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Charles O'Reilly, de la Universidad de Stanford, ha dedicado más de 50 años al estudio del comportamiento organizacional. En su investigación sobre el fracaso empresarial, ha observado algo preocupante: las mismas culturas sólidas que impulsan el éxito a menudo se convierten en el factor que destruye a las empresas cuando los mercados cambian. La adaptación es clave.
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00:00We live in a turbulent era. Organizational culture is arguably the most important factor shaping how effectively organizations navigate market, technical, political, and economic uncertainty.
00:12The wrong culture can lock a company into inertia and decline, while an adaptive culture dramatically increases the odds that a company survives and thrives in turbulence.
00:21Few people in the world are better positioned to discuss organizational culture than Charles O'Reilly.
00:26Charles is the Frank E. Buck Professor of Management at the Stanford Graduate School of Business.
00:31Charles has been studying organizational culture and organizational cultures of adaptation for nearly half a century.
00:38He's focused in particular on how culture contributes to organizational agility, innovation, and incumbents' ability to manage disruptive technology.
00:47I'm absolutely delighted today to have an opportunity to chat with Charles about culture and how you use culture to adapt and survive in a very turbulent world.
01:03Charles, imagine you're talking to a skeptical CEO.
01:08Skeptical in the sense they're not really convinced that culture matters.
01:12How do you persuade them?
01:15So, I guess I would do two things, Don.
01:17I mean, first of all, many CEOs pay attention to data.
01:21And, you know, we've accumulated a fair bit of data linking culture to performance over the years.
01:26The evidence is pretty clear that culture, if it is strategically important, if it is widely shared, and if it can be adapted, that is, it can change as strategies in the world change, then that is predictive of performance.
01:42So, the first thing I would do is try to give them some data on it.
01:47The second thing would be to, you know, give them some examples of great companies that failed.
01:53And they failed because their cultures did not adapt and would not allow them to adapt.
01:59What are the elements of a culture that make it adaptive and not a source of inertia?
02:04My experience, I suspect yours, is many CEOs, when they think about culture, they think about values.
02:12And values are useful, but you can't manage values.
02:16And values don't tell people how to behave.
02:19If I go to work in a company and I look at the company's values, they don't tell me how I should behave.
02:26So, the first thing is to be clear that culture is really norms, expectations about behavior.
02:32And to be even more concrete, to think about culture as the pattern of behavior that's reinforced by people and systems in an organization.
02:42If you think about it as pattern of behavior, norms, you can manage it.
02:47So, to answer the question about adaptability, then you have to ask the question, well, what is the pattern of behavior?
02:54What are the norms that would help an organization adapt as the world changed around them?
03:00And I think it becomes pretty clear.
03:02You know, curiosity, sort of a kind of a growth mindset, a recognition that you don't know everything, norms around flexibility, norms around sort of initiative and trying things, you know, a tolerance for a certain amount of failure.
03:23I mean, if you look at companies that have been, in my experience, quite adaptive, like Amazon, you know, what you see are companies that have cultures that have embedded in them this notion of we expect you to try things, modest failure is accepted, you know, you don't know everything, you always have to be learning, be curious.
03:46So, you know, it's interesting that, as you know, I did a recent study, which kind of builds on your study on toxic cultures and the, what are the norms that characterize the toxic culture?
03:58And they are norms around no collaboration, fear, not taking risks, not sharing information, being political.
04:07Those are exactly the norms that, that lock a company in and stop it from being flexible.
04:13Yeah. And, and the thing that's so interesting about toxicity, for me at its core, it's about a lack of respect, right? Like if you boil it down, that's the fundamental thing that there's a lack of respect for other people. And that, that manifests itself in a variety of ways.
04:28You know, what you just described really is the difference in, and how the Microsoft culture has changed between Gates and Balmer and Nadella.
04:37The difference, when one of the fundamental differences between the old Microsoft culture and the culture that Nadella created was in the old culture, it was, as you said, it was very hierarchical.
04:48You had to have the right answer. You had to have the right answer. You didn't want to make a mistake. And what Nadella, with this notion of growth mindset, is he's, he's really inculcated a culture where, of curiosity, of learning.
