Somewhat like a neural network in the brain, culture emerges from the interaction between the environment (the formal mechanisms) and individual behaviors (the interpersonal mechanisms). Because of that, little can be done to change the culture of the organization directly by fiat, and CEOs who make the attempt usually lose their jobs.
Camillo Pane is a case in point. When he took over as CEO of Coty in 2016, Pane publicly declared that the struggling fragrance and cosmetics giant needed to begin “acting like a startup” and adopt “a challenger mentality.” For all that rhetoric, nothing about Coty’s culture or performance changed in the two years following Pane’s appointment and he was fired in November 2018.
For a culture to align with changes to the formal mechanisms of the organization, changes are required in the way members of the organization interact. If an organization attempts to merge sales and marketing, for example, that formal change will only increase the interpersonal suspicion between salespeople and marketing unless the norms of their interactions and attitudes—the cultural mechanisms— change to make them more cooperative.
A classic example is the failed culture change at Nokia. As of the early 2000s, Nokia was the dominant cellphone supplier in the world with more than double the market share of the next highest competitor. But BlackBerry had changed the game with the advent of the smartphone, and Nokia CEO Jorma Ollila knew that his company needed to become more entrepreneurial to prosper in the coming storm. His response was a major restructuring in 2004. He believed that with the right structure and incentives, individual behaviors would change, and a new culture would emerge. What happened instead was that Nokia’s people continued behaving and interacting according to the rules they were used to following, which was rewarded at their local levels since their immediate bosses shared the same cultural rule book. A cultural aversion to failure, for example, meant that managers were criticized by their bosses for spending money on experiments that didn’t work out. By the time this became apparent, the damage was done.
So, what should CEOs do instead?
Change Culture Indirectly
The lesson from experiences like Nokia’s is that interpersonal exchanges play a central role in aligning cultural and formal mechanisms. The culture only changes if enough people start behaving differently and the new norm gets internalized. The changes may seem fairly minor, but something as simple as making everyone at a brainstorming session sit at a round rather than a rectangular table can have a profound impact on people’s willingness to speak up.
When A.G. Lafley became CEO of P&G in 2000, he wanted to shake up the bureaucratic culture that had evolved around the corporate strategy process. The process was anchored on a strategy review of each business by the CEO and the corporate functional heads and a meeting was considered successful if business unit presidents going in came out of it with as few changes to their proposals as possible.
In order to achieve that goal, the unit executives came to the meeting armed with a thick and fully “bulletproofed” PowerPoint deck accompanied by dozens of “issue sheets” that they could pull out to provide answers to any question that they could conceivably be asked. A key success metric for the presenting team was that it had an issue sheet prepared for every question that came up—regardless of how many issue sheets needed to be created to ensure that result. It was a gigantic exercise in second-guessing—and the unit teams took weeks to prepare. In the meeting, the business unit presidents went through the slide deck in excruciating detail and would respond to questions by drawing at length from the appropriate issue sheet. These meetings sometimes lasted as long as a day.
At A.G.’s request, I carried out a series of interviews with both presenters and reviewers and found that while nobody was even a bit happy with the process, each side imagined that the other found it useful.
A.G. and I decided that to change the dynamics of these reviews, we needed to stop people from presenting massive slide decks and issue sheets. For the fall 2001 cycle, we didn’t ask for any changes in the materials, timing or duration of the reviews. We only asked that the deck be sent to us a week before. We would then identify to the team in advance a short list of topics (no more than three) that we wanted to discuss in the review. We specified that no further preparation was required for the discussion and, as we did not want to listen to them presenting a brand-new, lengthy slide deck focused on the discussion points, we insisted that they bring no more than three new pieces of paper to the meeting.
People did their best to thwart us. Some teams begged us to let them present their original decks. Many of them crammed as much as they could in eight-point fonts, offering complete “solutions” for the discussion issues we had set. But we insisted on no presentations and showed zero interest in answers. We just wanted and insisted on robust discussions of the strategy topics that really mattered to the business in question. Each meeting was hard going for A.G. and the corporate team, who had to fight the business unit presidents from leading the discussion back to a comfortable format. But some engaged, and we heard a few things we had not expected.
It took about four years for the business units to fully adjust to the idea that what A.G. really wanted was simply to have a rich strategy discussion that explored ideas—new ways to compete, new growth avenues, fundamental threats—and made sure that the best minds in the company talked together rather than engaged in corporate theater. In due course, unwritten norms and habits around strategy-making changed to fully support a generative thinking exercise that has lasted to this day.
Adapted with permission from A New Way to Think: Your Guide to Superior Management Effectiveness, by Roger L. Martin, Harvard Business Review Press, May 2022.