paper, Market Analysts at Melius Research, argue that the highest correlated commercial data set that defines a healthy business culture is steadily improving profit margins;
“Not the margin pops you get in an upcycle and lose in the downcycle, but the more sustainable stuff – those born from continuous improvement. Continuous improvement cultures are incredibly good at two things – driving waste out of a process and increasing returns on a set asset base. The best of the best drive gross margins up, cut SG&A, and thereby increase operating margins.” 
Not only do the most successful cultures drive the bottom line, reducing complexity through continuous improvement but they also drive top line growth.
Cultures that are wired for continuous improvement (especially when combined with simple and effective long-term strategy) generate ideas and execute them faster.
You can think of a continuous improvement culture as the most effective way to embed change readiness into your culture – reducing ‘not invented here’ syndrome. So whilst changes are driven bottom up, inevitably when big changes need to be driven top down, the organisation is wired to adapt faster.
Melius argue that today the market puts a premium on businesses that maintain a consistent healthy and productive continuous change culture. Given the increased pace and automation of trading, most investors can no longer rely on spotting and exploiting short lived mis-pricing (based on evaluation of tangible assets).
Increasingly the real gains are made by evaluating long term value driven by intangibles like brand reputation and innovation – with the least well factored of these intangibles being culture.
For example, the industrial and healthcare product business Danaher has outperformed the market by an extraordinary margin over the past 18 years.
Much of that success is attributed to the Danaher Business System (DBS) – which if you ask any of their employees can be summed up as “common sense vigorously applied”. The genius is how easy it is to teach and comprehend. No matter what part of the business you are in it translates well, if you have been there for 1 day or 15 years you very quickly understand the prevailing mindset.
Danaher’s is a culture that understands its role in the business and it works because it is so simple, the result is the business delivers against its commitments year in year out, and that reliability demands a premium in the market well above its peers.
Boiling down your culture into the simplest terms possible is key, but DBS isn’t just a set of words – it's also backed by a simple and scalable working methodology based on the principles of lean manufacturing or Kaizen.
Essentially Danaher have created a continuous improvement system that works across every part of the business, bringing DBS to life in every team through practical steps and behaviours:
- Get crystal clear on what they need to achieve
- Identify what will get in the way or accelerate progress
- Get creative about solving any issues or maximising accelerators
- Deploy super practical experiments to test and measure solutions
- Scale what works, learn what doesn’t, share insights with others and go again
It’s a system that means every team is constantly making the business a bit better everyday, with mechanisms to share ideas up and across the business. At its core though is an attitude of teams taking control of their own destiny.
Whilst there will always be barriers that are out of your control as a team (a problematic central system or counter-productive procedures), this process encourages teams to actively communicate what these issues are, and find solutions that work for them.
Increasingly businesses are adopting these more dynamic ways of working leading to an explosion of experts from diverse walks of life training teams in a variety of methodologies, from agile and kaizen to design and systems thinking – each with its own pros and cons.
However many are now experiencing a ‘methodology soup’, as experiments with purist methodologies happen in different parts of the business without being properly embedded or adapted to the specific needs of the business.
In recent years a consistent theme in engagement surveys has been the number of employees reporting that they don’t understand how their teams and leaders expect them to work, or have the training and skills needed.
Furthermore, attempts to scale methodologies, such as ‘agile’, with its ethos of self-organisation, have done little to address some of the human dysfunctions that already exist in our working systems, which inevitably re-emerge - including a lack of diversity in leaders, bullying behaviours and silo’d ways of working to name a few.
The issue isn’t in the methodologies themselves. The issue is that these methodologies were designed for a specific job and often businesses don’t consider what will really make the methodology work at scale when you factor in actual human beings with all our biases and contradictory behaviours.
When you start digging into culture you quickly find it can be a messy business, because people and the environments we work in are not straightforward. There is much in your culture that is out of your control.
Spending your time on wholesale culture change is a hiding to nothing, as are many of the elaborate methods to diagnose the type of culture (or more accurately cultures) that exist in your business.
Often we confuse culture with psychology, in many ways they are the exact opposite. Our personalities determine our behaviours inside out, they are individual, and are relatively fixed by our history.
Culture shapes behaviour outside in, it is inherently social - what does this group expect of me? And arguably a healthy culture is not fixed by its past but is anchored to the future, to where we are going, something living that keeps evolving.
Stop trying to preserve something you think is unique or special about your culture and instead think about what role it needs to play to drive you towards your purpose.
The best approach is to keep things as simple, focussed and flexible as possible:
- What are the 3-4 behaviours needed across the business to drive your strategy and continuous rapid improvement? Think of raise the ceiling behaviours, not raise the floor behaviours, like ‘be trustworthy’.
- Keep your ways of working ruthlessly simple and scale them across all of your teams so they have a common mindset and language
- Keep talking about culture, but don’t let culture become an end in itself… and don’t let it be something any one group are responsible for - it's ours.
- Keep structures and processes - from performance management to reward – as flexible as possible, so that you can evolve them with your culture… and use them to force better quality human interactions and conversations, not replace them.
- Focus recruitment on purpose, rather than values… it's purpose that really unites and differentiates us. Most people share similar values, and in the right environment can learn new behaviours… but whether they really connect to your purpose or not will determine if they’re really in.
Change has always been a continuous process, but the network effects of digital technology and the internet have exponentially increased the rate of change. There's nowhere to hide – customers, employees, regulators all expect more - and if you don’t meet their expectations you can expect your competitors, old and new, will find a way to do it.
The only way to win today is to set a clear, compelling direction and keep moving towards it faster than anyone else.
The task for leaders is clearer than ever;
- Ensure everyone knows where we are headed and agree with you that it really matters that we get there. And don’t keep changing the goal posts – or you’ll just keep running around in circles.
- Build awesome teams and create the space they need to do what they do best.
- Rig the business to systematically generate ideas and change from the bottom up. And if you've done the other two well, their ideas will be way better than yours.
 Melius Research, “Why Culture Matters: Simplicity is an Investible Theme” July 17, 2018