Most of us are familiar with Peter Drucker’s statement that “culture eats strategy for breakfast.” But, why? And how do values create such real value for businesses?
The global business environment has become more Volatile, Uncertain, Complex and Ambiguous (VUCA) than ever before, and shows no signs of slowing down. Business leaders are constantly trying to find innovative ways to increase the competitiveness, responsiveness and adaptability of their businesses within this VUCA landscape. Executives know that they have two levers to pull in order to do this: strategy and culture. We all know the importance of strategy, but the best executives know how important the roles of corporate values and culture are in improving organisational effectiveness and performance. The best company cultures show higher levels of employee engagement and satisfaction, lower levels of absenteeism and turnover, higher levels of productivity and better hires that stay for longer. In fact, employee engagement is not only correlated with financial performance but actually causes better financial performance. In this Gallup article, Dr. Schmidt explains why:
When employees have favorable perceptions of their work situation and their organisation and the support they receive from their managers and supervisors, they are more motivated to provide good customer service, to work more diligently, and to be identified with the mission of the organization.
So, culture drives engagement, which in turn drives performance, but what does this have to do with values? Well, the effectiveness of an organisation’s culture is often a function of the values and beliefs that the employees hold. The stronger and more aligned those values are, then the more effective the organisation’s culture will be because your employees will have more favourable, consistent and similar perceptions of your business. However, this is easier said than done and many companies fall into the trap of oversimplifying their values. This good intent can cause some serious consequences, but before I explain that, I need to give you context…
The common pitfalls of company values
I want you to think of the companies that come to mind when you read the following list of values:
Dignity. Integrity. Respect. Equality. Excellence.
Basically every company under the sun, right? Although noble, these values have lost all meaning within organisations. Here’s why:
They aren’t sincere
Enron, VW, Steinhoff and KPMG all have at least one of the above values in some form or another, yet are all renowned for some serious ethical scandals. If these companies genuinely valued dignity, integrity and respect, then why would they have behaved so dishonestly and dishonourably? Well, in these cases, it’s obvious that these are just words on their websites, not their actual values. If these companies have proven that these values mean nothing to them, then why should anyone believe another company that shares the same values?
They are obvious
This is my main critique: the above values are the minimum standard required of any business. Why? Acting with integrity, and treating people with dignity, respect and equality are society’s expectations of everyone because these are written in our constitution. These are constitutional values, not unique organisational values. What’s also obvious is demonstrating excellence. This along with any value specific to your industry (e.g. fast-food and efficiency) are permission-to-play values. If you aren’t meeting the necessary values of your industry or being excellent in what you do, then the competition will easily outperform you and your business won’t exist for much longer. In other words, these are the hygiene factors of your culture, not the motivating factors. I acknowledge that these are pretty provocative claims to make and include some extreme examples or hypothetical situations. So, a more realistic question is:
How and why do inauthentic values cause damage to businesses?
The definition of value in this context is a “principle or standard of behaviour; one’s judgment of what is important in life.” Constitutional values and permission-to-play values (which include and transcend constitutional values) are obvious standards that do not need to be defined for or by your organisation. If they are, then it comes across as generic. Being generic is a slippery slope towards inauthenticity, which is where stakeholder trust can be damaged. Here are the situations when that slippery slope leads to an avalanche:
Your employees don’t believe in your values
This applies to the second half of the definition. When the company’s judgment of what is important in life is different from that of your employees, then this is an optimal condition for the erosion of your culture. For example, if you claim to value social responsibility, but you consistently make decisions that lead to short-term profit gain at the expense of social upliftment opportunities, then your employees who genuinely value social responsibility will stop believing what you say.
Tell me what you value and I might believe you, but show me your calendar and your bank statement, and I’ll show you what you really value. — Peter Drucker
It doesn’t matter if you are an individual or an organisation, if you say one thing and do another then people will become cynical and dispirited, and eventually stop investing their efforts into you. Who wants to put their maximum in for someone who doesn’t stay true to their word? The irony is that I’ve just described a lack of integrity, which is the most common company value among Fortune 100 companies. How does this happen? Many companies put in a lot of effort to define their values, so how do they end up falling on deaf ears?
Your values don’t make practical sense
You have to walk the talk. If you haven’t gone far enough to define the actual behaviours you expect from people living in accordance with your values, then you leave people with no real idea of what is expected of them. “We value integrity, dignity and respect.” Great, what does that have to do with what you expect me to do on Monday morning? Without clear behavioural definitions, your values remain open to interpretation. Integrity for one person might mean not lying, but for another, it might mean being completely honest. This leads to completely different behaviours. If you asked those two colleagues what they think of your presentation, then the person not lying might sugarcoat their response whilst the person being completely honest might go on a hyper-critical rampage. Neither of those behaviours is constructive, but in their eyes, they are living the value of integrity. So we can acknowledge that there may be problems when people don’t believe in your values or when they don’t make practical sense, but the more insidious problems happen in far more subtle ways…
Your values can be misused
The real potential for damage happens when people believe your values, but aren’t crystal clear in how to apply them. Ron Carucci wrote an insightful article on this for Harvard Business Review. He simplifies this into 3 ways in which the intention to unify the organisation actually drives it apart.
1. Values become a weapon to punish when there is no accountability.
Without clear behavioural standards, then there is a real danger that the values can be used to drive out or alienate people from the organisation simply because they aren’t liked. All you have to do is accuse them of not living the values or “not being a team player” and they immediately get put under scrutiny. This is dangerous.
2. Values deflect attention away from misconduct when there is no self-honesty.
Instead of owning up to their errors or poor decision-making, companies often change their values to oppose those errors or decisions to make it look like they are taking a stand. When discrimination is a problem, companies suddenly value diversity and inclusion. When a company gets called out for passing the buck, then they suddenly value accountability. And so on…
3. The creation of values statements creates the illusion of change rather than starting real change.
There always comes a time when businesses need to evolve. Transforming the organisation rightfully starts with a change in core values. This becomes a 6-month exercise of interviews, workshops, posters, videos and marketing campaigns. Everyone feels good about it, but when you look a bit closer at the performance of the company and its people a year later, then you are hit with a stark realisation — “just because everything is different, doesn’t mean anything has changed.” Where does this leave us? In researching and writing this article, I’ve even scared myself about facilitating the process of defining value statements because of the systemic consequences of not doing it well. We intuitively know it’s necessary, but what should we do?
Do it properly or don’t do it at all
Getting one person to change the way they think and behave is hard enough, so the feat of getting an entire organisation to change is a very serious endeavour. If done properly, then your values will drive clear accountability from top to bottom, your leaders will be honest and own the mistakes when your company doesn’t live up to its values, and this will drive the momentum behind a continuous journey of transformational change. But, like anything in business (and life), this requires significant investment. A strategy without adequate resource allocation is just good intent.
This is especially true for your values. Be aggressively authentic, own the process and weave your core values into everything. Put in the effort to make sure that your values reflect what you really value and define the behaviours so you can hold people authentically accountable. After you have clear behavioural standards, then unapologetically use these core values in all your critical decisions: hiring, firing, developing, promoting, contracting, strategising. Everything. And finally, and most importantly, don’t hand this off to your HR department because it’s “soft,” intangible and people-orientated. If your leadership team does not take responsibility for your company’s values, then you will miss out on all the tangible results a strong culture can lead to. Take ownership and do it properly. At the end of the day, you are responsible for creating value within the business. Take responsibility for the values, too.