Recently, a well-respected Chairman and CEO in the financial services industry shared an old saying with me. He said, “A fish rots from the head.” We were speaking about organizational culture at the time and the point he was making is that an organization’s culture originates from the top of the company. Of course, his statement is true, but that’s only a part of the culture puzzle.
The executive leader’s personality, traits and beliefs collectively form a signature that is stamped into the organization’s social fabric. An egalitarian leader is more likely to spawn a culture of equals that is characterized by attributes like: teamwork, innovation, open and transparent communication. Conversely, a command and control top executive that fulfills the role as a dictatorship is more likely to produce a structure of silos and fiefdoms with a corporate culture that is characterized by closed doors, secrecy and fear. The core values of the leader form and shape the organization, and the stronger the leader’s personality – the stronger the impact.
A strong organizational culture is one that is extremely well aligned to a common set of core values, making policy and procedure changes easier to introduce. However, rigidity and groupthink are two risk factors that accompany strong organizational beliefs and corporate dogma. Having a strong culture is certainly preferable to a weak one, but is not entirely the optimal situation.
A healthier model is more performance-centric, striking a balance between the desirable attributes of a strong culture and the equally important ingredients of flexibility and acceptance. A performance-centric organization allows for and promotes diversity in thought and business innovation. Such organizations have developed corporate mores that accept and embrace challenges to the status quo. In such organizations, bureaucracy and groupthink are viewed as the demons of innovation that must be kept in check in order to allow fragile new and game-changing business ideas to survive and one day be implemented.
Research shows that organizations with performance-centric cultures experience better financial growth. One such study, conducted in 2003 by Harvard Business School, reported that culture has a significant impact on an organization’s long-term economic performance. The study examined the management practices at 160 organizations over ten years and found that culture can enhance performance or prove detrimental to performance. Performance-centric organizations witnessed far better financial growth. Another study, conducted in 2002 by the Corporate Leadership Council, found that cultural traits such as risk taking, internal communications, and flexibility are some of the most important drivers of business performance.
Regardless of the top executive’s style, a performance-centric culture can be developed over time. Such cultures possess high levels of employee involvement and strong internal communications, both representing factors within the control of an executive leader and senior management team. Additionally, in order to promote innovation, the executive team must instill an environment of acceptance and encouragement supporting a healthy level of risk-taking. The organization must continue to make an investment in training and employee knowledge development to provide the opportunity for each employee to realize their full potential within the company. In general, to improve performance, the entire management team must focus on industry-specific factors pressuring the business and emphasize those within organizational development.
In conclusion, the organization’s culture is strongly influenced by the top executive as well as the executive management team surrounding the leader. The core values and behaviors demonstrated at the top of the organization will permeate throughout and can create a very strong culture. However, it is not enough to simply build a strong culture, it must be a balanced one, such as the performance-centric model.
To build a performance-centric culture, organizational leaders must instill an acceptance for healthy levels of risk taking and an appreciation for learning, development and diversity of opinion. These factors fuel innovation and help propel stronger long-term financial performance.