Organisations looking to drive real culture change need to move beyond values and instead focus on standards, according to business transformation expert, Dr Peter Fuda, who explained that a four-step process actively led by both the CEO and HR is critical to successful culture change.
“Until an organisation turns its values into standards, what it has are aspirations and wishes, but values are not very powerful when they’re an aspiration,” said Fuda, who serves as founder and principal of The Alignment Partnership (TAP) as well as an Adjunct Professor of Management at MGSM.
“So every organisation has values; they’re just usually different to the ones that are on the poster,” said Fuda, who explained that the first step for which are serious about culture change is to move from high-level agreement on values and platitudes about behaviour, to a deep-level alignment where everyone knows they are acting with integrity and being authentic in their actions.
Jargon around values and behaviour can give rise to 90 per cent of the problems associated with culture change before organisations even get started on the process, he said.
“So organisations fail at culture change, not because they don’t have good intentions, but because they never had a chance in the first place; it’s not a matter of intention, it’s a matter of alignment.”
In any organisation, Fuda explained that it is the CEO, with the support of HR, who determines if they are articulating an aspiration or a standard of behaviour.
“When the lift doors open, everyone needs to know what is expected in your organisation as the minimum standard of behaviour.
“So what will you hire by, and what will you fire by? What will you promote by, what will you reward and what will you punish?”
“There’s no disagreement at the level of platitudes, and I’ve never seen a values statement that says, ‘We aspire to lie, cheat, steal and pillage.’
“Everybody aspires to noble things, but Enron’s espoused values were communication, respect, excellence and integrity.
“I’ve worked with some 250 CEOs over the past 20 years, and I’ve never met a CEO who has bad intentions.
“They might do all sorts of awkward and less than ideal things, but they all start with noble intentions; they don’t wake up in the morning and aspire to destroy shareholder value, irritate customers or alienate staff (even though many are quite successful in this).”
“There’s no disagreement at the level of platitudes, and I’ve never seen a values statement that says, ‘We aspire to lie, cheat, steal and pillage.’”
Two culture change problems for CEOs
One of the underlying problems for individuals is something known as “illusory superiority”, according to Fuda, who explained that we tend to judge ourselves by our intention, but we judge everybody else by their actions.
“So in other words, we have a lower standard, a lower benchmark for ourselves, than we do for others,” he said.
“We all overrate ourselves, and this is a very human thing.”
A second problem “which is a little scarier” is that many organisations’ culture change initiatives are doomed to fail before they even start, according to Fuda.
“After 20 years of working with CEOs of large corporations, they don’t fail because of intention, talent or capability,” he said.
“It’s because we never had a game we could win in the first place, and the reason for this is that others’ expectations of us are not always conscious or articulated.
“Only one-third of the expectations that others have of us are both conscious and spoken; that is, they know what they expect of us and they tell us.
“So for example, I expect you to act with integrity, and I tell you exactly what I mean by that, about a third of the time.
“Another third of the time, I know what I expect of you, but I don’t tell you – either because I’m afraid to tell you or I’m worried that if I tell you, maybe you’ll think I don’t trust you, or I just assume you should know this.
“The other third of the time, is that expectations are not only unspoken, but I’m not even conscious of expectations and don’t even know what I expect of you until you don’t deliver it,” he said.
Fuda compared this to well-intentioned, hard-working, highly-talented executives in organisations, throwing darts at a board from 20 yards, blindfolded and hoping they’ll hit it once in a while.
“Over time we’ve learned to get everybody to walk right up to the centre of the dartboard and place the dart right in the middle, and not to throw the dart until we know where the centre of the board is,” he said.
The role of HR in culture change
There is a “huge opportunity for HR” to educate and guide executives through this process, said Fuda, who said the first step is for HR to create a challenge for the CEO and executive team.
While the CEO may want to articulate values and drive culture change, he said that HR should challenge this and say: “I appreciate why you would say that, but unless you’re prepared to really put the work in, it’s better that you don’t articulate values at all.”
“The most powerful way for you to tell people you’re serious about values is to fire a senior executive who refuses to meet standards”
“The worst thing you can do is go through a long process of articulating your values, thinking that it’s some kind of communication exercise – and then find out that you actually don’t have the will to work through the complexity and/or to hold each other accountable at an executive level and define what it really means.
“Because all this will do is to raise expectations, and then under deliver, so unless you’re really prepared to work through this as an executive team, it’s better you don’t do it at all.
“So this sets the challenge right up front; now you’ve piqued their interest.”
Fuda said the first thing to understand about the culture change process is that it is not a communication exercise, but a behaviour exercise which starts with the most senior members of the organisation.
“There’s no point asking anybody else to align to a set of values until we are a living, breathing role model for what is espoused,” he said.
Once values, standards, aspiration and the base level of expectations have been defined, the second step in the process is for executives to spend the next two or three months benchmarking against them.
“So, are we examples? Where do we have gaps? And communicate to the organisation about the gaps, what we’re working on – and now we’re going to ask you to do the same.”
Fuda said an average organisation might come up with four or five values, and then maybe two or three standards for each value.
These are then put into a measurement tool, and Fuda said this helps “force the conversation” and executives need to rate those standards every month for the first six months, or after every fortnightly executive team meeting, for example.
“They need to talk about where they are exemplifying these and where there are gaps they need to work through, so they start to become conscious,” he said.
Why the CEO needs to fire non-compliant senior executives
A third step in the process is for CEOs to draw a line in the sand and be willing to call out individuals for not meeting agreed standards.
“I would be saying to a CEO, ‘The most powerful way for you to tell people you’re serious about values is to fire a senior executive who refuses to meet standards.’
“When an organisation really believes that their executives are serious, is when the CEO removes any executive who has helped to create the values in theory and has committed to them in theory, and who delivers financial results – but actually in practice, everybody knows, does the opposite of the standards and the values,” he said.
“With one well-placed exit, even if it’s never explained why that exit happened, everybody gets the message real quick – that’s when you know change is serious”
For example, a value may be to “grow our talent” and create an environment where everybody wants to bring their best to work, but if a senior executive is a tyrant and rips people to shreds in order to get results and refuses to change, Fuda said the real test of the values is what the CEO does with that person.
“Do they keep them there and make excuses? Do they go around them? Do they move them somewhere else or do they actually confront that directly?
“I can tell you that with one well-placed exit, even if it’s never explained why that exit happened, everybody gets the message real quick – that’s when you know change is serious,” he said.
The fourth step in the culture change process is to closely align structures and systems to newly defined values and standards.
For example, if collaboration is a value, but a company’s performance management system rewards internal competition, then companies will get “competition six days a week and twice on Sundays”, said Fuda.
“When aspirations/values and systems are in conflict, systems will win every single time, and this is where HR can make a big difference because they often own those systems.”
A challenge companies often have is with individuals who are hitting their financial targets, but behaving in a way that is inconsistent with values.
“Do they get a 10 per cent clip on their bonus, for example, or do they go into a performance management conversation about whether they’re going be here next quarter?” he said.
“Or, if you want to be agile and innovative, do your systems and structure support this, or bureaucracy, control and everything tightly held by the centre – with all decisions going upwards?”
“So it’s all about alignment. Even in organisations where lots of people are involved and it’s all well-intentioned, not much changes in practice, until the CEO, executive team and HR follow these steps and make a personal commitment to change,” said Fuda.