We know this runs counter to popular thinking that culture is something amorphous that cannot be defined and has something to do with employees; particularly the CEO.
Here’s why we disagree with popular explanations of culture in companies.
Employees Don’t Set Culture…
Culture is typically defined as being the values and practices shared by members of a group, which, for a company, means its employees.
Where we think the discussion goes offside is when it focuses on the group, i.e. the employees, rather than on values and practices. This misstep leads to the assumption that employees are the source of the company’s culture and that culture will change as employees, including the CEO, come and go.
If the focus is on “values and practices”, then you start to look at the source of values and practices. This leads you to start thinking about what employees are doing in the business. And what they are doing is what they have been hired to do; namely, what they are “expected” to do.
What they are expected to do is their job, which in turn is all about implementing their portion of specific strategy in a prescribed manner.
In our opinion, this makes strategy and expectations the source of culture; not employees.
But what about Drucker?
So why is culture always put forward as being more important than strategy? We think it's because the term "strategy" is so badly defined. Most writers on culture start by saying that strategy can't be defined. Or define it so narrowly as "competitive advantage" or so vaguely ("value creation") that the term becomes meaningless.
Or Drucker's famous quote "Culture eats strategy for breakfast" is trotted out as evidence that culture supercedes strategy.
Really? We think Drucker was brilliant at describing what goes on in organizations. We think what Drucker was describing was that "existing strategy", being the way things are done now, "eats new strategy" for breakfast. And we totally agree with him on that!
Dominant Strategy Sets Overall Culture...
So what's the source of culture? Let's start with the concept of dominant strategy. That's what gives an organization its dominant culture.
for example, that's what makes banks different from insurers. Or manufacturers different from retailers. Or tech companies different service delivery ones.
Strategy is all about choices of action. We define it that way: "Strategy is a choice of action".
Our research for our book, The Alpha Strategies, finds that there are 8 strategies and 3 types of strategy common to all organizations, be they for-profit or non-profit.
In other words, there is a strategy system common to all organizations. See Strategy Models: Where are They?
We argue that any one of the eight can be the Alpha or dominant strategy of the organization and that certain Alphas are associated with specific industries.
For example, financial management is the Alpha in banking; risk, for an insurer or for any regulatory body; service delivery for much of government, healthcare, airlines, and parcel delivery; marketing/sales for retailing; and R&D/technology for many tech companies, universities and some hospitals.
Dominant strategy doesn't change easily.
Most CEO's need not and should not be changing dominant strategy. This is why it is so important for boards to understand what dominant strategy is for the organization when they hire a CEO. Hiring a CEO with the wrong skills to manage dominant strategy quickly sends the organization into a funk because the CEO’s strengths don’t match the needs of the Alpha strategy.
Imagine appointing a tech guy to run a bank or a banker to run a retailer. Or a retailer to run a regulatory agency. It just doesn’t work. Dominant strategy in place sets the culture; not the CEO. The CEO manages the existing strategy. And it takes a very skilled CEO to understand when an organization needs to change its dominant strategy and to manage successfully that change. Think Lou Gerstner and IBM's transformation under his leadership.
… And Expectations Implement Culture.
Expectations are a description of hoped-for outcomes.
A CEO and all managers deliver all strategy through imposed expectations. Expectations are the principal driver of all strategy implementation.
Think about it. We don’t do what we want to do at work (unless you own the business…). We do what our boss wants us to do; expects us to do.
Hence, that lovely old saying: “What interests my boss absolutely fascinates me.”
When we say “expectations”, we mean: “imposed expectations”. Expectations reflect the top-down imposition of guidance and direction with respect to how a specific strategy is to be implemented.
For example, if the growth strategy is to grow by acquisitions, then expectations would frame the parameters of what constitutes an acceptable acquisition strategy.
Strategy is implemented by expectations. This, in turn, produces the well-known question, "How are we going to get this done, folks?" which results in the next iteration of strategy for implementation.
Focus on Strategy & Expectations; not Culture
The lesson to be learned is that there needs to be more focus on understanding and communicating strategy and expectations. There needs to be much more care identifying and understanding dominant strategy. The same applies to the development and communication of expectations essential to implementing strategy.
Do that and culture will take care of itself.
Strategy plus expectations equal culture.
To understand how the dynamic strategy system works in your organization, visit our drag'n'drop strategy modeling site and get The Alpha Strategies working for you!