Changing Culture Is Central to Changing Business Models

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Culture is all-encompassing. It radiates through every action taken inside an organization — including deciding what is made and sold, which employees are hired and retained, which customers are serviced and how, what is measured and reported, and where time and money are invested.

However, while some leaders strive to create tomorrow’s cultural norms using advanced technologies, others resist cultural changes and stick to their knitting. The result is a growing chasm between winners and losers. For example, today’s trillion-dollar behemoths are all technology-based organizations that take advantage of mobile technology, data, multiple revenue streams, and AI strategies. They are led by leaders who want to change the world, while the companies that held the top spots of growth and value just two decades ago — banks, oil companies, real estate companies, and manufacturers — are paying the price for holding on to their historical cultural beliefs.

A good example of what’s at stake is the emergence of electric vehicles and Tesla’s rise to prominence as the most valuable car company in the world. In the companies that Tesla has surpassed, boards and leaders have resisted adapting to new cultural and technological realities. It’s not that the emerging cultural norms about the advantages of embracing modern business models have been unclear. It’s that while culture provides the foundation for organizational and industry stability, it is also the force that keeps leaders stuck in their old ways of conducting business. The takeaways from this story apply to every industry.

Leaders who are serious about creating the organizations of tomorrow have a simple choice: They can stay with the cultural norms that created their prior success, or they can do the hard work to change themselves to ensure success in the future. Today’s leaders need to take a personal journey to avoid the fate that has befallen companies such as Blockbuster, Kodak, Sears, and so many others, and it starts with three steps: examining personal values in order to redefine them, communicating the new values widely, and measuring what matters — the performance of the new initiatives and investments that are necessary.

While culture provides the foundation for organizational and industry stability, it is also the force that keeps leaders stuck in their old ways of conducting business.

Leaders: Change Yourself to Change Your Culture

Cultural norms are deeply held beliefs about the way an organization should work. These norms translate into different cultural products throughout the company, including values, customs, and traditions. Said differently, cultural norms define an organization as well as its sources of growth and value.

For example:

  • If leaders believe in manufacturing, they make things and measure units produced.
  • If leaders believe in services, they deliver support and measure hours billed.
  • If leaders believe in analytics and AI, they measure data collected and insights generated.

But new technologies — coupled with consumers’ changing wants and needs — disrupt legacy beliefs. Twenty years ago, most leaders would have said they believed that making things was more important than matching buyers and sellers. That core belief has been shaken to its core, of course, as subscription and marketplace models powered by data and AI began to fuel the most powerful companies in the world today — Amazon (with Prime and its massive supplier network), Apple (with its iOS developer community), Facebook (with its billions of users), and Google (with its search and matching algorithms). Further, external forces like the COVID-19 pandemic can accelerate the demise of traditionally held norms and make those who are best prepared for the future the winners of today (such as Zoom, Shopify, and Spotify).

Three Steps Toward Change

If leaders are itching to change their corporate culture and direction, we recommend that they first follow three steps to challenge their own biases:

Step 1: Leaders need to examine their thoughts and values in order to redefine them. Attempts to change an organization’s strategy, products, services, measurements, or reporting will be in vain if leaders don’t realize that cultural change is an inside job. Leaders have to change first.

Take Ford, for example. Along with other car manufacturers, Ford has finally decided to enter the electric car race. However, for Ford to catch Tesla, its leaders need to let go of the company’s rigid traditional management practices that made it successful. That’s the only way Ford will be able to compete for customers as other U.S. states join California in prohibiting the sale of internal combustion vehicles and, in so doing, create the new cultural norms for the industry. This is in stark contrast to the days when Henry Ford started his business and became the cultural trendsetter.

Before they look at their products, people, and processes, leaders have to better understand their own underlying attitudes, behaviors, and beliefs. Only by challenging and changing core beliefs can leaders consistently act in ways that support a true business model transformation.

Step 2: Leaders need to communicate their new identity. Clearly defining the values that management and the board hold should help an organization create today’s newest business model: AI-powered digital platforms with multisided revenue models. Doing this requires that they discourage existing employees from keeping their heads down and proceeding with business as usual.

