Don Sull's blog

Agile organizations excel at exploiting opportunities that arise in turbulent markets. Structural features of the organization, such as information systems, processes to cascade objectives, and incentives, constitute the organizational “hardware” for agility. But hardware alone cannot ensure the flexibility or urgency needed to adapt as circumstances shift. Corporate values provide the organizational “software” that reinforces systems and processes to provide agility

Corporate values are the shared set of norms that unify a group of employees, inspire them, and define appropriate behavior. Corporate values describe how people ought to behave in an organization, declaring certain behaviors worthwhile or admirable. Values differ from assumptions, or cognitive beliefs about facts and causal relationships. Engineers in a technology firm may believe that higher spending on research and development will lead to greater sales (an assumption), but respect the discipline that goes into a well-engineered product for its own sake (a value). I prefer the precision of the term “value” over the catch-all category of “culture,” which typically includes cognitive assumptions, normative values, organizational routines, symbolic actions, distinctive language, etc., but use the two terms interchangeably.

Abstract values, such as “quality,” “excellence,” or “innovation,” lend themselves to different interpretations, which is both good news and bad news. Abstract values can apply across a wide range of situations, compared to standard operating procedures or process manuals, for instance, which specify appropriate behavior for a narrow range of activities. If values remain vague abstractions, however, they fail to help employees distinguish between desirable and undesirable behavior. To provide clear guidance, managers must articulate what the values mean in practice. I illustrate how they can do so with the Reckitt Benckiser (RB) case.

1) Get the number right. Many companies follow a “more is better” approach to promulgating corporate values, deluging employees with a long list of abstract nouns that quickly blur together. Across a wide range of settings, research by cognitive psychologists has established that people can store no more than three to five similar items in their primary memory and remember these flawlessly without prompting. Values only matter when they influence action, employees act on values only when they remember them, and they are more likely to remember a handful than a laundry list of values. Reckitt Benckiser lists four core values: Achievement, entrepreneurship, team spirit, and ownership.

2) Articulate what the values mean in practice. To provide more concrete guidance, executives should define each value in plain and simple language. RB defines “entrepreneurship,” for instance, as “we allow daring ideas to thrive,” and “ownership,” as “we take the initiative to do what’s needed.”  Managers can further specify how each value is manifest in specific behaviors. RB lists the following concrete behaviors associated with the value of achievement:

• Supports and inspires others to deliver stretching objectives
• Recognizes, respects, and then rewards the achievement of the team
• Displays a high sense of urgency and speed of action but always makes sure the job gets done with the full commitment of the team
• Sets ambitious goals, yet ensures the goals are achievable

RB has gone a step further, and created an online simulation, called the Core Values Challenge, where potential employees can pre-screen themselves based on their fit with the company’s values. Interested candidates walk through real-world situations, select among possible actions, and receive feedback on how well their choices match the company’s core values, such as team spirit or achievement.

3) Translate values into action. Clearly defined values mean nothing if managers and employees fail to translate them into action, day in and day out.  Executives sometimes attempt to build a culture of agility by hosting training seminars or distributing laminated cards listing the firm’s core values. Cards and seminars are more likely to inspire a Dilbert cartoon than influence employees’ behavior. Instead, managers reinforce and clarify values by using them to guide difficult and important choices, such as those listed below:

• Hire based on fit with corporate values, rather than technical skill or previous experience alone
• Fire employees who disdain core values. A public execution of a high-performing executive who ignores teamwork sends an unambiguous signal
• Make culture a line manager responsibility. Many executives delegate culture to culture to the human resources department, thereby signalling that they do not see preserving corporate culture as a key part of their job
• Walk the talk. Senior executives must personally embody core values to set the precedent for employees throughout the organization. Senior executives who preach “cost-consciousness” as a core value, then fly first class, should not be surprised when employees ignore the message
• Pass on attractive opportunities that would dilute culture. Goldman Sachs could have grown much faster during the boom through acquisitions, but stuck to organic growth in large part to protect its unique culture

Its not enough to get the right number of values, articulate them concretely, and put them into action. If executives hope to achieve agility, they must have the right set of values to begin with. And that is the topic of my next post.