CORPORATE LEADERSHIP COUNCIL OCTOBER 2003

[Link]

Literature Review
Building Organizational Culture for
RECOMMENDED READINGS High Performance
JOHN P. KOTTER, “LEADING CHANGE:
WHY TRANSFORMATION EFFORTS FAIL,” Key Questions:
HARVARD BUSINESS REVIEW
(MARCH 1995). What is the link between organizational
culture and performance?
CORPORATE LEADERSHIP COUNCIL, What are the characteristics of
BUILDING THE HIGH PERFORMANCE high-performing cultures?
WORKFORCE (2002)
What steps must organizations take to
build a strong culture?
NITIN NOHRIA, WILLIAM JOYCE, AND
BRUCE ROBERSON, “WHAT REALLY
WORKS,” HARVARD BUSINESS REVIEW
(JULY 2003)

The Case for Developing a Performance-Oriented Culture

Table of Contents
Organizations must be high-performing to compete . . .
Step 1: Urgency 3 While business performance is always a top priority for organizations, it takes center
stage during periods of economic downturn. In order to achieve business growth as
Step 2: Coalition 5 1
markets decline, organizations must focus their efforts on improving productivity.
Step 3: Vision 6
Organizational culture drives high performance . . .
Step 4: Communication 7 A 2003 Harvard Business School study reports that culture has a significant impact on an
Step 5: Empowerment 9 organization’s long-term economic performance. The study examined the management
practices at 160 organizations over ten years and finds that culture can enhance
Step 6: Short-Term Wins 10 performance or prove detrimental to performance. Organizations with strong
2
Step 7: Consolidation 11 performance-oriented cultures witnessed far better financial growth during the same period.

Step 8: Institutionalization 12 High-performing cultures must be developed . . .

Research Methodology 13
High-performing cultures share certain characteristics such as high employee involvement,
3,4
strong internal communications, and an acceptance of risk-taking. In order to foster
performance-oriented cultures, organizations must first understand their culture and then
adopt programs that facilitate the development of a strong, consistent culture. The
following research outlines the elements of strong cultures and the steps organizations can
take to build a stronger culture, based on John P. Kotter’s model for organizational change.

Catalog No.: This project was researched and written to fulfill the specific research request of a single member of the Corporate Leadership Council
CLC11C4UVP and as a result may not satisfy the information needs of other members. In its short-answer research, the Corporate Leadership Council
refrains from endorsing or recommending a particular product, service or program in any respect. Sources are contacted at random within
the parameters set by the requesting member, and the resulting sample is rarely of statistically significant size. That said, it is the goal of
the Corporate Leadership Council to provide a balanced review of the study topic within the parameters of this project. The Corporate
 2003 Corporate
Leadership Council encourages members who have additional questions about this topic to assign short-answer research projects of their
Executive Board
own design.
BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 2
OCTOBER 2003

EXECUTIVE SUMMARY

This research provides information regarding the development of a strong organizational culture. In order to allow for
5
actionable steps, these findings are presented following John P. Kotter’s model for organizational change:

Step 1: Establish a Sense of Urgency

! Examine Market and Competitive Realities: SAS determined that it needed to develop an
employee-friendly culture to retain its high-demand technology workers.
! Identify and discuss crises or opportunities: British retailer B&Q conducts employee
engagement surveys to identify opportunities to improve culture and performance.

Step 2: Form a Powerful Guiding Coalition

! Assemble a group with enough power to lead the change effort: Council-profiled
companies lead efforts with a values task force, brand manager committee, and values manager.

! Encourage the group to work together as a team: American University elected a design
team to head its performance culture change project and secured buy-in from the top down.

Step 3: Create a Vision

! Create a vision to help direct the change effort: Council profiled companies use employee
input to develop values through focus groups and internal research.
! Encourage the group to work together as a team: The senior leaders at Eaton Corporation
developed a list of seven organizational strategies to pursue its cultural goals.

Step 4: Communicate the Vision

! Use every vehicle possible to communicate the new vision: Alberto-Culver developed
Individual Economic Values statements and team growth leaders to communicate changes.
! Teach new behaviors by example: Middle managers are the most common leaders of cultural
change and must be involved in cultural change initiatives.

Step 5: Empower Others to Act on the Vision

! Remove obstacles to change: Marriott redesigned its compensation system in alignment with
its cultural goal of cross-brand mobility.
! Change systems that undermine the vision: Prudential introduced new benefits that allow
employees to exercise the cultural value of empowerment through greater individual choice.
! Encourage risk-taking and non-traditional actions: Shell Oil Company’s Internal Venture
Fund provides the opportunity for employees to pursue innovative ideas.

Step 6: Plan for and Create Short-Term Wins

! Plan and create visible performance improvements: Manager competency training at
General Motors created $4.4 million dollars in budget savings.

! Recognizing and rewarding employees involved in improvements: Saturn’s risk/rewards

system aligns compensation with performance and development goals.

