What is the Right Business Culture?

Five years ago, I had the great opportunity to co-found a start-up for a leading automobile manufacturer as a senior controller. My gosh, was I excited. I lunched with the CEO before starting. He said: "We only hire the best." He showed me each profile and why these candidates were the right ones. The main focus was on ability. That made perfect sense to me. Since we were few, the few also had to bring extraordinary skills. Well, other aspects were included as well. One candidate for sales fell off the grid because he was "a shark" and we wanted to have a team without turmoils. As I write this post, it is obvious that it did not work out. 4 out of the 11 employees left the company within two years and it was subsequently merged with another company in the group. How did this happen? What went wrong? I think it was the corporate culture. More precisely, it was because of the criteria the CEO used in selecting candidates and managing staff.

I want to show you how leaders can introduce a culture that enables their company, team or project to perform at its best and what dangers strong corporate cultures can bear. Using the prominent example of the rise and fall of Polaroid, I will illustrate how a strong culture must constantly challenge itself and how such a culture affects the business.

The small but subtle difference between a strong culture and a cult

In short, Polaroid failed because of the misconception that customers would always want printed copies of their pictures. The decision-makers failed to challenge this. A classic case of groupthink, the tendency to seek consensus rather than promote dissent. Groupthink is the enemy of creativity, as it makes the dominant conform rather than encouraging diversity of thought. There is a fine line between a strong corporate culture and cult-like behaviour. But where had this strong, almost overpowering corporate culture come from, which made it impossible for any employee and manager of this global corporation to save the company?

In search of the right formula

In the 1990s, a group of experts led by sociologist James Baron wanted to get to the bottom of the question of how founders shape the fate of their companies in the long term with their hiring criteria from the very start of their business. They asked the founders of almost 200 high-tech start-ups in Silicon Valley about their business blueprints. There were three dominant blueprints: "engineering" (hiring results-oriented employees who thrive under pressure), "star" (recruiting top talent, paying them top salaries and giving them sufficient resources and autonomy) and "commitment" (selecting employees who identify with the company and a focus on long-term employment).

Baron's team watched companies through the 1990s and 2000s and one blueprint was far superior to the others: commitment. The failure rate of those companies that used commitment was zero, despite the bursting of the tech bubble in 2000. The commitment blueprint also brought a higher chance of going public – at least 200 % higher than the "star" and "engineering blueprint".

The commitment blueprint involves a unique motivational approach, namely building strong emotional bonds between employees and the organization. The other two focus on giving employees autonomy and challenging tasks. Employees who worked in a company with the commitment blueprint showed a strong attachment to their work, team and company. Researchers often heard words like family and love in their interviews. A nice side effect: organizations with a commitment blueprint had a leaner hierarchy and less overhead costs.

Founders cast long shadows. Skills and stars vanish, commitment lasts. Polaroid founder Land did not only hire specialists, otherwise he would have hired only scientists. As a counterpoint, Polaroid's inventor hired students from humanities colleges for his lab who strongly identified with the company, just like in Silicon Valley commitment blueprints. "So how did Polaroid go bankrupt 60 years after its founding?" you may now ask.

Caution tripping hazard

After a rapid start and IPO, companies with commitment blueprints suffered from lower growth rates on the stock market, Baron and his colleagues found. According to Baron's study, commitment blueprints are harder to scale. Because new hires have to "fit into the culture", companies find it difficult to hire and integrate a diverse workforce. Once a company reaches a certain size, it becomes more homogeneous, and when the market becomes dynamic, large companies with strong cultures are too insular, they don't realise that change is needed and resist the views of those who think differently.

These insights can be directly applied to the rise and fall of Polaroid. After the invention of the instant camera, the company skyrocketed, and photography was stable until the digital revolution made the market volatile. Polaroid began to struggle with disruption. The company had a diverse workforce, but at the same time a strong culture and thus employees were not receptive to dissenting (diverse) thoughts from outside. In other words, above a certain organizational size, management has to change tactics: it has to allow dissent. Hence a diverse workforce alone is not enough, they need an environment in which opinions can be expressed and are received.

Strategy researchers Michael McDonald and James Westphal found that many CEOs fell into the same trap as Land did. The worse the companies did, the more the CEOs sought advice from friends and colleagues who shared their views. We all know this too well: when things are not going well, we seek refuge and safety, not conflicting opinions. However, business performance only improved when CEOs actively solicited other insights to challenge and innovate, rather than seeking the comfort of consensus. Minority viewpoints are important, not because they are right or the ultimate truth, but they stimulate dissenting thought and help discover new solutions. Dissenting opinions are useful even if they are not right.

Strong vs. open culture

In my start-up at the time, unfortunately, we selected the wrong blueprint; from the beginning it was star over commitment. In addition, dissent was not wanted by the CEO. I experience this differently at borisgloger consulting. Exchange and challenge are explicitly encouraged thanks to open discussions in teams and by giving and receiving open feedback. However, since we have a close emotional bond, it is often difficult, at least for me, to give negative feedback. Bonds and the urge to belong to the group can also lead to groupthink. Since we are growing at borisgloger, we are even more concerned how we want to shape our culture. We have a strong culture, but we don't see it as the only truth, we constantly review it and face dissenting opinions because that's what makes us successful.

Image: Hannah Busing, Unsplash

Change
Agile Organization
Leadership
Steffen Bernd
July 16, 2021

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