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FRESH TAKES ON BIG IDEAS

Often when I’m speaking with Fortune 500 leaders—regardless of industry, type of business, size, or location—the conversation turns to culture. When I push a bit, “culture” is typically articulated as an amalgamation of things. It’s the result of M&A, previous leaders with strong perspectives and styles, enduring employee values and norms, or even just regional character.
 
Ultimately, the message I get is, “Our culture comes from a bunch of things, and this is where we ended up today,” rather than, “This is the culture that we need so that we can perform the most effectively, and we’ve made clear choices about what to do and not to do so that we can sustain it.” That’s the thing about building and maintaining an organization’s culture: If leaders aren’t intentional about it, they’re probably doing it wrong.
 
At McKinsey, we define “culture” as the behaviors, beliefs, and working norms that enable a company to deliver the value that it’s distinctively suited to deliver. Traditionally, leaders have been able to rely mostly on the informal transfer of culture among employees—many of whom were, in the past, probably working in the same place doing similar tasks, all with the same objectives. These days, however, changes in the ways that people work, the technologies that they use, and the world in which they compete have made this kind of organic approach to culture transfer less effective.

The first step toward building a company’s culture intentionally is to pay more attention to organizational health. By “organizational health,” we mean the foundational and measurable practices and behaviors that allow companies to manage through turns and navigate the world as it exists, regardless of shifts in the business, technology, or society. We’ve identified three dimensions of high performance that are most closely associated with organizational health: a sense of alignment, the ability to execute effectively, and recognition of the need for renewal and adaptation.
 
Leaders who routinely monitor how they’re faring along these dimensions will have the data and drive to mindfully build and sustain healthy cultures over time. The result can be more-engaged, more-productive employees. In addition, the research demonstrates that healthy organizations are more likely than peer companies to show improvements in CAGR, EBITDA, and M&A performance.

“Culture can be a true competitive advantage when it’s intentional—and a significant drag on performance when it’s not.”

The second step is for leaders to be clearer about what they want from their culture—and what they don’t want. This latter point is critical and frequently overlooked. Leaders often say that they want a culture of accountability, inclusivity, or connectivity, but then they focus on the outcomes rather than the behaviors required to achieve those states. They’ve framed up the results but not the culture itself.
 
Instead, the focus should be on the trade-offs associated with establishing and maintaining a strong culture. Leaders should make deliberate choices about how to spend the organization’s time, energy, and resources. How exactly does the culture allow them to deliver on their distinct value proposition? Where might they be willing to accept inefficiencies in how they run the place to achieve and maintain the culture? What are the specific behaviors that would tell them that the organization is living its culture? With this level of understanding, leaders will be more likely to notice when people and processes get diverted. They’ll be better able to correct course and stop any behaviors that aren’t in line with the culture.
 
This process will look different for every company. Healthy cultures may look quite different at a big retailer, a not-for-profit, a healthcare organization, and a financial institution. Each will have its own methods for motivation, norms for convening meetings and making critical business decisions, and paths for employee development and promotion.

Take two different types of big retailers, for example. They may both stock the same brand of shampoo, but one may emphasize high-volume and low-cost plays and the other the customer-shopping experience. Shoppers find their shampoo at the first retailer, usually at a good price. The second retailer may be out of that shampoo but offer lots of other brands, so customers might be prompted to try something new. In both cases, leaders in those stores have built up their cultures to reflect different value propositions. The behaviors and metrics that they prioritize—who they hire, who they train, how they train, how they set up work schedules, and what matters for leaders—are aimed at delivering the value that only their organizations can.
 
Without such intentionality, leaders run the risk of losing or degrading elements of their culture—the secret sauce that differentiates them from competitors—every time there is some kind of internal or external shock to the system. The key question in all this for leaders is, “What really matters?” Because culture can be a true competitive advantage when it’s intentional—and a significant drag on performance when it’s not.

ABOUT THIS AUTHOR

Alex Camp is a partner in McKinsey’s Boston office.

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