Does Company Culture Enable or Block Successful Transformation?

On 11th November 2022, the Financial Times reported that "the UK economy shrunk in the third quarter and that 'recession now looms'". This news, although expected, presents more challenges to hard-pressed executives. Add to the economic issues, competitive pressures, difficulties with supply chains and the pace of introducing new technologies and automation, and it's clear that organisations are facing an environment that is the most demanding for years.

Against this backdrop, organisations are increasingly implementing new tools, platforms, and business models to create competitive differentiation as the pace of change quickens.

• Some organisations need to improve their business processes or customer service to remain competitive – serving customers through different channels and removing expensive human resources.
• Some are looking to automate work tasks to improve financial performance.
• Others are looking to develop new services, products, or capabilities by implementing new technology, ERP software or a wide-ranging organisational redesign.

There are, however, risks and potential pitfalls for organisations that get it wrong.

• In an environment that is so dynamic, organisations can hardly afford to lose time and money if their efforts fail to deliver the expected benefits.
• The costs of losing market position due to a failed transformation programme can cause severe damage – even to the most prominent organisation.

Sadly, the road is littered with failed transformation efforts set up traditionally.

As many executives, academics, and consultants can relate to, the rate of failure in transformations is still far too high, and one that organisations can ill afford in these disruptive times. (1)

When change programs fail (as one in three does), research regularly finds that the significant reasons timelines are exceeded or benefits are not realised, are related to people and cultural issues in the organisation. (2)

• Old habits die hard - change requires individuals throughout the organisation to behave differently daily.
• It often means changing processes and procedures that have been in place forever. That's hard because it's a natural human instinct to resist change.

So, how people think and act in their day-to-day work has to be addressed.

Often, however, the effort given for the people and culture aspects of the transformation initiative needs to be improved.

• The leadership team decide that they want to make a significant change.
• Recognising this means changing how people work. They issue some top-down messages, littered with vague adjectives and abstract nouns; 'the company will be agile in everything we do,' perhaps. In theory, it all sounds great.
• However, staff don't understand the change vision – and ongoing communication is poor or non-existent.
• Staff quickly become demotivated when they see the same mistakes made in previous initiatives cropping up again.
• Fast forward a few months later, and nothing much has changed.
• Cultural issues that weren't addressed at the start of the project 'kick in.' Staff become cynical, and progress slows.
• Often, by this stage, even the transformation itself has stalled. Why? Because staff heard words without meaning in their day-to-day reality, old behaviours continue unchecked.

And there are other common errors:

• Cultural assessments must be completed at the programme's start to understand the organisational cultural challenges, their potential impact, and mitigating actions.
• There needs to be a better understanding of whether the targets set for the transformation programme look achievable based on past performance.

In successful transformations, leaders make it their business to focus on getting inside the mindsets of their organisation and understanding how culture, behaviour and attitudes need to evolve to enable the broad-scale, fundamental change necessary to deliver a real quantum improvement in performance.

Therefore, organisations that have successfully implemented transformation programmes have often started by completing a cultural assessment – to identify the cultural enablers and blockers – and the pain points that will have to be overcome.

Consider the following example.

An organisation embarks on a large-scale programme involving process and system changes to improve operational performance. The leadership team knows that the associated culture change will be critical to the success of the transformation. What they should have realised was the aspects of the current culture that were getting in the way of where they wanted to be.

• A cultural assessment is conducted at the start of the transformation programme.
• The assessment uncovers poor collaboration between functions, leading to a blame culture. This behaviour is impacting operational performance and staff morale.
• Senior leaders recognise that the transformation programme will only succeed if these cultural issues are tackled.
• A solution is developed that focuses on improving the way teams interact daily – involving coaching of team leaders and joint team meetings.
• There is a realisation that to drive improved collaboration. Progress must be linked to measurement. As new processes and behaviours are introduced to improve cross-functional collaboration, the improvement in operational performance is tracked and communicated.

Cultural assessments are a useful way of identifying issues that, if not tackled, will have a detrimental impact on the transformation programme. They are instrumental in identifying departments or units with a high risk of failure. Rather than moving straight ahead, effort must be spent understanding what is needed to mitigate issues and facilitate successful change.

An organisation's culture invariably affects the decisions and actions taken by its employees (at any and every level). This means that culture will either be an essential enabler or a blocker for any transformation project.

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_{1.     Organisational Transformation is an Emotional Journey, Harvard Business Review, 18 July 2022}

_{2.     See, for example, Mindset Matters in O, McKinsey, 15 February 201}

_{3.     Mindset Matters in Transformation, McKinsey, 15 February 2021}

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