05:01It's really a willingness to, a willingness to listen to other people, to, to respect other people, to not think that you always have the right answer because you're higher in the hierarchy.
05:11So I think, I think you're exactly right that this respect, along with, you know, an expectation about initiative and a tolerance to, to make, make mistakes. I think that's the key.
05:24Are there companies that you particularly admire that you've, you know, kind of studied, worked with, observed in terms of how adaptive their culture is?
05:34You know, I've been around Silicon Valley now for 30 years. And some of the companies that would be held up as examples of, of cultures that were very adaptive, like Hewlett Packard and Intel, we, we know what's happened there.
05:47And in a way what's happened is they've lost the adaptability. So ironically, some of the cultures that, uh, kind of were the benchmark of adaptability 20 years ago have succumbed to this sort of success syndrome and, and, and become much less adaptive.
06:06The problem is when they get bigger, the cultures kind of solidify around incremental improvement and they lose the adaptability. And to be clear about the dynamic, uh, it's, it's not that people are not smart. It's not that they are not working hard. Think about what happens in any organization that's successful.
06:27Customers like it. They get bigger. As they get bigger, they have to become more efficient. They have to coordinate larger numbers of people. So they begin to, uh, shift their culture to more, uh, incremental improvement, more efficiency, pay attention to customers.
06:45They embed that learning in their processes and their systems and their metrics. This process of evolution helps them succeed in their existing mature business. The problem is that it drives out, you know, some of the things that, uh, that promote adaptability.
07:06There's a CEO of a company up in San Francisco who said something, which I thought was quite smart. And he said, you know, we pay attention to data and data is important, but data can also blind us to the step change shifts because somebody comes with a proposal.
07:25We look at the data and we say, well, that'll never amount to anything or it's too low margin or, you know, whatever. So the very things that make companies successful in the short term and the cultures that make them successful.
07:36If leaders are not conscious of it, we'll kind of trap them into the present.
07:42What would be your advice to an executive who's trying to manage that balance? They've got a good established business, but they're, you know, they know they need to innovate.
07:49Yeah. So conceptually, this is not hard. I mean, implement it, actually making it happen when, when leaders actually try to make this happen. It, it, it, it's very difficult. Company, uh, gets big, they become efficient. They are successful.
08:04The world changes, uh, and competitors come in and new technologies, new business models, you know, shifts in consumer preferences. Suddenly they, they need to leverage their assets and capabilities into these new growth businesses.
08:20That means you're going to, you're going to be, you're going to have a core business with a particular alignment that is particular metrics and structures and, and cultures.
08:29And if you're going to compete in this new world, which is often uncertain, you need a very different alignment. You need different capabilities. You need different metrics, different processes, and different culture.
08:40So conceptually, that's pretty, pretty straightforward. Practically, it means that leaders need to be able to successfully manage two very different types of organizations and many managers, because they've been successful in a particular style, can't do that.
08:59So conceptually, one of the leaders that one of the leaders that we studied that was particularly good at this talked about being ambidextrous as like having two kids. And he said, you know, I got one kid who graduated from college. I got another kid in high school. He said, they need different things from me. I got to talk to them about different things.
09:17But I never let one know that I think that I love the other one more. So this ability of leaders to actually understand and be able to deal with the tension of running these organizations, that that's hard, but that's the key.
09:35If you have a culture where you've got one company that you're running like a startup and one company that you're running like an established, efficient, grown-up business, how would you advise leaders to manage the cultural tensions?
09:51Values are a good way of promoting a common identity. We all stand for the same thing. We're wearing the same jersey. Those values can lead to very different cultures.
10:02Let me give you one example. So let's say we are in a big, mature business. This comes out of experience we had with IBM. Their Z-series business, this is the mainframe computer business, as one of their managers said, when an unhappy customer calls, they expect a PhD to pick up the phone.
10:22So customer service in the Z-series business meant one thing. They were also selling software. Customer service may be important, but it doesn't mean a PhD picks up the phone. So the value leads to very different cultures.
10:39But recognizing that what innovation looks like in a mature business is really incremental innovation, and safety is important. Innovation in an explorer business may mean something quite different.