Step 7: Consolidate Improvements and Produce Still More Change

! Hire, promote, and develop employees who can implement the vision: Nokia incorporated
its core values into interview questions to screen job candidates for cultural fit.
! Reinvigorate the process with new change agents: Skandia’s unit-specific cultural
assessments ensure consistent culture across departments and managers.

Step 8: Institutionalize New Approaches

! Articulate the connections between new behaviors and corporate success: Sears'
Employee-Customer-Profit chain outlines employee contributions to economic goals.
! Develop the means to ensure leadership development and succession: Nokia embedded
its core values into the performance management system through values-based behaviors.

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 3
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 1: Establish a Sense of Urgency

According to Kotter, the first step in organizational change is establishing a sense of

! Examine Market and 6
Competitive Realities: SAS urgency that will motivate people to work towards the desired change. When
determined that it needed to building the case for cultural change, leaders should consider the permeating impact
develop an employee-friendly culture has on all aspects of the organization. Organizational culture is reflected in
culture to retain its high-demand
technology workers.
the way people perform tasks, set objectives, and administer the necessary
resources to achieve objectives. Culture affects the way individuals make decisions,
! Identify and discuss crises or feel, and act in response to the opportunities and threats affecting the organization.
7
opportunities: British retailer
B&Q conducts employee
engagement surveys to identify Examine Market and Competitive Realities
opportunities to improve culture
and performance.
Research shows that a performance-oriented culture is a key component of
long-term business success. Like the research findings from the Harvard Business
School, the 2002 Council study Building the High Performance Workforce also
establishes a link between cultural characteristics and performance. The study took
survey data from 34 organizations to determine the key drivers of organizational
performance. It revealed that cultural traits such as risk taking, internal
communications, and flexibility are some of the most important drivers of
8
performance, and may impact individual performance by more than 30 percent.

The competitive benefits of cultural initiatives

Rising Above the Competition
Many companies that enact cultural changes see a massive improvement in
through Culture at Marriott
business performance. For example, Alberto-Culver initiated cultural changes in the
"Now people perceive Marriott as a mid-1990s that turned around its product sales—the company’s sales recovered
company that focuses on providing
people with a lot of opportunity and from a period of zero growth, increasing 83 percent between 1994 and 2002.
support, and we view that as a
competitive advantage. It takes Industry-specific competitive benefits
many years to develop the tools
and the culture to achieve those Each organization will also have specific cultural needs within its market. For
results. If we decided tomorrow to example, SAS faced a tight labor market and needed to attract and retain high-tech
pay everyone above market, that workers. The following case study explains how SAS used benefits to create a
could be our competitive
advantage, but a competitor
positive work environment.
company could copy that in a
minute. Creating an environment of Figure 1. Retaining Employees Through Culture at SAS
opportunity is much harder to
Industry: High-Technology
duplicate."
Employee Size: 6,400
Revenue: $1 billion
—Karl W. Fischer,
Vice President for Compensation
Marriott International Along with other high-technology companies, SAS faces fierce competition to recruit
“Power to the Line People” and retain workers within the industry. The company typically compensates
Workforce employees at levels approximately equal to the market, thus it leverages a positive
(July 2003) culture to distinguish the organization from its competitors and assist it in recruiting
and retaining employees. The following table highlights some of the benefits SAS uses
to foster an employee-friendly culture and retain high-demand technology workers:9

WORK ENVIRONMENT WELLNESS FAMILY-FRIENDLY

! All white-collar ! On-site health care ! Adoption assistance

employees have an ! On-site gym ! Childcare
office ! Soccer fields, ! Eldercare consultants
! Ergonomic equipment swimming pool, and ! Domestic partner
! Casual dress policy putting green benefits
! Subsidized cafeterias

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 4
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 1: Establish a Sense of Urgency (continued)

Measuring Cultural Values Identify and Discuss Crises or Opportunities

The Organizational Culture Profile,
developed by business school If an organization wants to maximize its ability to attain its strategic objectives, it
professors in 1991, measures the must understand if the prevailing culture supports and drives the actions necessary
congruence between individual and 10
organizational beliefs along the to achieve its goals, including the goal of high performance. After establishing the
following values: business case for developing a performance-oriented culture, organizations should
evaluate their own cultures to identify and discuss crises or opportunities. Cultural
! Aggressiveness
! Attention to detail assessments are used to audit culture and identify opportunities and threats.
! Decisiveness
! Emphasis on rewards Conduct cultural assessments
! Innovation
! Outcome orientation
In contrast with climate or satisfaction surveys, which measure the short-term mood
! Supportiveness of employees, cultural assessments measure the dynamics, traditions, and
11
! Team orientation characteristics of an organization. While organizations can use focus groups and
interviews to measure organizational culture, assessments are most often conducted
—James C. Sarros, et. al. 12
"The Organizational Culture Profile through employee surveys. Surveys may either poll employees to determine
of Australian Enterprises," whether the work environment upholds the desired culture, or compare individual
International Federation of employee values with desired organizational values, like the Organizational Culture
Scholarly Associations of 13,14
Management Profile detailed on the left.
(2002)
Assess organizational values among management
In order to measure the success of its culture change program, OSRAM Sylvania
contracted the Hay Group to survey its senior managers. The Hay Group survey
ranks cultural elements demonstrated by managers in four cultural models:
functional, process, time-based, and network. The survey rankings allow the
executive team to understand the success of the program in moving the company
15
towards a process and time-based culture, as outlined in the figure to the left.