A stunning example is today’s colleges. For a long time, universities’ leaders resisted restructuring their business model — by sticking to a primarily on-premises structure despite its cost to students, limits on access, and restricted extensibility. COVID-19 is forcing a sea change: This fall, at least 65% of higher-learning institutions are holding classes completely or partly online, according to the College Crisis Initiative at Davidson College. The astonishingly fast shift to digital classes will drive down the per-student cost of traditional instruction if it sticks as the pandemic wanes. Colleges and universities will need to rethink their identities and the new value they are proposing to justify their high price tags. This work should include examining how data and AI can be leveraged to reinvent the college experience.

Company employees, customers, investors, and lenders all need to understand a leader’s new belief system before they will be ready and willing to align their actions. Only by overcommunicating can leaders ensure that their new belief system is accepted and embraced.

Step 3: Leaders need to measure the impact of new cultural norms on the company’s performance. To truly transform, leaders must identify new key performance indicators that link to their company’s emerging new identity and track and report them. If you don’t measure it, you won’t manage it, nor will you value it. Leaders and boards that continue measuring the same things they have always measured and valued will end up with what they already have — a slow-moving legacy business. But if they do want change to stick, they will need to follow up with adjusted compensation and rewards.

For example, Blockbuster measured brick-and-mortar stores and individual video rentals, while Netflix measured and built subscriptions (first with a physical product and then, explosively, through a digital platform). John Antioco, former CEO of Blockbuster, recognized the importance of heavily investing in a digital platform. But at the first hint of unprofitability during this investment in the transformation of his company, the board and investors quickly reverted to their old beliefs about what creates value and where to allocate dollars, and Antioco was ousted. Within a few years, Blockbuster declared bankruptcy.

Leaders often fail to change what they measure, manage, and report, hoping that somehow those parts of the system will be OK while the rest of the organization changes. But the best thing leaders can do to change behaviors is to change what is measured, managed, and reported.

Change Your Leadership Culture — or Your Leaders

Organizational culture has a strong impact on the efforts of an organization trying to adopt big data, machine learning, and network-based business models to catch up with today’s leading companies. The reinforcing loop — culture — is the foundation of that race. If leaders truly want to derive meaningful business benefits from analytics and platform models, they must proactively address their own core identities before trying to introduce large-scale transformation initiatives.

Most leaders simply don’t want to put in the work and examine their core beliefs, and neither do their boards. The fear is that they will become destabilized. As a result, both leaders and boards make short-term decisions to remain aligned with legacy industry norms that in the long run lead to their demise. Consequently, sometimes the only way out is to replace leaders, including the board (and, potentially, investors, too).

To paraphrase famed U.S. baseball manager Yogi Berra: You’ve got to be careful if you don’t know where you’re going, let alone what you stand for. Otherwise you might not get there.

Topics

The New Leadership Mindset for Data & Analytics

This MIT SMR Executive Guide offers new insights and strategies for how leaders can help accelerate their companies’ data efforts, from identifying the type of talent they need to shaping a company vision that supports a data-driven culture.

Brought to you by

See All Articles in This Series

Out of the Crisis, Into the Unknown

The COVID-19 crisis began in March in the United States and shows no signs of letting up. Globally, some organizations are adapting and holding their own. Some have been hit very, very hard. Most leaders are struggling to prepare for what could come next and to keep their teams engaged and moving forward.

In this webinar, leadership preparedness expert and MIT SMR author Eric J. McNulty offers strategies for adaptation, resilience, and building trust in a time of vast uncertainty.

Four Principles to Ensure Hybrid Work Is Productive Work

Leaders and the teams they manage are experimenting with new ways of working — both in the short term during COVID-19 and longer term for a post-pandemic world. The axes of work are pivoting simultaneously in terms of both place and time, with leaders designing hybrid ways of collaborating that have few precedents. It’s tough and, not surprisingly, causing confusion. How much flexibility around where and when people do their jobs is best? What strategies are most effective? Some CEOs envision that work will happen “anywhere” going forward, while others are asking employees to return to central office spaces. Some are accommodating flexible time commitments, while others are requiring their staffs to be available 9 to 5.

To find the right way forward, leaders must understand the axes of hybrid work — the upsides and downsides of where and when people work — and align them so that they feed the energy, focus, coordination, and cooperation needed to be productive.

In this article, I’ll lay out what I’m seeing in the evolution of hybrid workplaces and describe four emerging principles: Use office space to amplify cooperation, make working from home a source of energy, take advantage of asynchronous time to boost focus, and use synchronized time for tasks that require coordination.