10:56When you go into an organization and they're calling you in because they'd like to be more innovative, be more adaptive, are there things that right away set you off as red flags and you say, like, uh-oh, when I see these behaviors, I know we have a problem?
11:13Yeah. So if I can, let me come at this from a side angle.
11:21I mean, so we, you know, we know how to change culture now. Um, if you think about it as pattern and behavior, and then the question is, well, how do you change patterns of behavior?
11:31Well, there are five levers. The first instance is it has to come from the top.
11:36If, if the senior leaders are not manifesting the behaviors that they expect of other people, they're important. People watch them all the time. They tell stories about them all the time.
11:48So if the senior team is unwilling to, to model in a consistent way, not just once or twice, but over relatively long periods of time, if the senior team is not open to, to, to changing their own behavior, then I think that's a big red flag.
12:05So that's the first lever. The second lever is getting people involved.
12:08And, and the psychological mechanism is if, if I'm involved, if they listen to me, if they ask my opinion, even if they don't necessarily do what I suggest, I feel like, okay, you know, I feel some psychological ownership because they got me involved.
12:24So this is town halls. This is pulse checks. And this is, you know, celebrations. It's, it's getting people involved.
12:31The third lever are aligned rewards, but not money. Money is not a great way to shape culture. It comes too regularly. It's got too much surplus meaning attached to it.
12:41Status recognition, approval, promotion, you know, holding people up and saying, this is why this person got promoted. That's a very powerful signal.
12:50The fourth lever are stories and symbols and language, you know, by itself kind of trivial, but when lined up with everything else, it signals to people what's important.
13:01And the last lever, getting the HR systems lined up. Oftentimes what happens is people start culture change efforts, but they don't change the performance management system.
13:10They don't change the training system, but they don't change, you know, the management competencies.
13:16And so the HR systems kind of are either orthogonal or actually undermining the culture.
13:22So those five levers, I think, really are what it takes to change culture.
13:28The red flags are when people are really unwilling to kind of line up those levers.
13:35I think that that's why culture change efforts often fail.
13:38I was teaching in this program last two weeks ago back in Boston, and I asked the people, you know, the group is a group of 70 plus leaders.
13:50And I said, how many of you have tried to change culture?
13:53And there was a great conversation both with me, but among the participants.
13:58There were a couple, three organizations that had been a bank, for instance, and a health care company, where if you listen to them talk about how they changed the culture, they were doing these five things and they'd been successful.
14:11And there were another group that had tried to change culture and were less successful.
14:16And it was a combination of not being relentless about it, senior leaders sort of kicking it off and then losing kind of interest in it, not changing the HR systems to support it.
14:31Why do you think it is that executives, when that knowledge is available, right, why they aren't taking a more holistic view of, you know, kind of putting in place the levers, lining up the levers in a way to move the culture and move the behavior in the way that they're hoping for?
14:47Like, it seems like a disconnect.
14:50Jack Welch used to say the reason most leaders aren't very good at managing culture is because they get bored or distracted, you know.
14:56And he used to say, you know, if you're going to be successful at changing culture, you've got to be two things.
15:03You've got to be relentless.
15:04You've got to be boring.
15:05And by that, we mean not just for a kickoff or one month, we mean two, three, four, five years.
15:13One of the amazing things about Nadella is, if you look at the culture change at Microsoft, he's been doing this for 10 years.
15:20I mean, it's no wonder that the culture changed.
15:22In this Japanese company that we looked at, big, big culture change in this Japanese company, the CEO and his senior team would make 50 site visits a year.
15:33This is around the world.
15:34At every site, they would hold three town hall meetings, senior level, mid-level, lower level.
15:41Think about that.
15:42150 meetings a year, that requires a commitment on the part of the CEO that many leaders are either unable or unwilling to meet.
15:55How do you think about the role of middle managers or maybe not just middle managers, more broadly, leaders distributed throughout the organization?
16:02How do you think about getting them aligned with the culture you're trying to build?
16:06My experience is that oftentimes the reason mid-managers are less enthusiastic about the culture change is not because they have malign intent, but because they're measured on certain things.