Four Cultural Models Assess work environment and culture among employees
The British home improvement chain B&Q uses employee engagement surveys to
The Hay Group has identified four
major cultural models that operate measure culture and identify urgent crises or opportunities that must be acted upon.
in organizations today. During its
cultural change, OSRAM Sylvania Figure 2. Culture and Engagement Surveys at BQ
moved from being predominantly
functional to time-based. The focus Industry: Retail
for each model is described below: Employee Size: 99,800
Revenue: $17.7 billion
! Functional—The specialization
of individuals B&Q believes that higher commitment and satisfaction among employees translates
! Process—Meeting obligations into better customer service, which in turn drives profits. The company uses a
to customers and continually 12-question telephone survey by Gallup to identify opportunities to improve employee
improving quality engagement across the company and at local levels. For example, when employees
! Time—Speed and technical responded that they did not have the right equipment for their job, the company
agility realized it needed to invest in more IT equipment for employees.16
! Network—Alliances that bring
together necessary efficiencies
and competencies

—Frank T. Gallo and

James R. Stokely Employees input PIN The company reviews Teams respond to
number to complete survey results to
“Positive Culture Change at survey results.
telephone survey. determine engagement.
OSRAM Sylvania,”
Human Resources Planning
(1998)

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 5
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 2: Form a Powerful Guiding Coalition

Although HR must take an active role in promoting cultural change, the call for
! Assemble a group with change must come from the top of the organization. The vision and direction for
enough power to lead the culture change can only be provided effectively by the CEO or the senior executive
change effort: Council profiled
companies lead efforts with a team. In successful transformations, the company’s top leaders come together and
17
values task force, brand develop a shared commitment to excellent performance through renewal.
manager committee, and values
manager. Assemble a Group to Lead the Change
! Encourage the group to work
together as a team: American While the leadership coalition may grow over time, it is necessary to have a founding
University elected a design team
to head its performance culture coalition that initiates change. In order to create initial coalitions to spur cultural
18
change project and secured initiatives, Council-profiled companies used the following strategies:
buy-in from the top down.
Table 1. Guiding Coalitions at Council-Profiled Companies
The values task force ensures that
company values remain a top priority by
Values Task Force planning values activities at business
units. The VP of HR coordinates
activities with task forces.
The brand manager committee includes
six senior executives responsible for
Brand Manager Committee setting strategic policies and managing
company values and brands.

The values manager position works with

various corporate functions to integrate
Values Managers the values in reviews, manager feedback
forms, and training.

Coalition Membership Encourage the Group to Work Together as a Team

“In both small and large
organizations, a successful guiding American University enacted a cultural change in conjunction with a new performance
team may consist of only three to management system. The University had a design team with leadership members
five people during the first year of a
renewal effort. But in big that served as the guiding coalition. It also gained organizational buy-in by reaching
companies, the coalition needs to out to employee groups from the top down, as demonstrated by the figure below.
grow to the 20 to 50 range before
much progress can be made in
phase three and beyond. Senior Figure 3. Leadership Buy-In at American University
managers always form the core of Industry: Higher Education
the group. But sometimes you find Employee Size: 1,250
board members, a representative Budget: $272 million
from a key customer, or even a
powerful union leader.” After changing its compensation structure in 2000, American University revitalized its
performance appraisal system to link pay and performance. American involved senior
—John P. Kotter
administration leaders throughout the design, testing, and communication of the
"Leading Change,"
program
Harvard Business Review
(March 1995)

A top leader, the VP of The VP meets with senior Managing employees are
Finance, spearheads the leaders to gain their buy-in brought into the initiative
change effort before formal meetings. through focus groups.

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 6
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 3: Create a Vision

A key step in creating a strong culture is identifying and articulating organizational

19
! Create a vision to help direct vision or values. Research shows that organizations that foster strong cultures
the change effort: Companies have clear values that give employees a reason to embrace the culture. High-
use employee input to develop
values through focus groups and performing companies write down their visions in clear, forceful language and
20
internal research. demonstrate them with concrete actions.
! Encourage the group to work
together as a team: The senior Create a Vision to Help Direct the Change Effort
leaders at Eaton Corporation
developed a list of seven
organizational strategies to While organizations may use several methods to develop a vision, either following the
pursue its cultural goals. vision articulated by senior executives or involving all employees in vision creation, it is
important that the vision be understood and embraced by all employees. Profiled
21
companies use the following methods to create compelling values:

Table 2. Methods for Creating Organizational Values

Focus groups are cost-efficient ways to
involve employee input in values creation.
Employee Focus Groups22 HR consolidates input from each focus
group.
Research can involve surveys of
employees at all levels. One profiled
Internal Research company focused research on general
managers to determine values.

