Author Talks: How to gain a competitive edge with organizational culture

James Heskett examined leading companies around the world and found that organizational culture makes employees more loyal, more productive, and more creative.

In this edition of Author Talks, McKinsey Global Publishing’s Raju Narisetti chats with James Heskett, UPS Foundation Professor Emeritus at the Harvard Business School. In his book, Win from Within: Build Organizational Culture for Competitive Advantage (Columbia Business School Publishing, January 2022), Heskett provides a road map for achievable and fast-paced culture change. An edited version of the conversation follows.

What gap does this book on organizational culture fill?

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There are two major themes that it addresses that may not be addressed as well as they should be right now: the whole matter of agility and the need for changes in strategy that are associated with the whole phenomenon that we think of as agility. An effective culture makes change easier.

It actually makes leadership easier to the extent that leadership is about the management of change. To have an agile strategy, you’ve got to have a culture that will support that phenomenon. And it also means, because culture is not easy to change, it takes a while. It means a culture that’s able to support more than one strategy or to support strategy change. I think that’s one major theme that the book addresses, and the idea that we look for the kinds of values that support agility, things like teamwork, learning, and personal development.

The other major phenomenon is the change in the nature of work and the implication that has for an organization’s culture. I devote an entire section of the book to the whole idea of the hybrid organization and the kind of culture that’s needed to make that successful.

But, in fact, we have to face it: hybrid organizations are going to be a major change or a challenge to organizational culture. There’s no question that if you have some of your people working remotely some of the time, you’re going to have a different phenomenon when it comes to the organization’s culture. Through the example of an organization like Critical Mass, which is located in Calgary, Canada, and Dianne Wilkins, the CEO there, I tried to characterize the challenges that changes in the nature of work are going to have for us.

Why do you think culture change is an urgent issue?

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I try to inject a sense of urgency into the whole process or the challenge of changing a culture. I think changing a culture is too much like climate change. If we all agree it’s necessary, and we all agree that we need to do something to address it, but it’s off there somewhere in the future—it’s probably something we can’t do during our tenure as a leader. Therefore, it gets shoved aside, unfortunately, and perhaps rarely addressed.

For example, a study done by faculty members at Duke University found that leaders, by and large, get the notion that culture is important and an important determinant of performance. Over 90 percent of leaders said that they could probably improve their culture. Fewer than 20 percent said that they had actually done anything about it. People get it; they just don’t do anything about it.

The reason they probably put it aside or postpone it has to do with a lot of the way we think about, for example, climate change. We all agree that we need to address it, but it takes too long to do it. It’ll probably have to be handed off to some other leader. Frankly, we’ve just got too much to do today to deal with shorter-term problems. We’ll get to it later. And, of course, they never do.

Preparing for the future of work

What’s the role of middle management in a hybrid-work culture?

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I think the jury is probably still out, but I’m certainly willing to consider the notion that middle management is not dead and, in fact, may be revived to some extent in a hybrid culture. There are several things we probably agree on as being important in that kind of a culture.

We agree that working in a hybrid fashion is going to be a real challenge to organizations that wish to maintain their culture. It was Greg Carmichael, the CEO of Fifth Third Bank who said, “If we’re going to be great, we have to have people in the office. We can manage in a hybrid fashion, but we’ll never be great.” And he used that as a rationale for bringing them in. I think hybrid organizations can be successful. The Critical Mass example that I mentioned earlier is an example of an organization that is trying to make hybrid work successful, not only for themselves but for their clients as well.

It requires not just coaching but also advocacy for people who are working remotely. And who’s going to be the advocate if we don’t have a middle manager somewhere in that mix who is tuned into what’s going on back at the office and can make sure that the people he or she is working with are tuned in as well?

Secondly, you’ve got to have face-to-face contact. That’s pretty clear. And the question is how much, and when and how, and that varies from one organization to another. But without face-to-face contact, it will never provide the kind of boost that really leads to a great organization.

I don’t think organizations assume that they’re not going to get their people together occasionally. I think if we’re expecting increases in productivity, we might get modest increases. The way we’ll do that is by redesigning work in such a way that the creative work can get done in certain time slots and the routine work probably gets done in other time slots. Overall, it seems to me that an effective culture will ensure that there is adequate advocacy, that there is the right amount of face-to-face contact, and that certain really important values come to the fore: inclusion and voice.

My colleague, Amy Edmondson, talks about the importance of voice. Voice will become more and more important because those people working in their own residences still need to have voice and the idea that they are included, and that their ideas are being considered. Otherwise, I fear that we’re going to have serious problems with an organization’s culture if we’re not taking care of those things. So, in a sense, it’s a symbiotic relationship, but an effective culture can make hybrid work more successfully.

If you can’t hack a culture, what can be borrowed by studying other organizations?

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There are some things that are common to all organizations, so that when a Zappos or a Disney invites people in and shares their secrets regarding organizational culture with them, what they’re really sharing is a process for considering a change in culture, and I think that can be communicated. That can be hacked.

You can talk in terms of the kinds of people that are needed in certain situations. And that’s easily shared. You can talk about the way we do things around here, and wouldn’t that work for you? The part of it that can’t be hacked lies in that particular set of values and behaviors that you choose for your organization that relates to agility, for example, that you wish to have in your strategic activities.