The Axes of Hybrid Work: Place and Time

The place of work for many people has historically been the office. Separate from personal space and outfitted with all the furniture and technology necessary for people to do their jobs efficiently, the office has been a place of congregation, where people gather for one primary goal — to work.

During COVID-19, this has changed dramatically. For many people, work is now located in their personal spaces — their homes — while others are working in coffee shops, local hubs such as smaller satellite offices or flexible shared office space, or various combinations of remote locations.

But place is not the only axis that is pivoting.

There is now much flexibility around time — the periods when people are actively engaged in work. Time is being reassigned as schedules are extending into what was “private” time, with people fitting work into personal schedules that might include caring for family and friends, taking time out to keep healthy and fit, and even doing professional upskilling. At play is chronological time (based on a specific schedule, such as 9 to 5); synchronous vs. asynchronous time (the extent to which colleagues’ schedules coincide); and control of time (the degree of autonomy that can be exercised about work hours).

The Goal Is Productivity

To ensure that a hybrid work arrangement works, leaders have to build a context of place and time that accentuates rather than depletes productivity. As they do this, they need to consider the elements of productivity that are particularly sensitive to these features.

The essentials of productive work begin with energy. In most jobs, people are more productive when they experience positive vitality and well-being, and their productivity is depleted when they are exhausted or stressed and their working habits become unhealthy. The next essential for many jobs where real concentration is necessary is focus. When the context — that is, the place and time of work — allows people to focus, they can be highly productive. Their focus suffers when their context is distracting and their attention is scattered.

Beyond these independent aspects of work are those tasks that require teamwork. Some tasks demand significant coordination with others. When people can fluidly align with one another, they are able to be goal-oriented and efficient; when this alignment breaks down, teams become divided and disjointed. And then there are jobs and tasks that require teams to cooperate and actively share ideas in ways that enable them to ideate and innovative. When the contexts of place and time create barriers to cooperation, productivity can suffer. People can become resistant, and infighting can break out.

Choices about place and time present trade-offs. For example, with regard to place, working in an office aids cooperation because colleagues are better able to develop trusting face-to-face relationships, but it can also deplete energy if it involves a long commute and hours sitting at a desk. With regard to time, working constrained, inflexible hours aids coordination since colleagues’ time can be easily synchronized. But it depletes focus because it fails to respond to individual rhythms of concentration.

What these trade-offs mean is that while aspects of hybrid work have the potential to bolster productivity, they need to be designed with a level of intentionality about place and time that is not practiced in traditional work systems, where both aspects are constrained. This intentionality means understanding the crucial productivity drivers necessary for clusters of jobs (such as the ability to focus) and the context of work that best accentuates these drivers while being aware of the trade-offs. Addressing these design choices in ways that enable productivity to flourish will be crucial to facing the economic challenges stemming from COVID-19.

New Principles of Place and Time

I’ve been studying a range of companies to see how this intentionality is being played out. These are companies I was following even before the pandemic began. In a recent webinar for the companies in my research consortium that I hosted with HSM colleague Anna Gurun, we talked about the hybrid/productivity model. I asked the companies one question: How are you going to successfully navigate the next year of your company?

What I heard is hopeful: Across the world, some organizations are rapidly building practices and processes that enable them to use hybrid work to accentuate the elements of productivity (energy, focus, coordination, and cooperation). Others are honing procedures that have been their signature management practices for years. Taken together, we see the emergence of new principles for a productive workplace. They are designing short-term fixes to the challenges that COVID-19 has created while looking into the future to be sure that they build practices that are sustainable.

Place Principle: Design the Office for Cooperation

Being in the office is essentially a social activity. In my April column on how to help employees work from home with kids, I cited Stanford professor Nicholas Bloom’s celebrated study of call center workers who were given the option to work from home. After six months, over half wanted to return to the office, even with long commutes. They yearned for the sociability and face-to-face cooperation of being in a shared space with colleagues.

As companies begin to coax or expect employees to return to offices, it will be important to make the most of the experience. That will mean creating a place where cooperation and interaction can thrive right now while COVID-19 is still a concern — and in the longer term as hybrid work becomes the norm.

Making an office a place of cooperation depends a great deal on how a space is designed. This idea was uppermost for the global design group Arup and its design leader Joseph Correnza in building its Melbourne office. While the design decisions were made pre-pandemic, they were sufficiently flexible and “hackable” to be reconfigured for current circumstances while not losing the long-term aim of creating a highly collaborative, dynamic space allowing informal movement.

