C – V = D (Culture Minus Values Equals Destiny)

I have long believed that culture, senior leadership, and strategy set the tone for organizational success. But culture is unique because a healthy culture has to be set and demonstrated by senior leadership and is the basis for employee engagement and therefore customer loyalty, satisfaction, or dissatisfaction. Furthermore, strategic success is accelerated by—and maybe even achieved through—a healthy organizational culture.

I also believe organizational Destiny can take one of three directions depending on organizational culture. When C – V > 0, that is, when culture builds on and surpasses the basic core values of the organization, the “D” becomes Delight for employees, customers, and other stakeholders. When C – V = 0, that is, culture exactly follows the core values, the “D” becomes Deliver; the organization is poised to deliver on its brand promise. When C – V < 0, that is, the culture does not demonstrate how the organization is living up to stated core values, the “D” becomes either Disappointment or Disaster for employees, customers, and other stakeholders.

Given the importance of a healthy organizational culture, I explore core values, culture, and how organizations establish culture (positive and negative) in this Insights column. I have relied on my own observations from years of looking at organizations and, most important, seeing role-model organizations, as exemplified by Baldrige Award recipients. I have also looked at a body of studies and scholarly works on the topic. I will reference some of them as I share my insights with you.

I will look at culture and values from nine perspectives: definitions of the concepts; a focus on core values; a focus on culture; establishing and propagating a healthy organizational culture; hiring for cultural fit; when culture and values are misaligned; assessing organizational culture; the Baldrige perspective on culture and values; and role-model performance.

Definitions of Values and Culture

There is frequent confusion about the definitions of core values and culture. And some organizations use the terms interchangeably. According to a study authored by D. Sull, S. Turconi, and C. Sull in the July 2020 MIT Sloan Management Review (SMR), there are more than 50 distinct definitions of corporate culture in the academic literature. Furthermore, 72% of the companies in their study of nearly 700 large companies referred to the company’s culture as values or core values. They are not the same.

According to the Baldrige Excellence Builder, values are “the guiding principles and behaviors that embody how your organization and its people are expected to operate.” They can define what makes your organization unique.

I like to define culture as “the shared beliefs, norms, and values that are (uniquely) practiced within your organization.” In other words, culture is the behavior demonstrated in your organization when no one is looking.

According to an editorial on the Virgin.com website by Alex Bard (CEO of Campaign Monitor), core values are foundational, deeply held principles, while culture is formed by the organization’s people and is subject to variation and gradual change. A healthy organizational culture stems from the organization’s values. One of the most unique company values I have read is the “number one value” of Campaign Monitor. True to its Australian roots, the value is “make mum proud.” It serves as a constant reinforcement of desired behaviors that encourage employees to take pride in their work and treat people with honesty and respect.

Core Values

I believe core values serve two significant functions in organizations. They serve as boundary conditions and empowering conditions.

Boundary conditions—Values are the guiding principles that no employee should violate. Violation goes outside the acceptable norms of the organization and can result in disciplinary action.

Empowering conditions—Values are the guiding principles that empower employees to act. Commitments made to customers, employees, and other stakeholders that conform to the organization’s core values should always be permitted and should never lead to negative consequences for an employee.

In an article in Forbes, Chris Cancialosi reports on two tests business leaders can take to test their effective use of their core values:

1. Three challenging situations: Think of the three most challenging situations your organization has faced in the last several years. Do your organization’s values help you make sense of the actions you took? If not, it may be time to rethink either the values or how they are used to guide the organization.
2. Three “shoot-from-the-hip” situations: Think of the last three times your organization made a decision without having data available, shooting from the hip. Think of each decisions and how it was made. Do your organization’s values explain or justify the decision that was made? If not, it may be time to rethink either the values or how they are used to guide the organization.

The well-known teams’ expert Patrick Lencioni wrote in a Harvard Business Review article, “Empty values statements create cynical and dispirited employees, alienate customers, and undermine managerial credibility.”

In the SMR article, Sull et al. share some interesting data about values statements. More than 80% of the companies in their study published official corporate values on their websites. The most commonly repeated values were integrity (298 times), respect (180 times), and innovation (152 times).The most common number of total values was five. And more than 10% of the organizations published two or more sets of values under different names on different parts of their website.

Finally, many of the company’s core values in the study were so generic they could easily serve as material for a Dilbert cartoon. Indeed, Sull et al. report there are more than 50 Dilbert cartoons lampooning these values statements.