Where values are developed at the top of

Senior Management Values Tested the organization, employee input can be
Among Employees incorporated during leadership briefings
and focus groups before roll-out.

The Benefits of Organizational

Values
Develop Strategies for Achieving Vision

A 2000 survey by the IRS

In order to put plans for cultural change into action, the guiding coalition must develop
Employment Review indicates that
organizations observe many actionable strategies to guide cultural change initiatives. The following figure
benefits when adopting cultural provides an example of a cultural strategy statement developed by the Eaton.
values, including the following:18
Figure 4. Cultural Strategies at Eaton Corporation
Improve staff motivation
Industry: Manufacturing
42 percent
Employee Size: 48,000
Budget: $7.2 billion
Improve staff performance
46 percent
Senior management at the Eaton Corporation came together to formulate strategies for
building a culture that would lead to corporate success. Their findings resulted in “The
Improve communication
Eaton Philosophy: Excellence Through People,” which outlines the following
53 percent strategies:23

Build a new culture • Communicate with employees in a timely and candid way
79 percent • Compensate employees competitively, under systems that reward excellence
• Emphasize promotion from within and throughout the company
Support change management • Encourage employee involvement in decisions
81 percent • Focus on the positive behavior of employees
• Maintain effective performance appraisal systems
• Provide training for organizational/individual success
• Select managers and supervisors who demonstrate an appropriate blend of
—"Added Values,"
human relations skills and technical competence
IRS Employment Review
(September 2001)

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 7
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 4: Communicate the Vision

Creating a strong culture is impossible unless the whole organization embraces
24
! Use every vehicle possible to vision for the culture. A very high level is necessary for gaining this buy-in.
communicate the new vision:
Alberto-Culver developed
Individual Economic Values Use Every Vehicle Possible to Communicate the Vision
statements and team growth
leaders to communicate
changes. There are many traditional methods for communicating company values which may
include incorporating them in a mission statement, providing employees with values
! Teach new behaviors by 25
cards, and discussing values in employee meetings. The box to the lower left
example: Middle managers are
the most common leaders of outlines more than 15 different communications avenues used by profiled
cultural change and must be companies. Alberto-Culver developed several new vehicles to communicate its
involved in cultural change culture change, as described below.
initiatives.

Figure 5. Communication Methods at Alberto-Culver

Industry: Consumer Products
Employee Size: 16,900
Budget: $2.6 billion

During the mid-1990s, Alberto-Culver faced high turnover, flattened sales, and
decreasing profit margins on its best-known products. In order to radically boost
company performance, the company focused on strengthening its working culture.
One tactic involved education and rewards programs to awaken employees to their
role in the company’s success, resulting in the following communications avenues:

Communication Vehicles
INDIVIDUAL ECONOMIC VALUES GROWTH DEVELOPMENT LEADERS
Kotter recommends that
organizations use as many avenues IEV’s are short statements that GDLs mentor small groups of
as possible to communicate their describe how individual employees employees, enacting cultural change
vision. Council profiled companies contribute to the company’s at the individual level by helping
used the following avenues: profitability, empowering every employees achieve work-life balance,
employee in their position. live up to company goals, and take
! Banners and posters advantage of benefits. Outstanding
! Booklets and brochures GDLs receive stock bonuses.
! CD-ROM
! CEO e-mail and presentations
! Company newsletters
! Employee recognition kit Teach New Behaviors by Example
! Gift catalog with items that
contain values initiatives
! Manager discussions Kotter emphasizes the importance of the guiding coalition and other senior leaders to
! Training sessions demonstrate the desired culture. In successful cases of major change, executives
! Values toolkits consciously attempt to become a living symbol for the new corporate culture.
26
! Video presentations
! Wallet cards
! Web site Involve middle managers as role models and educators
Middle-managers are the most common leaders of culture change among general
—Corporate Leadership Council
The Implementation and Impact of employees, and it is critical to educate, involve, and support managers during cultural
27
Corporate Values change initiatives through workshops and follow-up activities. Individual
(June 2003) management style is also important in culture. Studies recommend that large firms
encourage managers to use more consultative leadership styles to improve
28
organizational culture. For example, GM used manager leadership training at one
29
of its facilities to improve culture and performance, and generate revenue.

