Don Sull's blog

Information systems and organizational hydraulics are the hardware of operational agility, but culture and people represent the software that bring the processes to life. The companies that I have studied that excel at operational agility share a common set of values, with performance (aka achievement or meritocracy) at the heart of the corporate culture. Companies that excel at operational agility do not rely on a grand strategic coup, but win by consistently out-executing rivals time and time again. Relentless execution requires continuous injections of urgency, effort, and enthusiasm. To induce the effort required to win consistently over time, the corporate culture must recognize, prize, and celebrate performance above seniority, power, expertise, or anything else.

A culture that rewards only individual performance can quickly degenerate into a dog-eat-dog environment where cooperation is viewed as weakness. Companies that excel at operational agility counterbalance individual achievement with the countervailing values of partnership or teamwork to mitigate the worst excesses of unbridled individualism. Incentives that create a sense of shared destiny, including equity and bonuses based on corporate performance, can go part of the way towards encouraging cooperation. Incentives alone, however, rarely offset the centrifugal force of individual performance, and culture can confer a centripetal force by constantly reinforcing the sense that everyone is in the same boat.

When they take a controlling stake in an operating company, one of the first things executives from Brazil’s Garantia Bank did was eliminate executive dining rooms and insist all managers work at the same size desk in an open office to reinforce the spirit of partnership. Goldman Sachs rigourous recruitment and promotion processes weed out brillian individual performers who cannot or will not work as part of a team.

Firms that excel at operational agility also emphasize values that ensure employees feel safe when speaking truth to power. In some cases they do so by downplaying the trappings of hierarchy that can impede honest discussion.  Zara, for instance, downplays hierarchy by avoiding the stratified royalty that prevails in many companies, where an EVP trumps an SVP, who of course still lords over common VPs.  Although roles and responsibilities are clear, Zara avoids formal titles (with the exception of top executives who require titles for legal reasons). Andy Grove instituted “constructive confrontation” at Intel to encourage honest debate.  When employees feel safe to speak truth to power, they surface problems early enough to fix them and introduce a broader range of interpretations of situations and more options for action.

Executives sometimes attempt to build a culture of agility by hosting training seminars or distributing laminated cards with the firm’s core values. This is futile. The most effective way to reinforce a company’s culture is by hiring and firing people based on their adherence to core values. The first step is clearly articulating what a company’s values are, and how they translate into concrete action. Consider Reckitt Benckiser, the Anglo-Dutch firm that has outgrown all major fast-moving consumer goods over the past decade. Reckitt Benckiser actively screens potential employees based on their fit with the company’s culture. Reckitt Benckiser encourages potential employees to pre-screen themselves based on their fit with the company’s values. Interested candidates can take an online simulation that reflect critical corporate values-teamwork, say, or achievement. They walk through real-world situations, select among possible actions, and receive feedback on how well their choices match the company’s culture. Selecting people out on values is an equally potent way to reinforce values. A single public execution of a high-performing executive who ignores core values sends a clear signal that culture matters.

My next few posts will provide case studies of companies that excell at operational agility.