Stop Blaming your Culture

Written by Frederick on . Posted in Transformasie

Turning Around Mother Aetna

One executive leader who worked expertly with his existing culture was John W. (Jack) Rowe, CEO of Aetna Inc. from 2000 through 2006, chairman from 2001 through 2006, and currently on the faculty of Columbia University’s Mailman School of Public Health. A former gerontologist at Harvard Medical School, Rowe — along with Aetna’s then president, Ronald Williams, who became CEO upon Rowe’s retirement and is now the company’s chairman — led one of the most successful turnarounds in U.S. corporate history. In five years, Aetna went from losing $1 million per day to earning $5 million per day.

The Rowe/Williams effort was the fourth attempt to transform Aetna’s strategic performance in 15 years. The previous three efforts were derailed by the culture, which was known within the company as “Mother Aetna.” This mind-set pitted the 40,000 employees of Aetna against everyone else the company had to deal with, for example, doctors, patients, medical providers (such as hospitals), and the employers who bought insurance. This “us-against-them” attitude had given Aetna a reputation as the most suspicious, recalcitrant, and bureaucratic health insurance company in the United States. All three previous top-down change interventions tried to increase the staff’s empathy for customer organizations, sensitivity to doctors, and responsiveness to patients. Two efforts basically ignored the culture, and the third tried to smash it apart. All failed.

Rowe often describes himself as the least likely person for the Aetna board of directors to pick as CEO. “I never ran a business,” he says. “I had never been to business school, or had any commercial management experience. The only thing I’d ever done was take care of patients and try to make hospitals do better.” That willingness to admit he didn’t know everything served him well. He started by identifying about 100 people throughout Aetna as “non-hierarchical influencers.” He sought them out informally, asking them to help him understand how employees felt — about customers and patients, about their own work, and about the goals of the company. These people acted as what anthropologists call key informants: cultural guides who could help him get to know the company more intimately than he ever would through purely formal channels. He stayed in touch with them continually, through e-mail, one-on-one visits, and group discussions. They gradually became the core of a group of people who shaped and supported Aetna’s new strategic direction.

Second, he set out to reconsider the company’s shared values. Aetna had been in business since 1819 (in its current form, since 1853), and its company statements about such values as honesty, caring, truthfulness, and teamwork were long established. But they weren’t congruent; he uncovered at least a dozen different formal values statements that various leaders had put forth over the past decades. So Rowe set up dialogues in Aetna offices around the U.S., on the subject “Why aren’t our shared values practiced in interactions with our customers?” People discussed this question in groups of about 30, defining specific ways in which they (and others) might act differently.

After 20 or more such events, Rowe worked with several of his colleagues to write up a new statement of values and behaviours. He also set up what came to be called purpose-driven councils — cross-functional groups designed to find ways to make critical changes happen. Rowe and his team designed these councils with three distinctive characteristics. First, they assigned each an explicit purpose, such as organizational effectiveness (developing a plan for restructuring the company) or strategic direction (developing a plan for prioritizing customer opportunities). Second, they enlisted members who were well respected by their colleagues and who had many informal connections. Third, they gave the council’s decision authority over the areas they were investigating. The strategy council’s efforts eventually led Aetna to spin off its financial-services businesses and discontinue some unprofitable offerings, such as health insurance in certain countries.

The new formal practices were congruent with the values in the culture. For example, the executives laid off about 15,000 people, or almost one-third of the workforce. But they did it in a relatively transparent, compassionate way, with a clear rationale for those chosen to leave, and with pay increases and stock options (along with an increased work week) for those who remained. Rather than worrying that their jobs might be next, the remaining staff at Aetna now had a culture that they had helped define, in which they felt more a part of the growth direction.

Rowe and Williams also commissioned a cross-organizational effort to build motivational capability among the most respected frontline supervisors in the company. These “master motivators” were respected by their peers; they connected widely and virally in ways that energized many of the changes.

The Power of Behaviour Change

The notion that behaviour change leads to attitude change can be traced back to the 1950s, to psychologist Leon Festinger and his theory of cognitive dissonance. Festinger argued that when people are induced to act in new ways, even if those new behaviours feel unfamiliar or wrong at first, their need for consistency will gradually affect the way they think and feel. They will seek out reasons to justify their new actions — both rationally and emotionally.

Behaviour change affects attitudes most powerfully when it is supported by empirical evidence and real-life observation of better results. Direct experience trumps the old beliefs of an established culture. If that experience is reinforced by a group of people, then it is far easier to change a culture than most people believe. But you must focus on changing the behaviour rather than engaging with the culture directly.

In emphasizing behaviour, you are looking for those few actions, conducted again and again, that will lead to better values (and thus to better results). Make clear the distinctions among the values you want to develop, the one-time actions you are changing, and the recurring behaviours you hope to instil. A commitment to service, for example, is a value. When a retail salesperson expresses that value by helping a customer exchange a purchase, that’s an action. When the salesperson does this routinely, knowing that over time it will help solidify customer loyalty to the store, it’s a behaviour. Similarly, frugality in government is a value. When a prime minister flies on a commercial airline once (as U.K. leader David Cameron did to the U.S. in July 2010, shortly after his election), that’s an action. When the prime minister does this consistently, as Singapore leader Lee Hsien Loong does, that’s a behaviour — and it is likely to have much more cultural impact.

Thus, if you are seeking more accountability, identify the types of ongoing behaviour that embody that value. You might have to be specific: “I expect you to read, record, and respond to every customer complaint — and I will reward or penalize you accordingly.”

