Markets are undergoing significant change. So is the workplace. New entrants and ever-shifting customer behaviors are driving disruptive innovation. Economic headwinds are sending mixed signals of uncertainty. And the geopolitical balance continues to shift in dangerous ways. Protiviti’s Jim DeLoach asks the year’s big question: Is the organization’s culture enabling necessary change amid these and other developments?
First, any areas of dysfunction that are not fit for purpose in a dynamic world should be addressed in a timely manner to ensure agility and resilience in facing inevitable change. Second, with change comes stress points that could alter the existing culture. For example, workplace redesign to accommodate “anywhere, anytime” work and hybrid work environments necessitates concerted efforts to preserve desirable aspects of the corporate culture. All of this adds up to the need for a corporate culture that is agile and adaptive.
Change exacts a toll on people
“Adapt or die” may be the harsh reality, but astute leaders know that a rubber band can be stretched only so far. With digital transformation initiatives, demand for new skills, hybrid work arrangements, changing markets and new opportunity pursuits, leaders are faced with addressing the stretch of resiliency by finding areas that provide greater stability for employees. These realities entail leading with empathy, explaining the business context (what’s happening and why) and communicating that workforce reductions are a last resort in a declining market.
Interestingly, the market has experienced such a significant amount of change, everyone pretty much gets the picture. The financial crisis and the Covid-19 pandemic had profound effects on the way things are done. Technology has affected the way people work, shop and play. Thus, the younger segments of the workforce — Gen Z and millennials — have experienced a lot of change in a relatively short period of time. But like everyone else, they need support and context as new technologies are rolled out and the business undergoes transformation. Explaining the value that end users will receive, how the business as a whole will benefit and how the customer experience will be enhanced helps alter mindsets and perspectives so that people become aware of, buy in to and own the forthcoming change.
Today, the difference-maker is the uncertainty everyone in the world faces. It adds to the stress. No longer an outlier, disruption is a regular thing. Once everyone reckons with embracing constant change as a reality, they can come to grips with how they’re going to deal with this challenging dynamic. As companies evolve toward recognizing the reality of change, fostering a culture that helps the workforce to embrace change becomes a priority.
A resilient culture: Communicate and measure what matters
Digital transformation, with its attendant implications to the business model and workforce, is the order of the day. Talent is becoming more difficult to acquire, retain and develop. Many companies are revisiting their strategies and business models. These and other factors can have an important impact on corporate culture. Transformation is a necessary part of corporate life. The ability to adapt is the key to survival, making a resilient culture an imperative in enabling a sustainable transformation process.
In an environment of change, what gets communicated, measured and reinforced matters. The CEO, senior management team, unit leaders and chief ethics and/or compliance officers and other second-line functions should regularly communicate and reinforce the essential aspects of the corporate culture in appropriate forums and with consistent messaging. They should consider the cultural implications of significant internal and external events and whether major adjustments are needed to the strategy, and plan accordingly.
Onboarding of new hires should emphasize the importance of the enterprise’s culture. Leaders should insist on the human resources function being engaged proactively in the change process so that when culture issues surface, progress is made toward identifying the root cause and the HR function isn’t an impediment to change. In addition, the board should be engaged to ensure directors are on the same page with management in understanding, measuring and reinforcing the corporate culture.
The culture assessment: An essential tool
Leaders can certainly use eyes and ears when focusing on culture. As noted, communications and effective metrics, measures and monitoring are informative. Walking the halls and the factory floor, talking with people, using focus groups, and conducting confidential, anonymous surveys can also help leaders “feel the pulse” of the culture. A periodic formal culture assessment supplements ongoing evaluations conducted by senior and operating management as well as by various functions such as the chief risk officer, chief compliance officer or human resources.
A culture assessment requires a framework. To illustrate, the following themes and related areas of emphasis may apply:
|Areas of emphasis
|Clarity of mission, vision & core values
|Tone at the top (including alignment with mood in the middle and buzz at the bottom)
|Alignment of strategy with core values
|Communication of business context
|Commitment to sustainability
|Brand promises and reputation
|Deployment of human capital
|Governance framework, structure and policies regarding roles, accountabilities and empowerment
|Effective engagement, collaboration and teaming
|Absence/existence of unrealistic pressure to perform
|Appetite for innovation and entrepreneurial pursuits
|Acceptance of and learning from failure
|Reinforcement and enforcement mechanisms
|Evidence of loyalty, trust & agility
|Integrity in dealing with customers, suppliers and other external stakeholders
|Incentives and rewards
|Employee lifecycle (attraction, recruitment, onboarding, development, retention, separation and advocacy)
|Diverse, inclusive environment and employee well-being
|Training and competence
In many organizations, the internal audit function may be in the best position to lead a culture assessment. The points of focus supporting each of the above areas of emphasis enable internal audit (in collaboration with other functions, as appropriate) to assess employee awareness, buy-in and ownership of change initiatives as well as the effectiveness of reporting channels, pressure points, misconduct, disciplinary measures and reinforcement mechanisms. Differences in perceptions at the top, in the middle and at the bottom of the organization add significant insights.
