Culture or Strategy…Which Comes First?

Photo of an intact egg as the chicken emerges...the strategy or the culture?

Does organizational culture precede business strategy or is it the other way around? The age-old question of which comes first…the chicken or the egg…forms the basis of an ongoing debate in the business and organizational development worlds.

Let’s start with some definitions.

What is Strategy?

We define business strategy as the clear and compelling choices about where to play and what actions to take. Done right, a successful strategic plan sets a company up to perform beyond just the sum of its parts by answering the fundamental strategic questions of “why, what, where and who.”  First, think of strategy as the big problem you are solving or the big question you are answering.  Then decide how to ruthlessly prioritize your time, money, people and energy to make it happen.

Remember strategy is as much about saying “no” as it is about saying “yes.”  And, as we all know from following successful companies like Amazon or struggling companies like Mylan (the expensive EpiPen makers) or even failed companies like Blockbuster – there are definitely good and bad strategies.

What is Culture?

We define corporate culture as the way work truly gets done in an organization on a day-to-day basis. In general, strategy must go through culture to get results.  Your culture answers the fundamental question of “how.”  Think of it as the collective attitude, assumptions, purpose and behaviors of a company’s workforce. It exists in every company whether by design or default.

We do not believe that culture can be measured on the same “good to bad” scale as business strategy.  We believe that it is either “aligned or unaligned” with the strategic intent.  For example, consider Oracle and the 2013 America’s cup.  After learning Oracle spent the most money, hired an elite crew, cheated and won, it is pretty clear to us that their strategy and culture were perfectly aligned to win at all costs.  While that type of business environment is not for everyone, it sure seems aligned with the strategy of winning no matter what the cost.

Which Has a Greater Influence?

Our organizational alignment research at 410 companies across eight industries learned that strategic clarity accounts for 31% of the difference between high and low performing companies. We also found that cultural factors account for 40% of the difference.  With a 71% combined impact, strategy and culture are critical to short- and long-term success.

Additionally, a Harvard Business School research report described how an effective culture can account for up to half of the differential in performance between organizations in the same business. Harvard also found that up to 75% of organizations struggle to implement their strategies because of cultural roadblocks.

So, based upon the data, one could certainly argue that starting with culture may make sense.

What If You Put Culture First?
Like the America’s Cup example, organizational culture can support a strategy if both are aligned.  Or like VW with their recent emissions scandal, it can weaken or destroy a strategy if they are in conflict.

From our perspective, there are two ways to put culture first.

  1. Current Culture: The first way would be to clearly understand and articulate your current cultural reality and then build a strategy to leverage it.
  2. Aspired Culture: The second way would be to clearly understand and articulate your desired corporate attitudes and behaviors and then build a strategy to leverage it.

While putting culture first (especially your current one) may seem like an enticing approach because cultural change is slow and difficult, most clients find it frustrating on a practical level to put it first in terms of strategic planning.  Without a clear and compelling strategic destination, many find it difficult to agree on the best way to get there.  With that being said, building a strategy that hinges on direct contradictions with the way your employees currently think and act is a sure path to failure.

If, for instance, your winning strategy requires decentralized decision-making to succeed, you had better make sure that your company cultural provides individuals with enough freedom and incentive to make decisions across all levels of the organization.  If employees are unwilling or unable to make decisions on their own, the best strategic plan will struggle to meet expectations. Some analysts believe that Apple is facing this exact challenge after the death of Steve Jobs.  The thinking is that employees who were previously well versed in implementing Steve’s detailed vision are now struggling with being asked to do more.

What If You Put Strategy First?
Executives can certainly select directions and make plans for the future regardless of the company’s cultural environment. They can set goals and timelines and communicate that information to their constituency. There can be related metrics, incentives and progress reports. The strategy can even be just what the organization needs to survive and thrive in the future. But if the strategy is counter to the way employees think and behave, it is doomed to failure.

And, because cultural change is slow, long before the culture shifts to accommodate a misaligned strategy, the business plan will have failed. A prevailing cultural environment can be changed…but only with time and a concerted effort by all involved.  In a sense, culture is a major resource to be utilized as you execute a strategy.

Our Conclusion

Strategy and culture are inextricably intertwined. They are interdependent and, for a strategy to succeed, must be mutually reinforcing. The most successful business plans leverage the company’s existing culture as much as possible. When a new strategy involves a change in culture, that change must be either relatively small and in sync with other fundamental tenets of the behavioral environment or the strategy implementation plan must include the definition and shaping of the desired culture and everything it entails.

Whichever you believe comes first, you can’t have one without the other. And when you leverage strategy with your underlying culture, you are bound for higher performance.

To learn more about defining an aligned and high performing culture, download How to Build a Purposeful and Aligned Corporate Culture.

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