16:18They're rewarded on certain things.
16:19Their careers depend on success at this incremental kind of stuff.
16:24And so somebody on high says, we need to change the culture.
16:28And the mid-manager looks up and says, yeah, but if I don't make my numbers, then, you know, it's going to affect my compensation.
16:36It's going to affect my career prospects.
16:38This Japanese company, what their CEO said, which is, I think, interesting.
16:45It's a nice metaphor.
16:47He said, fire burns up.
16:48And one of the reasons that he spends so much time with these lower-level employees who are enthusiastic often about the culture, because they see a brighter future for them, not always, but sometimes.
17:01So if he can get them excited, and then you can put, not pressure, but you can help the mid-managers.
17:09One of the brilliant things that Microsoft did in their big culture change effort was when they agreed on this notion of growth mindset, they agreed on a set of behaviors.
17:21Then they put together a little training program called Manager in a Box to train managers down the organization how to talk about growth mindset, how to talk about what the behaviors are.
17:36They trained 47,000 managers with this.
17:39Think about that.
17:41That's a level of cascading into the organization.
17:45So I think this combination of senior leaders being relentless and boring, helping middle managers understand how to talk about the new culture, and being sensitive to the fact that if we really want different behavior, we probably need to make sure that their incentives are shifting.
18:03And then getting the bottom layer, I think that that's kind of what, in my experience, that's kind of what works.
18:10Have you seen companies that have done a particularly good job in that learning norms by doing, you know, kind of embedding the behaviors and the social norms through these-
18:25Systems and processes.
18:26Yeah, systems and processes.
18:28What you see is they often change the metrics, for instance.
18:33Ben Horowitz is the managing partner of Andreessen Horowitz, which is one of the big VC firms here in the Valley.
18:40He's a very big believer in culture.
18:43And one of the things he points out is that unless managers are very explicit in thinking about the culture, being analytic about it, what will happen is over time the culture will dissipate.
18:54We bring in new people, we bring in new people, we don't reinforce an existing culture, particularly we're not conscious of it.
19:00And so cultures kind of dissipate and so his encouragement is for leaders to be explicit in thinking about it, including systems and processes.
19:11Are there other trigger points that you see where culture stops working as well or needs a rethink?
19:18I think cultures need to be refreshed, that if leaders aren't sort of periodically kind of helping people understand, look, this is how we need you to behave, this is why it's important, this is why we celebrate it, if it becomes stale, then it starts to dissipate.
19:38Are there other instances where you think culture needs to be changed, even absent a strategy?
19:46One obvious case is when you're scaling.
19:49So you've got a small organization, you're getting big quick, you need to embed it.
19:52M&A, this often comes into play.
19:55I was working recently with a big law firm that's doing a lot of lateral hires.
20:00You know, they've been traditionally quite a strong culture, and now they're hiring from firms that have their own separate strong cultures.
20:08And, you know, that's going to require some change.
20:12When a founder leaves an organization, I think is an inflection point.
20:17I have a colleague who makes an interesting point, and he said, you know, one impetus for change in organizations and culture change is a crisis, is fear.
20:28The other is hope.
20:29And, you know, this notion of helping people see a brighter future.
20:35This Japanese company, one of the things that the CEO did was he pointed out to people that if they transform themselves from a commodity company to a specialty chemical material science company, there would be huge opportunities.
20:54You know, I think most people come to work in organizations and all other things equal.
20:57They'd like to contribute.
21:00They'd like to feel good about themselves and the company.
21:04And so this notion of giving people the opportunity, we've seen in many companies where they've tried to spur entrepreneurship that, you know, when you give employees the opportunity to contribute ideas, then there are lots of them.
21:22So thank you, Don, very much.
21:23That was a pleasure.
21:24As Charles O'Reilly reminds us, building an adaptive culture isn't about grand gestures.
21:30It's about being, in his words, relentless and boring.
21:34Leaders who commit to reinforcing the right behaviors consistently are the ones who help their organizations thrive.
21:41What cultural challenge is your organization facing?
21:44Let us know in the comments below.
21:46And for more conversations with leading thinkers, check out this interview playlist.
21:51Thanks for watching.
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