Culture

Over my years of visiting organizations of all types, I have noticed that you can feel the culture when you visit, certainly at the two extremes. When there is a toxic culture, you experience the negative environment and attitudes toward customers and colleagues. When there is a healthy culture, you experience the opposite. You feel “electricity” in the air.

Culture defines and pervades the environment you experience as part of an organization. In its document on organizational culture, the Society for Human Resource Management (SHRM) states that “an organization’s customs, traditions, rituals, behavioral norms, symbols and general way of doing things are the visible manifestation of its culture.”

SHRM identifies three broad concepts associated with culture:

• Social culture: the class distinctions and distribution of power in the organization
• Material culture: the way people support one another in exchanging required goods and services
• Ideological culture: the things the organization’s people view as fundamental; the emotional and intellectual guidelines that govern people’s daily existence and interactions

Explicit behavioral cues associated with the organization’s stated core values provide guidance on translating values into actions and therefore setting cultural guidelines. According to Sull et al., less than 25% of organizations provide such guidance.

Establishing and Propagating a Healthy Culture

Leaders are responsible for establishing and propagating a healthy culture. This requires constant reinforcement and role modeling of the core values and associated behaviors expected in the organization. As stated above, leaders can start by considering and spelling out a limited set of expected behaviors consistent with the organization’s values. They then need to demonstrate those behaviors in their actions. And this must be consistent behavior. Leaders cannot pick and choose situations in which they will exhibit the behaviors.

In a 2018 article in Forbes, Mike Kappel suggests that leaders establish business processes that are based on these expected behaviors. Leaders and managers can reinforce the behaviors in conversation and performance reviews with employees.

In propagating cultural expectations and norms, leaders need to be careful to recognize three important cultural pitfalls. First, cultural alignment is important, but it should not be synonymous with groupthink. Second, be careful to create an inclusive culture, not a culture of “look-alikes.” Third, respect national and other diverse bases for differences in personal belief systems.

While leaders can set a basis for culture, the ultimate determinant of culture in an organization will be the people of the organization. So it is important to select the right set of diverse individuals from the hiring process forward.

Hiring for Cultural Fit

A leader of an early Baldrige Award recipient organization talked about hiring for traits and training for skills. In a manufacturing environment where unique assembly skills were required, the company’s primary screen was for the traits that would fit with the demands of the job and the culture of the organization. The company then trained for the manufacturing line skills. 

While certain jobs definitely require a defined skill set before joining the organization (e.g., lawyers, physicians, accountants), I have frequently seen “healthy” organizations reject highly qualified candidates because they did not exhibit behavioral traits consistent with the organization’s culture. Role-model organizations include both leader/manager interviews and peer group interviews in the hiring process for this purpose.

Alex Bard states that organizations typically hire people based on what they have done and fire based on who they are. SHRM research found that ill-fitting hires and subsequent rapid departures cost organizations between 50% and 150% of the position’s annual salary. According to SHRM, nearly one-third of all newly hired employees leave voluntarily or involuntarily in their first year on the job, and that number has been increasing in recent years. I believe toxic cultures are propagated when ill-fitting hires don’t leave, and violations of behaviors associated with an organization’s core values are tolerated.

When Culture and Values Are Misaligned

In 2019, the Business Roundtable issued a statement of corporate purpose signed by the CEOs of more than 180 major companies, committing “to deliver value to all stakeholders.” According to the Wall Street Journal, about 70% of the companies that joined the statement are incorporated in Delaware. According to a 2015 law-review article, Delaware law requires that “directors must make stockholder welfare their sole end.” What does this tell directors of those corporations? How should they behave when making decisions?

Scandals of recent years document corporations around the globe whose core values are misaligned with their behaviors (culture). According to Sull et al., four of the major corporations involved in recent, significant scandals included some combination of ethics and integrity in their core values.

While these two examples are extreme examples of the impact of a clash between values and culture, misalignment is common. Cancialosi suggests that leaders ask themselves whether their core values are a compass for the organization. Are they a manifesto or just words on the lobby wall? And worst of all, “are the actions of your organization so misaligned with your values that people actually make jokes about it?”

Mergers and acquisitions are fraught with culture issues, according to SHRM. SHRM states that two out of three mergers fail because of cultural clashes between the two organizations.

