have joined the Fortune 500, while many of the old guard—Kodak, the New York Times, and Compaq—have been unceremoniously pushed out. And, that turnover is happening much more quickly than anyone might have predicted. Fifty years ago, most firms were expected to last seventy-five years on the Fortune 500 list; today the average life expectancy is down to fifteen years. In 2014, only sixty-one companies from the Fortune 500 list in 1955 remain. At the current turnover rate, it’s safe to say the list fifty years from now will be entirely made up of companies that don’t currently exist.1
Shouldn’t that shake the confidence of anyone who leads, works for, or invests in a company today?
I’ve spent the best and most creative years of my career trying to figure out why some organizations thrive and manage to change their markets and the world while others—even those with great promise, visionary leaders, amazing products, and periods of success—struggle to matter, frequently get in their own way, frustrate customers more often than they delight them, and thwart or stifle talented people rather than develop and inspire them. I’ve worked at or worked with both kinds of organizations, and the differences can be subtle. Across the board, the CEOs and executives are invariably intelligent and capable; there are heaps of talented and committed people throughout the ranks; products and services are often compelling; and overall intentions are good. Yet in struggling organizations there’s something missing.
To a critical but observant eye, organizations that struggle seem to lack the zest, vibrancy, and collective will needed to consistently solve problems, surmount obstacles, and innovate in big ways and small. That energy may be there in pockets, but unfortunately, it is usually stifled or squashed for confusing and complex reasons. Sometimes the leadership gets in the way, but more often than not the organization itself seems to be the problem. It’s as though the energy inherent in talented people and creative ideas is out of sync with deeper priorities, including the way decisions are made, how successes and failures are handled, how workflow is planned, and resources are allocated.
When I analyze struggling organizations as a consultant, I find it easy to point out the processes or approaches that bog down efficiency or get in the way of meeting customer needs, or to call out individual leaders or managers who are having a toxic effect on colleagues or reports, or to identify gaps between strategy or innovation and the demands of the market. Yet, I’ve come to realize that the root cause is more fundamental. The difference most often comes down to an emphasis on “What” versus “How.”
The business of the organization is its “What”—what goods it produces, what services it provides, what solutions it offers. The culture of the organization is its “How”—how it makes decisions, how it views customers, how it thinks and feels, how it treats people. All organizations balance these two modes in order to function in the world—much as human beings rely on both sides of the brain. But in most organizations, what is an urgent priority, while how is usually taken for granted.
In most organizations, what is an urgent priority, while how is usually taken for granted.
In this book, I want to explain why how matters far more than what and has a much bigger impact on strategy, innovation, and performance than most realize. Along the way, I’ll show you what organizations with winning cultures do differently and what you can do to make the culture of your organization the Difference Maker in your own success.
SWITCHING FROM DEFENSE TO OFFENSE
Leaders in most organizations don’t see culture as an urgent priority the way they view strategy, innovation, efficiency, customer satisfaction, financial discipline, or any number of other business concerns. Their what is the focus of all their hard work and long meetings; their how is more likely to be celebrated after the hard work has paid off.
I’m not saying that culture is completely overlooked in such organizations. Indeed, people may be genuinely proud of their organizational culture, and leadership may speak eloquently about the importance of treasuring the legacy of culture or acting as stewards in service of it. Yet even in organizations where culture is valued, it likely functions as little more than a means of defining the organization’s special character. Perhaps it also helps the organization resist change and create alignment; or it may serve as a touchstone for decisions as to who belongs or who doesn’t, what’s acceptable and what isn’t, and which direction should be taken or which shouldn’t.
In other organizations—often the new and vibrant startups taking the world by storm but also some of the largest, most established, and most prosperous organizations ever—the how of culture has a different level of urgency and importance. In these organizations culture is not relied on to play defense but offense. It’s not a passive force but an active discipline with a set of deliberate practices and mindsets. It does not preserve the organization from the forces of change but makes it resilient, adaptable, and always moving forward. It is not taken for granted but is relied upon to develop people, overcome setbacks, beat competitors, execute strategy, and innovate.
Culture is not a passive force but an active discipline with a set of deliberate practices and mindsets. It does not preserve the organization from the forces of change but makes it resilient, adaptable, and always moving forward.
Those organizations see what as an important tactical challenge, but they believe it’s not enough to do what exceptionally well in order to succeed. Why not? Because what can change at the drop of a hat. Markets shift. Competition gets crowded. Technology alters the game that’s being played. If what is all you know how to do, then you’re likely to continue struggling to do that what even when it no longer makes sense. In contrast, if how is the source of your resiliency and growth, then you are more likely to know when change and innovation is needed and may even have a pretty good inkling of what needs to be done next.
Effects of Well-Managed Culture
Many have struggled to measure the impact of culture over the years, but recently there have been some important advances in looking at how culture drives an organization’s ability to execute. One such study on corporate culture and performance led by James Heskett and John Kotter outlined results for 207 large companies in twenty-two industries over an eleven-year period.2 Heskett and Kotter reported that companies that managed their cultures well saw revenue increases of 682 percent versus 166 percent for the companies that did not manage their cultures well; stock price increases of 901 percent versus 74 percent; and net income increases of 756 percent versus 1 percent.
CONSTANT VIGILANCE, ALWAYS CHANGING
And yet, developing a winning culture is not the eternal answer to all of your challenges. In fact, just like a winning strategy, a winning product, or a winning approach to customers, success through culture can ultimately make an organization vulnerable to disruption and competition.
Books that proclaim the value of culture often inadvertently point this out. Years later, the organizations that have been showcased start to falter. Sometimes they even fail miserably. What went wrong? Were the metrics used in Jim Collins and Larry Porras’ Built to Last or Tom Peters and Robert Waterman’s In Search of Excellence incorrect? I don’t think that was the true nature of the problem, even though some of the companies in Built to Last have also come upon hard times, and Tom Peters once admitted to “faking the data” when selecting companies like NCR, Wang, or Xerox over a GE.3 Rather, the decline or downfall of once-heralded organizations is a powerful indicator of just how hard the work of developing and fostering a successful culture can be.
Companies that grow and succeed on the wave of a strong culture are ultimately susceptible to the belief that their culture is sacrosanct and untouchable. Organizations