“We need these encounters with each other, and the quality of the space is crucial to how we listen and how we learn,” said Jenni Emery, Arup’s global people and culture leader. “We had to be really intentional and considered.” The number of closed offices was limited and much of the space was opened up. Sight lines across the entire building allow people to easily catch a glimpse of one another and see that they are part of something bigger. Emery says this has created all-important moments of serendipitous encounters. Cork flooring helps reduce the ambient noise and let human voices be heard.

I asked Correnza how a company without the mighty resources of Arup could approach this cooperative principle. He had three ideas: Reduce small personal spaces and give them back to cooperative space (when such seating arrangements are safe again); encourage teams to meet in the open, outside of meeting rooms, so others can feel the buzz; and move groups of people every quarter to new seating so that they meet new people.

Place Principle: Make Working From Home a Source of Energy

One of the overwhelmingly positive results of working from home during the pandemic is that people are able to reassign their former commuting time to activities that boost their physical energy (through exercise and recreation) and their emotional energy (by spending time with family and friends). Many home workers are also boosting their energy by walking in parks, eating healthy home-cooked food, and establishing closer links to neighbors.

That said, those with young children have found it tough to manage the boundaries between being a worker and a parent. If home working is to continue to be a source of energy in the longer term, it requires a level of intentionality in the expectations of both employees and employers.

For the telecom company BT, COVID-19 has created an opportunity to hone and accelerate its long-established home working principles. BT was, in 1992, an early adopter of large-scale, experimental work-from-home trials when call center operators showed that, even using rudimentary technology, there was a positive impact on their energy, well-being, and productivity. Since then, BT has steadily introduced new technologies to support the significant proportion of its workforce who were remote workers even before the pandemic sent more people home.

When Nicola J. Millard, a principal innovation partner at BT, studied the most-veteran home workers, she found that their home office setups played a key role in their success. While each remote worker had fashioned a unique space, what made a real difference was having a separate room, a large computer screen, and a good chair. Rituals also were important, including dressing in work clothes and following a “getting ready” routine as if they were leaving the house.

Many of these veterans also maximized their energy by using technology to ensure that they maintained boundaries between “on” time, when they were available to respond and collaborate with others, and “off” time, when they could engage in energy-boosting activities. They took proper lunch breaks and made sure they symbolically left the workplace at the end of the day. They also negotiated with family and colleagues so these boundaries would hold up.

Culture and management style is essential, Millard explained. “We have used our communication platforms to build lots of virtual team check-ins so people don’t feel isolated, and we engineer virtual encounters like ‘virtual coffee’ so people have a chance to chat with people they don’t know so well.” Most important, BT home workers have been able to succeed in this model. “We’ve really learned that focusing on outcomes rather than being present in the office is crucial,” said Millard. That has meant developing processes for virtual performance management that include regular team check-ins, one-on-one conversations, and monthly reports to management.

Time Principle: Let Asynchronous Time Boost Focus

There are some jobs for which focus is a primary productivity driver. Crafting a schedule that allows employees to disconnect for a solid five hours to concentrate, and at a time that fits their natural energy rhythms, can be hugely beneficial, whether they do this in a corporate or a personal space. For these people, asynchronous schedules are ideal.

The Washington-based consulting practice Artemis Connection was built around giving its people the tools to work on complex tasks that require deep concentration, creativity, and focus. CEO Christy Johnson explained to me that to be focused and productive, everyone is able to define and control their time in terms of when — and how much — they work.

What lies behind the capacity is a well-honed project management system. Each piece of work is divided into its component tasks and analyzed based on the likely amount of time needed to achieve them. They are then bundled up into 15- to 20-hour blocks. These blocks are then considered within the group and assigned to individual employees. “For example, we are scoping a client project to write an intelligence brief,” said Johnson. “We think it’s going to be roughly 60 hours of work a week, in three 20-hour blocks. We look at the permutations — for example, one person doing two blocks and another doing one.”

Employees can decide that their maximum focus time is 20 hours a week, while others can take on more. An up-front agreement of time and tasks “ensures that work won’t expand to fill the time,” said Johnson. It also means that people can work at their own rhythms. “For example, my best work is when I intensely focus for 90 minutes and then take a break,” said Johnson.

For many Artemis employees who have come out of the big consulting firms, owning their time is a real source of liberation.