Bruce Hamilton in a Quality Digest article refers to the “they” consideration. He says the use of the word “they” in conversation gives him significant insight into an organization’s culture. When “they” is used to refer to management, employees in other departments, suppliers, or boards of directors, it speaks to a non-collegial and quite possibly an adversarial culture. They won’t listen to us. They don’t obey directions. They won’t support our safety. They won’t make needed changes. On the other hand, in conversations in an organization with a healthy culture, “they” is replaced by “we.” How would your organization fare on a “we/they” assessment?

Assessing Organizational Culture

Here is some guidance, largely drawn from SHRM, on measuring something as difficult to assess as culture:

• Develop a cultural assessment instrument: start with your core values and build from them.
• Analyze the results from administering the assessment and use them to conduct focus groups: focus on areas of disagreement or negative responses.
• Discuss culture until consensus forms around key issues: focus on “who we are and what makes us who we are.”
• Use 360-degree feedback to uncover blind spots: discuss the results with the people surveyed.
• Use a commercially available cultural instrument: this allows benchmarking with other organizations inside or outside your industry.

In my opinion, a quick gauge of cultural health is measuring agreement with this one-sentence statement: I trust my organization’s leaders.

Sull et al. used data from the 2019 Culture 500 study to assess how well companies lived up to their stated values. Every Culture 500 company received a sentiment score that measured how employees talked about a specific value in the free text of their input. The analysis revealed no correlation between the values a company states in its published material and how well the company lives up to those values in the employees’ eyes. All the correlations between official values and actual culture were very weak; and collaboration, customer orientation, execution, and diversity were negatively correlated.

It would appear that in aggregate there is a lot of work needed on building healthy organizational cultures.

Baldrige Perspective on Culture and Values

Baldrige considers culture and values in the “Core Values” section and the Criteria questions of the Baldrige Excellence Framework. Signs of a healthy culture include a culture that

• reinforces the vision and stated values of the organization
• is employee- and customer-focused
• is characterized by open communication
• is inclusive and equitable
• capitalizes on the diverse ideas, cultures, and thinking of workforce members
• is highly ethical
• has ongoing learning

Role-Model Performance

In 2018, there were five Baldrige Award recipients from four economic sectors: Alamo Colleges District (ACD), Donor Alliance (DA), Integrated Project Management, Inc. (IPM), Memorial Hospital and Health Care Center (MHHCC), and Tri County Tech (TCT). Each of them is an exemplar of practices that promote healthy culture. I will share a few of their practices, which you might want to adopt or adapt for use in your organization.

MHHCC is guided by “to be” and “to act.” It defines what the organization will be and how it will act with other people. MHHCC has a “no pass” zone, never passing without greeting others. Step two of its leadership system is a culture of compassion and excellence. And its core competency is cultivating collaboration. MHHCC has “Really Impressive Moments” recognition programs.

IPM articulates four essential leadership responsibilities: inspiring culture, strategy, execution, and evolution, thereby fulfilling a holistic approach to culture, strategy, and industry leadership. IPM’s vision is to be “the best” by excellence, ethical leadership, community involvement, the highest commitment to our family members (i.e. employees). The bold-type emphasis on family is IPM’s. IPM celebrates their community by supporting 150 charities with time, talent, and money.

DA’s “anchoring” core value is people first. This nonprofit’s strategic objective number two is high engagement culture. The CEO sends out 150 handwritten notes each year celebrating staff successes.

TCT has guiding mantras. Mantra two is If you are not taking care of the student, take care of someone who is. That is how you fit in at TCT! TCT presents employee awards for demonstrating the organization’s values. 100% of TCT’s employees voluntarily contribute to the TCT Foundation.

At ACD, leaders practice service over self, displaying true servant leadership. There is a monthly meeting to celebrate successes.

Do these practices pay off? Of course. A few examples related to employee engagement:

• In 2018, DA scored 90% (top decile) for employee engagement.
• Surveyed employees’ recognition of IPM as a great place to work is at a level of 94%, within two percent of the Great Places to Work benchmark.
• TCT has been recognized as a Great Place to Work for 2015-2018, with 96% of employees saying it is a great place to work.

A Concluding Challenge

Does your organization have a healthy culture? Are your core values more than a statement on the wall? Are your culture and values aligned? Do you hire for cultural fit, maintaining a diverse and inclusive culture? Have you done a cultural assessment? Have you acted on the results? Is your C – V > 0?

Resources

The New Normal Will Require RE²ST³ (July 2020)
It Is 2020. Is Your CEO Thinking about Perpetual Reinvention? (January 2020)
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