It depends on the people you hire. I find that’s the part of the process where this so-called standardization or hacking process breaks down, because you’ve got to hire the right people, and you’ve got to fire the right people. It’s the old Ken Kesey saying that Jim Collins quoted: “We have to get the right people on the bus and in the right seats, and you have to get them off the bus, too.” That’s where this process of transferability of ideas, transfer of cultures breaks down.

What are your thoughts on the ‘culture eats strategy for lunch’ theory?

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I think that’s a misguided idea. Culture and strategy are not in some kind of competition, so to try to juxtapose them that way doesn’t make any sense. Instead, there is a symbiotic relationship. An effective culture has to support an organization’s strategy. I would argue it has to support more than one of an organization’s strategies, but it has to support strategy. At the same time, its culture may be an important part of an organization’s strategy.

For example, if you go to Handelsbanken in Sweden, the culture of the bank, which has to do with transparency and best practices and a variety of ideas that everybody agrees are important, is an important competitive element of that bank and has been for some period of time. At the same time this culture needs to support strategy; it can be an important element of an organization’s strategy. For somebody to say “culture eats strategy for lunch” just doesn’t say anything to me. It strikes me as a random set of ideas thrown together that doesn’t help us very much.

Change from the bottom up

How can a junior colleague help change culture?

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The book implies some things that can be done at all levels, but it’s primarily addressed to leaders. If I were a young person entering an organization with a culture that left something to be desired, I would feel it in my team. If the organization is built around teams, I would be able to see whether I’m being included, whether I’m being given a voice, whether my ideas are at least considered and whether my leader is sensitive to the needs and differences among the members of the team—whether my team is three people or a dozen.

But that’s the unit of work, it seems to me, at which you can start. Typically, teams that exhibit that kind of behavior rise to the top. They show their success along the way, compared to the other teams. That means your career is going to rise, and your area of influence is going to increase. As your area of influence increases, you have greater influence over how we do things around here and what kinds of values we share and the sort of issues that we speak out on as a corporation, which is really a rather recent phenomenon that has become more and more important.

You build it as you build a reputation within the organization. Now, the organization has to honor that kind of behavior. Organizations with effective cultures that I’m familiar with would love to have someone like that working at the lowest levels to make sure that those shared values and behaviors are being propagated on the front line.

Success isn’t about having a ‘strong’ culture, is it?

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One big surprise was that in spite of the fact that John Kotter and I started our work on organization culture 30 years ago, I’m still finding a number of organizations that have ignored the work or didn’t access it in the first place.

We started with a hypothesis that a strong culture will produce good performance. We measured the cultures of a number of organizations and came up with a group of organizations that we were told had very strong cultures in their respective industries. What we found is that some of the best performers were in that group and some of the worst performers were in that group. So, our hypothesis got thrown out the window, and we went back to try to discover what was different about those organizations that had strong cultures but either were or were not performing well.

What we found was that those that weren’t performing well had a strong culture all right, and they were not adapting to change. Typically, they were in command-and-control types of cultures—strong, not very effective. I’ve told the story of several of those in the book.

This was a surprise to me because I thought perhaps our message had gotten across, but in too many organizations I found an effort to create the strongest kind of culture with insufficient adaptability to support the changes in strategy that are coming faster and faster these days.

We had to go back, rebuild the study, and found that adaptability—that’s what we called it at the time; agility at that time didn’t seem to have much cachet—was also important. But we still find organizations today that are striving to have a really strong culture that is not very adaptable, which is a big mistake.

What surprised you when researching the book?

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One of the surprises was the leaders who understand the importance of culture to performance still aren’t doing very much about it. Another surprise was the degree to which there really isn’t a very good notion among top managers of what’s going on in the organization. Something is wrong with the channels of communication in too many organizations. Even though, if you think back, Tom Peters and Bob Waterman told us years ago that management by walking around is really an important thing to do.

Some organizations understand that, but too many still don’t. And it’s too easy to stay in the ivory tower and stay out of what’s going on in the field. That, for example, is one of the core premises today of an organization like Walmart, where those people are out in the field four days a week, meeting with not just store managers, so that they know their senior managers and, more important, their senior managers know them, and they know what’s going on in those stores.

Whenever somebody says to me, “Why isn’t Walmart’s turnover higher? Those people are loyal because they know who their boss is. They know who their boss’s boss is and they know that those people care. And that makes a big difference. I was surprised that there are still too many organizations that don’t get that message.

If you run through the numbers and calculate the impact of culture on bottom-line performance, it’s those organizations that have the most people in direct contact with customers that provide the greatest opportunity for improved performance through improved culture. I wanted to call the book Compete Through Culture, but the publisher wasn’t too excited about that. But I honestly believe that culture is a critical competitive weapon, if you will.

What are the warning signs of a lagging culture?

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There are many warnings signs that a culture is starting to lag. For example, how much of my time is spent in meetings? That’s one very practical thing. To what extent do people listen to each other? To what extent do people agree to do things in meetings and then ignore what they’ve agreed to? To what extent do managers, in general, set expectations that they can’t meet with the people who are working for them? In other words, to what extent are they able to manage down, rather than manage up?

Those are all just very practical signs that something isn’t quite right and that we really ought to sit down and think about that. At Microsoft, for example, the senior managers decided that the dynamic at meetings was to be the smartest person in the room. And you were in competition with other people who also wanted to be the smartest person in the room. They decided that that wasn’t a particularly productive behavior and used that, among many other things, as a rationale for rethinking the culture at Microsoft that resulted in a tremendous turnaround over the past five or six years.

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