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 8
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communicate Empower Create Wins Consolidate Institutionalize

Step 5: Empower Others to Act on the Vision

Two obstacles often impede companies’ change efforts: structural barriers and
! Remove obstacles to change: personal resistance to change. In the first case, employees welcome change and
Marriott redesigned its want to participate in implementation, but are prevented from doing so by structural
compensation system in
alignment with its cultural goal of
barriers. To remove these barriers, organizational structures must be aligned with
30
cross-brand mobility. the vision.
! Change systems that
undermine the vision: Remove Obstacles to Change
Prudential introduced new
benefits that allow employees to
exercise the cultural value of Established processes can hinder cultural initiatives. For example, narrow job
empowerment through greater categories can undermine efforts to increase productivity and sometimes
individual choice. compensation and performance appraisal systems make people choose between the
31
! Encourage risk-taking and new vision and their own self-interest. Policies and procedures, including those
non-traditional actions: Shell that fall under Human Resources, need to be reviewed at the onset of a culture
Oil Company’s Internal Venture change program. Conflicting policies uphold an outdated culture by reinforcing the
Fund provides the opportunity for 32
employees to pursue innovative behaviors the organization seeks to change. The following figure demonstrates
ideas. how Marriott changed its compensation policies to support change.

Figure 6. Removing HR Obstacles at Marriott

Industry: Hospitality
Employee Size: 144,000
Budget: $8.4 billion

In order to promote a culture of opportunity and performance, Marriott International

developed a strategy of moving managers across brands. However, each brand had
its own performance and compensation systems that made managers reluctant to
move. By developing a uniform compensation system that rewards achievement,
Marriott improved performance while aligning HR processes with cultural strategy.33

HR develops market rates Managers decide Performance is increased

for each position. individual salaries based and managers feel more
on employee performance, comfortable moving in
up to 25 percent above or between brands.
below the market rate.

Change Systems That Undermine the Vision

While some organizational systems present a direct barrier to cultural change, others
may undermine the change by not representing the desired vision. In particular, work
environments reinforce culture on a daily basis by encouraging employees to exercise
cultural values. This section highlights the use of employee benefits to shape work
environments around a desired culture.

Align employee benefits with vision

Organizations often communicate their culture to employees through benefit offerings.
Similar to Skandia’s benefits program, the Starbuck’s Corporation provides employee
benefits that breed an atmosphere that respects and values the contributions of
employees at all levels of the company. All employees who work 20 hours a week
34
receive full medical and dental coverage, vacation days, and stock options.

 2003 Corporate Executive Board

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OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 5: Empower Others to Act on the Vision (continued)

Change Systems That Undermine the Vision (continued)

When Prudential sought to add more employee empowerment, it used employee

benefits to reinforce that culture. The company changed benefits options, giving
employees more opportunities to exercise choice, thus aligning employee benefits
with the culture of empowerment.

Figure 7. Culture-Focused Employee Benefits at Prudential

Industry: Financial Services
Employee Size: 54,000
Revenue: $26.6 billion

In 2002, Prudential launched a culture change project to reflect its external brand of
individual empowerment, “Plan from the Pru.” In order to ensure that the company and
its employees represent the brand, Prudential adjusted its benefit policies to instill the
values in the work environment and help employees feel empowered. The new
benefits are divided by corresponding cultural values below.35

EMPOWERMENT EQUALITY PERFORMANCE

Flexible benefits— Car ownership plan— Bonus scheme—
Encourages Instills the value of Reinforces the new
employees to make equality by giving all culture by linking to
decisions. employees preferential key performance
benefits. indicators.

Empowering Managers to Encourage Risk-Taking and Non-Traditional Actions

Improve Culture at B&Q
True commitment to culture is achieved only through hands-on involvement by
Giving the store and regional 36
contributors at all levels. Any organization that seeks to foster a high-performing
managers oversight of their team’s
results on the engagement survey culture should give all employees opportunities to use their own talents and take
allows them to provide advice and risks, whether these opportunities are large or small. The Shell Corporation
encouragement where they see
developed a program enabling employees to pursue their ideas for new technologies
differences in scores. According to
B&Q executives, there is a lot of by providing them with the training, time, and capital to start new projects.
best-practice sharing where people
can be put in touch with managers Figure 8. Internal Venture Fund at Shell
who have solved a similar problem.
Industry: Oil and Gas
Employee Size: 20,500
—Mike Cutt
Budget: $60 billion
HR Director, B&Q
"Rules of Engagement,"
IRS Employment Review Shell’s Exploration and Production unit started an internal venture funding process in
(May 2003) 1996. The primary aim of this process is to actively solicit and cultivate ideas from the
entire employee population, and implement those ideas that will benefit the business.
Four of Shell’s five major new business initiatives across 1999 and 2000 originated in
37
the “game changer” process which is described below.

The Game Changer Panel

R&D saves 10 percent Employees receive
reviews ideas, provides
of its budget for game entrepreneurial training
feedback, gives funding in
changer programs. and submit ideas to the
four rounds.
panel.

