Culture or Strategy – Which Comes First?

Culture or Strategy — Which Comes First?

When it comes to creating high performance and a competitive advantage, does culture or strategy come first?  Does corporate culture (the HOW) precede business strategy (the WHAT) 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 high-level definitions.

What is Strategy?
We define business strategy (the WHAT) 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 the sum of its parts.  While we call strategy the WHAT, effective strategic plans typically answer the big 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 (the HOW) as the way work truly gets done in an organization on a day-to-day basis. In general, strategy must go through your culture and your people 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. And make no mistake, culture 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.  While you certainly need your workplace culture to be healthy enough to change and grow, we believe that organizational culture is either “aligned or unaligned” with the strategic intent of your business.

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 and the type of people they hired.

Which Has a Greater Influence Culture or Strategy?
Our organizational alignment research across 410 companies and eight industries found:

• Strategic clarity accounts for 31%
• Corporate culture accounts for 40%

of the difference between high and low performing companies in terms of revenue growth, profitability, leadership effectiveness, customer loyalty, and employee engagement.  With a 71% combined impact, strategy and culture are paramount to short- and long-term success.

Additionally, Harvard Research found that an effective culture can account for up to half of the differential in performance between organizations in the same business.  It also uncovered 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 (the HOW) 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.

• Current Culture
  The first way would be to clearly assess your current culture and then build a strategy to leverage it.
• Aspired Culture
  The second way would be to clearly understand and articulate your desired corporate culture and then build a strategy to leverage it.

The Challenge of Putting Culture First
While putting culture (the HOW) first (especially your current culture) may seem like an enticing approach to make things easier, most clients find it frustrating on a practical level to put culture first in terms of strategic planning and strategy execution. This frustrations can manifest in the form of failed team building initiatives, unimplemented employee engagement action plans, finger-pointing, lack of collaboration, style and personality conflicts, overbearing governance committees, languished projects, increased workplace politics, or people (especially leaders) defaulting back to the status quo over time.

Why is this so often the case?  Isn’t team effectiveness and trust the foundation for high performing teams?

Without a doubt, your leadership team — and your company as a whole — must have enough health, capability, capacity, and trust to have open discussions and make tough decisions.  In practice, the challenge of starting with the HOW when the WHAT is unclear is fraught with frustration.  People typically find it too difficult to agree on the best way to get somewhere when the destination — or the value of getting to the destination — has not been explicitly agreed upon.

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 culture 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 strategic vision are now struggling with being asked to do more.

What If You Put Strategy First? (The WHAT)
What if you put strategy first in the culture or strategy debate?

Executives can certainly hold strategy retreats and select directions and make plans for the future regardless of the company’s cultural norms. They can set goals and timelines and communicate that information to their constituency. There can be related metrics, incentives, and progress reports.

The strategy may even be exactly 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 struggled at best and failed at worst. A prevailing cultural environment can be changed — but only with time and a concerted effort by all involved.  In a sense, culture is the major resource to be utilized as you execute a strategy.

The Bottom Line
In the culture or strategy debate, we believe strategy and culture are inextricably intertwined. They are interdependent and, for a strategy to succeed, must be mutually reinforcing. From our experience, the most successful transformations:

1. Ensure that there is enough cultural health to support change (just enough of the HOW)
2. Co-create a clear, believable, and implementable strategy with their key stakeholders (the WHAT, WHY, WHO, and WHEN)
3. Explicitly align their culture to their people and business strategies (the rest of the HOW)

To learn more about defining an aligned and high performing culture to execute your strategy, download The Key Steps to Build a Purposeful and Aligned Corporate Culture.