Time Principle: Enable Synchronized Time to Be the Basis of Coordination

While some tasks are best fulfilled when people can focus and work on their own, others require coordinating in real time on projects with in-the-moment dialogue and feedback.

Typically, synchronized time occurs naturally because people are in the same place at the same time. But technological advances have enabled the design of synchronized time that is place-agnostic and where it is possible to create opportunities for fruitful, real-time virtual interactions. That was the insight of Selina Millstam, who heads up talent management and culture change at the Swedish communications technology company Ericsson. Her goal was to have a companywide conversation that would encourage people to share and coordinate their beliefs about which values and behaviors would be crucial to the long-term success of the business. The moderated conversation took place over 72 hours, with more than 95,000 employees across 180 counties invited to participate.

Employees were asked to set aside time to join the online dialogue. Facilitators from locations across the world kept the jam from being a chaotic free-for-all. For example, when people joined in the first hours, they were encouraged to jump onto conversational threads about each of the focus areas being driven by the culture change initiative. The shared time allowed people in different time zones to connect. For instance, a software developer in India talked at length to a customer relations person in Germany, creating an important thread to which others contributed. “There was something raw and authentic about listening to people speak and contemplate in the moment,” said Millstam.

Each participant was encouraged to reengage with the exchange in an asynchronous way as well over the three days — creating, in the end, more than 20,000 conversational threads.

Looking Forward

Every organization will have to brainstorm how to heighten energy, focus, coordination, and cooperation to make hybrid work productive work. I suggest that leaders keep four recommendations in mind in the coming weeks and months:

Don’t move too fast. Individual preferences will take time to become clear. It took six months of home working for the Bloom study participants to decide they wanted to return to the office. And in the early stages of the BT experiments, the productivity of home workers fell sharply before rising. Be wary of making early decisions that will have long-term effects — leave your options open.

Keep the trade-offs in mind. In designing new ways of working, be prepared for the downsides of each model. Working from home will boost energy, but it will also deplete cooperation. Managing these trade-offs takes creativity — such as the way the BT team established satellite offices for people living in similar communities to come together occasionally.

Resolve to experiment. There is a great deal we do not yet know. It is crucial to be prepared to take risks. The team at Ericsson overcame the challenges of virtual coordination by using a state-of-the-art online participative and facilitated platform. It took courage to do so — but along the way, team members learned how to encourage chance meetings across the organization.

Nurture the leadership skills that managing preferences will require. The variety of combinations of time and place that are possible will require highly competent and motivated leaders committed to making this work. It will require a degree of intentionality that has not been necessary in traditional working practices. For leaders, that means being empathic and listening to individual needs while also being creative in developing solutions.

Reprint #:

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Accelerating Supply Chain Scenario Planning

1.How to Adopt the New Style of Scenario Planning,” The Economist, June 2, 2020, https://applied.economist.com.

2. E.G. Anderson, R. Freeman, and N. Joglekar, “Ramping Up Elective Surgery After COVID-19 Disruption: Service Capacity Analysis,” SSRN, May 6, 2020, https://ssrn.com.

3. Anderson, Freeman, and Joglekar, “Ramping Up Elective Surgery.”

4.Operational Considerations for Managing COVID-19 Cases/Outbreak On Board Ships,” World Health Organization, March 25, 2020, www.who.int.

5. S. Phadnis and N. Joglekar, “Configuring Supply Chain Dyads for Regulatory Disruptions: A Behavioral Study of Scenarios,” Production and Operations Management, forthcoming.

6. N. Joglekar, G. Parker, and J. Srai, “Winning the Race for Survival: How Advanced Manufacturing Technologies Are Driving Business-Model Innovation,” SSRN, May 27, 2020, https://ssrn.com.

i. C. Caplice and S. Phadnis, “Strategic Issues Facing Transportation, Volume 1: Scenario Planning for Freight Transportation Infrastructure Investment” (Washington, D.C.: The National Academies Press, 2013).

Customer Experience Considerations for Tech Leaders

Tech leaders must make sure the infrastructure they build enables excellent customer experiences, especially when it comes to self-service. In today’s post-COVID-19 environment, what considerations have changed?

Please join our panel presentation and discussion, as speakers explain how leaders should approach the investments that both enable and enhance customer service through digital self-service experiences. The optimal strategy combines sound infrastructure with emerging technologies that work together for peak customer experience.