Internal audit is ideally positioned to conduct a stand-alone assessment and issue a report on the entity’s culture. Alternatively, internal audit can incorporate culture assessments into existing audits. By connecting the dots through analysis of the data points and results obtained across multiple audits to identify culture-related themes and trends, internal audit can bring useful insights to the C-suite and boardroom — particularly if the adequacy of the assessments of others is considered in planning its activities. This is one approach; there are others.
Impact of decision-making dynamics on culture
While a strong organizational culture, evident at all levels of the enterprise, is critical to long-term success, the board- and executive-level decision-making processes that shape and drive the direction of the business are the ultimate test of a resilient corporate culture. For the CEO and board, there are two critical questions:
Do the organization’s leaders act when changes in business fundamentals are recognized?
Continuous dialogue between functional areas of the business, alignment of compensation and other incentives with the goal of balancing short- and long-term performance expectations, senior management involvement and an active board help shape the desired cultural resilience in the face of changing business realities. When trending metrics signal warning signs, it helps to engage a diverse group of stakeholders who understand the customer, strategy, emerging technologies and evolving marketplace to evaluate the signals, formulate ideas and recommend how to proceed and where to experiment going forward. But action is the key. Knowledge of changing fundamentals in the business is not enough. Agility necessitates the discipline to act on that knowledge.
Do our people make sound decisions in situations when no one is watching?
High-profile corporate fiascos resulting in brand erosion and an impaired reputation can arise from decisions made at the corporate and process levels. Decision-making processes that can affect the market’s perception of the company and its brand promises should be aired out rigorously. But does the culture inculcate that escalatory, consultative discipline? Does everyone with a relevant point of view have a voice in the process? Are contrarian views and pushback respected? Can leaders process bad news? The bottom line: Everyone engaged should feel free to speak up if they have a seat at the table, and no one should be in a rush to make a mistake.
In a corporate environment, it is not unusual for groups to form opinions, embrace biases or make decisions without first engaging in robust debate or listening to dissenting views. Many argue that diversity of views is vital to the decision-making process. In one of his letters to CEOs, the CEO of BlackRock pointed out the importance of a diverse board: “Boards with a diverse mix of genders, ethnicities, career experiences and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.”
This point applies to management as well. There are often diverse views on significant risks and opportunities among C-level executives and directors. That is why efforts should be made to ensure that all views are heard from the right sources and considered when making critical decisions.
High-quality decisions cannot be made when data and meeting agendas are structured to fit or lead to a preconceived conclusion, sole reliance is placed on the most dominant people in the room, the past is inappropriately extrapolated into the future, a false sense of security is drawn from probabilities, a singular view of the future is imposed upon the dialogue, dissenting viewpoints are suppressed and bearers of bad news are made to wish they hadn’t spoken up. Leaders should:
- Encourage creative thinking about what the organization doesn’t know.
- Create focus around obtaining and considering timely insights from the customer experience.
- Distinguish divergent discussions from convergent discussions to allow time to obtain viewpoints from everyone who needs to be heard.
- Empower the enterprise’s talent and channel its collective genius toward pursuing innovation opportunities that add value in the market.
- Recognize the limitations of consensus and the time that can be wasted trying to reach it.
- Encourage expression and consideration of alternative views, particularly in circumstances in which mistakes can or are about to be made.
The above points will help reduce the risk of losing touch with changing business realities.
In today’s dynamic environment, the importance of periodic assessments by executive and operating management and staff functions of the resiliency of the culture cannot be overemphasized. Culture can evolve in subtle ways as the external and internal environment changes. Culture can also inhibit important strategic transformation initiatives.
Leaders can use the results of a culture assessment to evaluate opportunities to improve or reshape the company’s culture proactively with an eye toward enhancing organizational resilience. Internal audit is uniquely positioned to augment these assessments. High-velocity, high-quality decision-making processes are another important driver of a resilient culture and should be considered in a periodic culture assessment.