Why Culture?

April 1, 2018

By Bill Kaiser

Today, more than ever before, culture has become the “hot topic” in business. You can hardly open a business journal or magazine without finding some article about the importance of organizational culture. The first 2018 issue of Harvard Business Review features culture as the lead topic. Deloitte’s annual Global Human Capital Trend Report consistently ranks culture among the top 3 most critical management/leadership issues. And the culture discussion isn’t just confined to business. Sports teams, universities, and school systems talk about developing cultures of winning, tolerance, and respect. Interesting enough, in 2014, the most looked-up word in Merriam Webster’s on-line dictionary, was the word “culture.”

So, what’s driving the enthusiasm and keeping the spotlight on culture? From a business perspective, the single biggest factor is the commoditization of our economy.

It’s a “me too” market

Most businesses face the challenge of providing the marketplace with a compelling reason to do business with them versus their competitors. What separates you from the crowd? How are you different from your competitors? Regardless of your industry, you have to find a way to differentiate yourself. Easier said than done! In today’s share all – internet society, it’s actually harder than ever to truly differentiate yourself. It’s never been easier for others to copy what you are doing. You have a unique product, they develop the same. You have a “unique” service model, they copy and deliver the same.

Personally, I think of the fact that I was born with 5 thumbs and the limited ability to fix anything. Well, hello Google and YouTube. Next thing you know, I’m Tim the Tool Man Taylor!

The result of this commoditization is that businesses start to look an awful lot alike. If your potential customers can’t figure out what makes one product or service different from another, then how do they make their decision? You guessed it … price! And when all else is perceived to be equal, people buy the lower price. Business survival becomes exponentially more difficult when competing on this basis, as margins begin to erode.

It’s the how, not the what

So how do companies manage to compete and thrive in this commoditized market? They don’t win because of what they offer; rather, they win because of how they go about offering it! It’s how their people work together, how they treat customers, and how they interact with vendors and suppliers that sets them apart.

Your real and lasting differentiation comes from the behaviors of your employees, not your product, price, or service model. That doesn’t mean you deliver sub-par products and services. You still have to be innovative, creative, and focused on improvement. They’re the minimum requirements to be in the game. But they’re not enough for a lasting competitive advantage.

Creating a sustainable competitive advantage

One of my favorite examples of a company that wins based on the behavior of its people is the Ritz-Carlton hotel chain. People don’t go to a Ritz-Carlton because their beds are more comfortable or their rooms are bigger. They go because of the way they’re treated. People share legendary stories about amazing experiences they’ve had when staying at a Ritz-Carlton property.

Here’s the thing I find most fascinating, though: Ritz-Carlton teaches classes at their headquarters where anyone can learn their “secrets”—how they manage to get their people to consistently “out-behave” their competitors. Take a moment to consider that. You work for the Hyatt Regency and you can sign up take a course where Ritz-Carlton will reveal the keys to their competitive advantage! How many of us would invite our competitors in and show them everything we’re doing? Not many, I’ll bet.

So why would Ritz-Carlton be willing to do this? Because their competitive advantage is wrapped up in how their people behave, and that’s so deeply embedded in the DNA of their culture, they know that most competitors won’t have the commitment and the discipline to make it happen, even when they’ve been given the formula! Ritz-Carlton isn’t alone in sharing their formula with the public, including competitors. Companies like Disney, Zappos, Zingerman’s, and many others have actually created entire businesses around teaching other companies the keys to their success. Sounds pretty crazy, doesn’t it?

But here’s the important thing: They’re not the least bit worried that competitors will be able to pull it off. That’s the power of being able to differentiate by your people. Not only is it the last remaining opportunity for competitive advantage in a commoditized world, but it’s the most sustainable competitive advantage you can create, because it’s so darn hard to copy. And of course, creating a team of people who all consistently behave in a differentiated way is driven completely by the culture of the organization.

Attracting and retaining talent

Beyond the critical issue of competitive advantage, there are many other financial implications of working on your culture. Think about your ability to attract and retain key talent. As the millennial generation begins to dominate the workforce, we’re seeing a significant shift in what’s important from a workplace. More than any of their predecessors, Millennials want to feel connected to their work. They want to feel a sense of shared purpose. They’ll take a job for less money, and stay at a job, if they feel aligned with the organization’s culture. That’s not to suggest that we should pay them less, of course, but rather it’s to suggest that culture is a major factor in the ability to recruit and retain the talent necessary to succeed at a high level. And while this may be especially true for Millennials, it’s not lost on people of other generations as well.

The impact on productivity

In the workshops that we conduct, mostly with CEOs, we often ask the participants to rate the average productivity of their workforce on a scale of 1-10, with 1 meaning that most people don’t even show up to work, and 10 meaning that most people are producing to their highest capability given their level of talent or skill. When we go around the room, most leaders will rate the average of their people somewhere between about 6 and 8.

Then we ask them to imagine what it would mean if they could somehow move each person up a few notches on the productivity scale. In other words, those who were 5s moved up to 7s and those who were 7s moved up to 9s and so on. If this could somehow happen, the difference would virtually all drop to the bottom line! After all, you’re paying these people the same amount, but they’d now be producing far more at the same cost.

While there are, of course, a variety of factors that influence any given person’s level of productivity (as a percentage of what they’re capable of producing), I would argue that the culture in which they’re operating is the single biggest factor. The environment in which we operate has enormous influence over what we do and how we do it. Put people in a high-performing environment and they’re far more likely to raise their level of play or work, to match what they see around them. And the opposite is equally true.

Other financial implications of culture

Beyond increasing productivity (getting more done), think about how your culture affects the way your people treat customers and the impact this has on sales and customer retention.

How many times have you dealt with a company where the employees just didn’t seem to care? Where you got the clear impression they were just “punching a clock” or “following the rules” with little genuine interest in helping you? How does that affect your desire to do business with that company? The culture in the organization affects every aspect of the customer interaction.

As you can see, culture affects our ability to differentiate ourselves in a commoditized marketplace, it affects our ability to attract and retain talented workers, it affects how productive those workers are, and it affects every aspect of the customer interaction. Yes, it’s that important. No wonder everyone’s talking about it these days!

Bill Kaiser, Senior Consultant at High Performing Culture, helps companies create, drive, and maintain high performing cultures, with a proven system. This article is largely excerpted from High Performing Culture’s founder, David Friedman’s upcoming book, Culture by Design.