Why Cultures Fail

Here’s the problem: Culture has been corrupted by “cool”.

In the last few years there has been ample research which proves that having a strong culture is an incredibly powerful tool for recruitment and retention, and consequently is a driver of revenue. In fact, one report found that companies with “extremely healthy” cultures were 2.5X more likely to report significant share price growth over 3 years. In contrast, hiring a poor culture fit* can be a costly mistake — one for which organizations pay an average of 50–60% of that employee’s salary.

As the evidence grows, companies are finally starting to pay attention. Caring about culture has finally become cool — and companies are investing heavily in it. This should be a good thing, right? The problem is, they do so without examining what actually makes a good culture, and not all cultures are created equal. So what determines why some efforts work and others don’t? Why, despite a company’s best attempts, do some cultures fail?

Magpie Cultures

Prominent organizational behavior scholar Edgar Schein defines culture in three categories: Artefacts, espoused values and beliefs, and basic underlying assumptions. As the most visible of the three, artefacts is the category that companies commonly latch onto first when they decide to invest in their culture. Artefacts include things like a rebrand, a beautifully decorated office, and amenities like free food, games rooms, and happy hours.

Companies spend vast amounts delivering these artefacts to their employees — only to find that playing in the games room is frowned upon, and everyone is eating lunch at their desk anyway. The problem is, without real cultural change all these things are purely ornamental. These companies have created what I call a “Magpie Culture” — they have a very flashy collection of useless stuff. I’m not saying these things can’t contribute to building a great culture — they can, and they do. But only when that culture already has a solid foundation. Without that, they’re just shiny things.

“I like to think of culture as a lily pond. On the surface, you’ve got leaves and flowers and things that are very visible. But to understand why and how those things are there, you must look at the root system, what’s feeding it, who planted what. If you don’t dig down into the reasons we do things this way you’ve only looked at the culture at a very superficial level and you haven’t really understood it.” — Edgar Schein

The Vanity Values Fallacy

So now that we understand that free lunch does not a culture make, we need to unpick how to build solid cultural foundations that give practices and artefacts meaning. That leads us to Schein’s second category: espoused values and beliefs.

It should not come as a surprise that it’s important for a company to craft their core values and mission statement early in their life. Most companies do so because they know they should. They think about what they want to be and generate some values that are optimistic, often vague (think “growth”, “trust”, “integrity”) and largely removed from reality. They’ve done the work with the best of intentions, but for the most part employees forget about them on a day-to-day basis. These values ultimately become just another artefact — decorative, but frivolous. They’ve fallen for the Vanity Values Fallacy — by creating values that aren’t grounded in reality, they may as well have not done the work at all.

By contrast, when company values are “real”, they truly become the north star in the age-old definition of company culture — “how we do things around here”. They become the rulebook to which everybody refers when making difficult business decisions, they are woven into the vernacular of the employees, and they provide a framework for hiring practices. So what’s the difference between vanity values and “real” values?

It comes down to how they were created. To avoid creating vanity values, your values should be ~80% grounded in reality, and only ~20% aspirational. They should be you — on your best day. They should be created with input from across the company, not just by a few leaders (or lawyers) in a conference room. Values should capture what makes a company unique, and codify it in a way that makes a company proud. Don’t ask, “what do we want to be?”. Instead, ask, “what makes us who we are?”.

The Emperor Has No Clothes

Schein’s third category- basic underlying assumptions — is where culture actually comes from. Basic underlying assumptions are what people think and how they act when nobody is watching. They comprise a company’s DNA, it’s default setting, and it’s truest form. Everybody at the company has them, but the assumptions of the founders and leaders matter most because they tend to make hires in their image.

Basic underlying assumptions will always undermine the most carefully crafted values or the snazziest office accessories if they are misaligned. And that’s the problem — leaders will often act how they think they should act, rather than in accordance with what they actually believe. That inauthenticity voids all other efforts toward cultural reform. It’s the difference between saying you support diversity and inclusion, but having no initiatives in place to improve it. It’s the difference between offering Friday happy hours, but expecting everyone to work through the weekend. If the true assumptions and modus operandi of your CEO and leadership aren’t utilized, your culture is doomed to fail.

Here’s what to do about it: Ask them. Ask your leaders the questions which will reveal who and how they are, not who and how they want to be. Ask them what they believe, which of those beliefs they want to imbue into the company they are building, and which they don’t. I think that’s what sorts good leaders from great ones: The ability to be honest with oneself about your assumptions, and the humility to edit those assumptions to form the basis of a great culture.

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Ultimately, culture is an embodiment of the underlying assumptions of everyone at the company, but it’s those of the leaders that really steer the ship. You cannot have a successful culture without building it from the basic underlying assumptions up. Take the time to understand and refine them. Then codify them as values, and celebrate them with artefacts. Every great culture that moves the needle is built on truth and authenticity.

*This does not mean companies should hire people who are all the same. Culture fit is based on values, and values span demographics. Diversity is incredibly important and also completely compatible with hiring for culture fit.