 2003 Corporate Executive Board

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OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 6: Plan for and Create Short-Term Wins

To establish momentum and improve morale, any successful culture change effort
! Plan and create visible must show immediate and measurable improvements in performance. According to
performance improvements: Kotter, evidence of success is needed within 12 to 24 months to keep employees
Manager competency training at
motivated. This section presents tactics for creating short-term wins.
General Motors created
$4.4 million dollars in budget
savings. Plan and Create Visible Performance Improvements
! Recognizing and rewarding
employees involved in the These gains should be relevant to objectives, unambiguous in their improvement, and
improvements: Saturn’s visible throughout the organization. GM achieved a short-term performance win
risk/rewards system aligns
compensation with performance through manager competency training at one of its business units, as detailed below.
and development goals.
Figure 9. Manager Competency Training at GM
Industry: Auto Manufacturing
Employee Size: 350,000
Revenue: $186.7 billion

After noticing sub-par performance at its Service Parts Operations unit, General
Motors Corporation focused on leadership development to improve unit-wide culture.
The company used Development Dimensions International Consulting to conduct a
leadership intervention, testing management for desired competencies and providing
38
individualized development plans and coaches.

Two-Year Improvements
Manager
Competency Productivity up
Test 21 percent.
Individual Development $4.4 million saved in
Plan and Coaching operating budget.

High-Performing Companies Link Recognize and Reward Employees Involved in Improvements

Pay to Performance

The 2003 study published in the Employees should be held accountable for helping the organization achieve the
Harvard Business Review objectives of its cultural change effort. Ideally, senior management will articulate the
reports that 90 percent of key role of employees in the change’s success or failure early in the change process.
high-performing companies link In addition, companies should also tie the specific performance objectives of their
pay to performance, while only 39
change effort to employee rewards. Performance-based compensation is a key
15 percent of low-performing
tactic for aligning employees with corporate goals, used by companies like the Saturn.
companies did the same.

—Nitin Nohria, William Joyce, Figure 10. Linking Performance and Compensation at Saturn
and Bruce Roberson Industry: Auto Manufacturing
“What Really Works,” Subsidiary of GM
Harvard Business Review
(July 2003)
To ensure a performance-oriented culture, Saturn links performance to compensation.
Twelve percent of each employee’s base salary is tied to meeting specific performance
40
and development goals.

RISK/REWARDS COMPENSATION FORMULA

1. Completing training 2. Meeting product 3. Self-managed
objectives quality goals team’s effectiveness
Five percent of Five percent of Two percent of
base pay base pay base pay

 2003 Corporate Executive Board

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OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 7: Consolidate Improvements and Produce Still More Change

Kotter’s model asserts that new approaches are fragile and subject to regression
! Hire, promote, and develop until changes sink deeply into a company's culture. Therefore, it is critical keep the
employees who can implement change growing after initial successes by using the credibility of short-term wins to
the vision: Nokia incorporated
its core values into interview address other areas of the business that must be changed to support a culture of
41
questions to screen job high performance.
candidates for cultural fit.
! Reinvigorate the process with Hire, Promote, and Develop Employees Who Can Implement the Vision
new change agents: Skandia’s
unit-specific cultural
assessments ensure consistent Cultural change becomes permanent when it is rooted in social norms and shared
42
culture across departments and values. Organizations should ensure that cultural values and vision are shared
managers. company-wide through employee development and recruitment.

Screen job candidates for cultural fit

By screening candidates for a cultural fit, organizations select those employees that
will be able to uphold the organizational culture. Nokia developed core company
values and a set of employee behaviors that support those values. Each of the
43
35 behaviors that Nokia identified is translated into potential interview questions.

Link promotion with culture

Another method for rewarding individuals that champion cultural values is including
culture in promotion requirements. By ensuring that the next generation of managers
personifies desired values, organizations will develop cultural role models that hold
44
others accountable for culture as well.

Reinvigorate the Process with New Change Agents

Organizations undertaking major cultural change develop new change initiatives over
the course of several years and cannot introduce every new initiative at once.
Instead, organizational leadership should continue introducing new change agents,
like the unit-specific assessments that ensure consistent culture at Skandia.

Figure 11. Unit-Specific Cultural Assessment at Skandia

Industry: Insurance
Employee Size: 7,400
Revenue: $9.5 billion

Senior executives at Skandia believe that the company’s innovative culture is a key to
future growth and competitive advantage. In order to ensure that all line managers are
supporting the same culture among employees, Skandia redesigned its balanced
scorecard survey to unit-specific work environments.45

Cultural
Survey

Employees at each unit HR reviews the surveys Line managers are held
complete surveys that to identify any unit accountable for culture;
assess work environment. “hot spots.” interventions occur where
needed.

