Does culture Trump numbers in corporate strategy?

In a recent conversation with the Head of Strategy at a large financial services company, it was made clear that her decisions regarding acquisitions, disposals and entry into / exit from particular markets were driven “by the numbers”.

Given that this person has been in post for a relatively short time, it is probably too early to tell if her approach is paying dividends for her firm.  In the light of McKinsey’s research in 2012 to the effect that 85% of M&A activity fails to deliver shareholder value, it seems fairly safe to bet against its long-term value addition. So what could change that outlook?

Received wisdom is that factors such as cultural alignment tend to drive success in organisations. As Peter Drucker put it, “Culture trumps strategy every time”. However, few M&A transactions are driven by a desire to bring together organisations of similar culture.  Indeed, in the professional services field, the explicit building of a shared culture is usually a post merger activity if it occurs at all.  The same is true in most other industries.

But what does “culture” actually mean in this context?  What sets it apart from other commonly cited success factors such as “effective management”, “good leadership” and “common purpose”?  And how can leaders go about building a culture that is appropriate for their organisation?

Perhaps the most practical definition of culture is simply “how it feels to be here”. That encompasses how people work (fast / slow, with painstaking attention to detail or “good enough” etc.). It is also evidenced by factors such as the type of working environment; an old building comprising a warren of small private offices feels very different from a modern, open-plan affair.

It extends to how people are managed and led (not the same thing).  Are they micro-managed at every step or encouraged to act on their own initiative within a broad framework? Critically, it includes how clients experience the organisation and the individuals within it.

A good starting point in assessing organisational culture is to ask how it feels for clients and staff to work with / in your firm versus how they would like it to feel. That can be achieved by way of carefully constructed online surveys supported by interviews carried out by telephone or face to face. It is usually helpful to bring in an external specialist for this purpose; it helps to ensure perceived independence especially if the responses are kept anonymous.

Some might say that the use of an external specialist can also help to filter out what is sometimes called “unhelpful noise” – for example internal survey responses such as “We want more money for less work”. However such responses are usually simply an indication that staff lack engagement with the firm. This needs to be addressed if organisational culture is to be improved. In other words this is important information not just noise.

Once you have a reasonably robust evidence base, in particular client feedback, you can carry out a gap analysis between current and desired states. Next step is to consider whether or to what extent you wish, as an organisation, to bridge the gap. The fact that certain types of client (or employees) tell you that they perceive a cultural or indeed a delivery shortfall does not necessarily mean that you must close the gap. If those clients (or staff members) are not core to the delivery of your firm’s strategy you may decide not to implement the changes they suggest.

Having designed the desired organisational culture the most difficult thing in most cases is to make the necessary changes so that it becomes real; both for clients and staff. This requires three questions to be answered and the answers translated into actions for the leadership team:

  • What are the factors that drive success in delivering the new culture?
  • In what ways do we (all) need to behave differently in order to make our new culture real?
  • How shall we measure and reward performance in these areas?

We shall look at these leadership actions in a future article.

By Stephen Newton