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 12
OCTOBER 2003

Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Step 7: Step 8:

Urgency Coalition Vision Communication Empowerment Short-Term Wins Consolidation Institutionalization

Step 8: Institutionalize New Approaches

Despite what success an organization has introducing change, leaders must also
! Articulate the connections plan to embed change in the permanent culture. This section addresses the two
between new behaviors and factors Kotter says are necessary for institutionalizing cultural change.
corporate success: Sears'
Employee-Customer-Profit chain
outlines employee contributions Articulate the Connections between New Behaviors and Success
to economic goals.
! Develop the means to ensure According to Kotter, the first factor in making cultural change permanent is
leadership development and communicating improvements to employees. Organizations must make a conscious
succession: Nokia embedded
its core values into the attempt to show people how the new approaches, behaviors, and attitude have
46
performance management helped improve performance. Sears had major success modeling these
system through values-based connections for employees, as demonstrated in the figure below.
behaviors.

Figure 12. Employee-Customer-Profit Chain at Sears

Industry: Retail
Employee Size: 51,700
Revenue: $31.5 billion
The Sears Roebucks Company developed a simple model to help employees
understand the company’s efforts to improve customer satisfaction through higher
employee engagement. The employee-customer-profit model shows employees their
direct impact on company performance. According to Sears’ quantitative modeling, a
5 point improvement in employee attitudes will drive a 1.3 percent improvement in
customer satisfaction, which in turn will drive a 0.5 percent improvement in revenue.47

Employee Customer Drives Economic

Drives
Behavior Satisfaction Performance

Nokia’s Core Values Develop the Means to Ensure Leadership Development and Succession
The following values:
Kotter’s second factor is developing the next generation of top management to
Customer Satisfaction personify the new approach. Nokia created the values-based metrics for
Seeking the customer as the basis
of all Nokia’s operations
performance management described below to ensure employee development
48
focuses on its core cultural values.
Respect for the Individual
Treating employees, business
partners, and customers with Figure 13. Embedded Values in Performance Management
respect Industry: Telecommunications
Employee Size: 51,700
Achievement Revenue: $31.5 billion
Working toward a well-defined In order to foster a strong, entrepreneurial culture across its decentralized business
common goal and strategy units, Nokia created a set of core company values. To help employees demonstrate
these values, each one was linked to job-specific behavioral competencies which are
Continuous Learning evaluated in the performance management process.
Constantly looking for ways to
improve performance; having the Behavioral
courage to pursue new ideas Competency Performance
Nokia List management
Values __________ assesses
__________ values-based
__________ competencies
__________

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 13
OCTOBER 2003

THE RESEARCH PROCESS IN BRIEF

The Corporate Leadership Council conducted a comprehensive search of

Research published materials regarding organizational culture and performance,
Methodology
drawn from previous Corporate Executive Board research, trade press
journals, other research organizations, and the Internet. This report
represents the findings from these secondary sources.

Project Aims 1. What is the link between organizational culture and performance?
2. What are the characteristics of high-performing cultures?
3. What steps must organizations take to build a strong culture?

Guide to Tables and Figures Table 1: Guiding Coalitions at Council-Profiled Companies Page 5
Table 2: Methods for Creating Organizational Values Page 6

Figure 1: Retaining Employees through Culture at SAS Page 3

Figure 2: Culture and Engagement Surveys at BQ Page 4
Figure 3: Leadership Buy-In at American University Page 5
Figure 4: Cultural Strategies at Eaton Corporation Page 6
Figure 5: Communication Methods at Alberto-Culver Page 7
Figure 6: Removing HR Obstacles at Marriott Page 8
Figure 7: Culture-Focused Employee Benefits at Prudential Page 9
Figure 8: Internal Venture Fund at Shell Page 9
Figure 9: Manager Competency Training at GM Page 10
Figure 10: Linking Performance and Compensation at Saturn Page 10
Figure 11: Unit-Specific Cultural Assessment at Skandia Page 11
Figure 12: Employee-Customer-Profit Chain at Sears Page 12
Figure 13: Embedded Values in Performance Management Page 12

Professional Services Note

The Corporate Leadership Council has worked to ensure the accuracy of the information it provides
to its members. This project relies upon data obtained from many sources, however, and the Council
cannot guarantee the accuracy of the information or its analysis in all cases. Further, the Council is
not engaged in rendering legal, accounting or other professional services. Its projects should not be
construed as professional advice on any particular set of facts or circumstances. Members requiring
such services are advised to consult an appropriate professional. Neither Corporate Executive Board
nor its programs is responsible for any claims or losses that may arise from any errors or omissions in
their reports, whether caused by Corporate Executive Board or its sources.

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 14
OCTOBER 2003

1
Corporate Leadership Council, Closing the Performance Gap, Washington: Corporate Executive Board (2002).
2
Nitin Nohria, William Joyce, and Bruce Roberson, "What Really Works," Harvard Business Review (July 2003).
(Obtained through EBSCO).
3
W. Matthew Juechter, Caroline Fisher, and Randall J. Alford, "Five Conditions for High-Performance Cultures,"
Training & Development (May 1998). (Obtained through EBSCO).
4
Corporate Leadership Council, Building the High-Performance Workforce,
Washington: Corporate Executive Board (2002).
5
John P. Kotter, "Leading Change: Why Transformation Efforts Fail," Harvard Business Review (March 1995).
(Obtained through Factiva).
6
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
7
Stephen Barthorpe, Rosanna Duncan, and Christopher Miller, “The Pluralistic Facets of Culture and Its Impact on
Construction,” Property Management (2000). (Obtained through Lexis-Nexis).
8
Corporate Leadership Council, Building the High-Performance Workforce.
9
Corporate Leadership Council, SAS Institute's Employee-Friendly Corporate Culture,
Washington: Corporate Executive Board (January 2001).
10
Richard Hagberg and Julie Heifitz, “Corporate Culture/Organizational Culture: Understanding and Assessment,”
Hagberg Consulting Group (Date Unknown).
(Obtained through [Link] [Accessed 15 September 2003].
11
Steve Palmer, "Organizational Culture Assessments—What Are They and Why Do One?"
Center for Organization Effectiveness (Fall 1999). (Obtained through [Link]
[Accessed 15 September 2003].
12
Steve Palmer, "Organizational Culture Assessments—What Are They and Why Do One?"
13
James C. Sarros, et. al., "The Organizational Culture Profile of Australian Enterprises,"
International Federation of Scholarly Associations of Management (2002). (Obtained through [Link]
[Accessed 15 September 2003].
14
Frank T. Gallo and James R. Stokely, “Positive Culture Change at OSRAM SYLVANIA,” Human Resources Planning
(Date Unknown). (Obtained through EBSCO).
15
Frank T. Gallo and James R. Stokely, “Positive Culture Change at OSRAM SYLVANIA.”
16
Author Unknown, "Rules of Engagement," IRS Employment Review (9 May 2003).
(Obtained through [Link] [Accessed 16 October 2003].
17
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
18
Corporate Leadership Council, The Implementation and Impact of Corporate Values,
Washington: Corporate Executive Board (June 2003).
19
Corporate Leadership Council, Innovation and Agility.
20
Mike Foster, "Create a Positive Organizational Culture to Reduce Internet Misuse," National Public Accountant
(September 2001). (Obtained through EBSCO).
21
Corporate Leadership Council, The Implementation and Impact of Corporate Values.
22
Author Unknown, “Added Values,” IRS Employment Review 711 (September 2000).
(Obtained through [Link]
23
Corporate Leadership Council, Implementing Values in an Organization,
Washington: Corporate Executive Board (August 2001).
24
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
25
Gerald Ledford, Jon Wendenhof, and James Strahley, “Realizing a Corporate Philosophy,” Organizational Dynamics
(Winter 1995). (Obtained through Lexis-Nexis, a division of Reed Elsevier, Incorporated).
26
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
27
Donald T. Tosti and Rodger D. Stotz, "Building Your Brand from the Inside Out."
28
Julia Connell, "Influence of Firm Size on Organizational Culture and Employee Morale,"
Journal of Management Research (September/December 2001). (Obtained through EBSCO).
29
Steven R. Davis, Jay H. Lucas, and Donald R. Marcotte, "GM Links Better Leaders to Better Business," Workforce
(April 1998). (Obtained through [Link] [Accessed 15 September 2003].
30
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
31
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
32
Angela Baron, “Winning Ways With Culture,” Personnel Management (1 October 1994).
33
Fay Hansen, “Power to the Line People,” Workforce (June 2003).
(Obtained through [Link] [Accessed 15 September 2003].
34
Naomi Weiss, "How Starbucks Impassions Workers to Drive Growth," Workforce (1 August 1998).
(Obtained through Factiva).
35
Author Unknown, "Pru Uses Flex to Level Field," Employee Benefits (3 February 2003). (Obtained through Factiva).
36
W. Matthew Juechter, Caroline Fisher, and Randall J. Alford, "Five Conditions for High-Performance Cultures.”
37
Corporate Leadership Council, Innovation and Agility.
38
Steven R. Davis, Jay H. Lucas, and Donald R. Marcotte, "GM Links Better Leaders to Better Business."
39
Barbara Parus, "Effective Rewards Support Culture Change," Workspan (1 November 2002).
(Obtained through Factiva).
40
Jeanne Meister, “The Quest for Lifetime Employability,” Journal of Business Strategy (May 1998).
(Obtained through Dow Jones Interactive).
41
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
42
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
43
Corporate Leadership Council, Innovation and Agility.
44
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."

 2003 Corporate Executive Board

BUILDING ORGANIZATIONAL CULTURE FOR HIGH PERFORMANCE PAGE 15
OCTOBER 2003

45
Corporate Leadership Council, Innovation and Agility.
46
John P. Kotter, "Leading Change: Why Transformation Efforts Fail."
47
Anthony J. Rucci, Steven P. Kirn, and Richard T. Quinn, "The Employee-Customer-Profit Chain at Sears,"
Harvard Business Review (January 1998). (Obtained through EBSCO).
48
Corporate Leadership Council, Innovation and Agility.

 2003 Corporate Executive Board