These new behaviours can be startlingly simple. Years ago, Shell Oil Company (a subsidiary of Royal Dutch/Shell PLC) had a reliability problem in the global refinery system. It was traced back to the safety and quality control processes, which were designed at the central office but not followed consistently at the refineries. Instead of launching a broad accountability initiative, a peer group of managers convinced the executive leaders to institute one new behaviour. Before initiating any new process, central office managers had to ask local people how they could best introduce it. That simple behaviour change, conducted by just a handful of corporate executives, ensured consistent implementation of the new process.

Repeated behaviours have cultural impact because they are contagious. People unconsciously imitate what they see others do. This is particularly true among respected colleagues; mutual respect is a powerful source of influence. Even small changes in behaviour, if they are picked up by more than one individual, can ripple through an organization as others see their value and begin to act accordingly.

In moving people to change behaviours, you will need to rely on both rational arguments and emotional appeal. On the rational side, you need to make a case for change: Here’s why this particular behaviour is needed. Help people recognize, for example, how the new behaviours will support the firm’s business strategy, will improve customer retention rates, or will be received by Wall Street analysts.

But emotional factors will undoubtedly matter even more. Compassion, fairness, and environmental responsibility are very convincing motivators. So are relief from anxiety and the opportunity to work more congenially with other people. Many employees will likely be concerned about how the changes will affect their peers, their own ability to take pride in their work, their work–life balance, and their family’s and community’s reactions, as well as the firm’s reputation. These issues must be addressed at a gut level, to ensure that acceptance of the change will be genuine, enthusiastic, and widespread.

Understanding without acceptance and commitment will not suffice. Nor will acceptance and commitment suffice without discipline, alignment, and the right capabilities. The rational and emotional elements need to align to yield sustainable change.

Pragmatic Practices

Numerous principles for changing culture through behaviour have become evident through ongoing practice.

• Start pragmatically. Don’t try to change everything at once. Focus on a few critical behaviours that resonate with your current culture, but that will raise your organization’s performance. Explicitly identify the target group — the employees whose behaviour needs to change — and bring the necessary changes to life by demonstrating them.

• Reinforce the new behaviours through formal and informal means. Provide formal metrics, incentives, and process guidance that lead people to practice these new behaviours again and again, until they experience their value. For example, set up appraisals, salary reviews, and training to reinforce and reward the new behaviours you seek. At the same time, develop informal connections that foster the responsiveness and emotional commitment needed to deal with the unexpected. When there’s a challenging situation, like Shell’s reliability issue, cultivate support networks of people who can assess it and put in place actions not prescribed by process and procedure.

• Seek out role models for the new behaviour. Start with the most effective practitioners, the people who distinguish themselves by the way they act. We often call these individuals pride builders because their example helps instil pride about the behaviour change. They can also help you find ways to get others to adopt the same behaviour. This work is sometimes known as looking for positive deviance.

Several years ago, Bell Canada — a 35,000-employee telecommunications company owned by BCE Inc. — started with a dozen such pride builders. They rapidly became exemplars for others, and they helped explain to the executives why people did not always adhere to the critical behaviours. The CEO then asked the group to help develop at least 1,000 more exemplars by the end of the year. Each member of the first group identified 10 or more other pride builders, and the group took off exponentially. With several more iterations, this effort directly touched more than 15,000 employees — more than a third of the entire workforce — by the end of the year.

• Enlist your current “cultural carriers.” These are the people who are well positioned to transmit behaviours to others, and who can be developed to spread the positive elements of the existing culture. In the early 2000s, Reliant Energy recognized the value of cultural carriers during an operational performance improvement program. After defining a small set of behaviours for collaborative work across functional silos, Reliant identified the people who had to act differently in order for the new behaviour to take hold. Then, through a combination of training, incentives, and peer-to-peer reinforcement, Reliant induced these individuals to change first. This effort enabled the company to capture $600 million of value during the first nine months.

Any leader can do something similar, but take care that the effort is simple, clearly focused, collectively reinforcing, and not threatening to those who aren’t included. Suppose that you’re the head of strategy, frustrated at the way such new directives are executed. Have the top leadership identify 10 people who are linchpins of strategy execution — whose participation is critical to any serious strategic effort. Bring them together to talk about the barriers they face when trying to execute new ideas, and the ways that they might overcome those boundaries. Look for places where resources can be organized differently, and develop an agenda accordingly.

• Use the culture you already have. Take pains to stay within the most essential tenets of the existing culture. Make sure you understand clearly the reasons that current practices exist before you try to change them. In the wake of the Deepwater Horizon oil spill of 2010, many oil companies are being forced to change their safety and environmental practices. It can be surprisingly difficult to do so, because the existing performance contracts include strict requirements about timing and deadlines. The only way around this is to explicitly rethink those restrictions, taking on the difficult challenge of designing new behaviours that can improve safety while maintaining an acceptable pace. What is required here is an integration of process discipline and individual initiative and the courage to step up when the unexpected occurs.

• Model what matters most. Be a visible and consistent role model of the behaviour change you want to see in others. When he was interim CEO of General Motors leading the company’s remarkable transformation after the U.S. government bailout in 2009, Fritz Henderson repeatedly admonished his staff to be “individually and collectively accountable,” which meant focusing only on activities directly linked to business results. Henderson’s remarks didn’t have much impact until he provided examples. He posted e-mails with typos, showing that quick decisions were more important than painstaking attention to appearances. There were also more dramatic examples, like making nearly every major decision on the spot himself rather than waiting for consensus.

Perhaps the most telling moment came when Henderson was handed a 300-page binder of backup information as part of his preparation for testifying before the U.S. Congress. The next day, he asked his chief of staff to tell the research team to stop. “It must have taken 20 people a month to produce this report. And I’ll never use it. I’d rather have incomplete information [than this unnecessary work].”

• Clarify the specific implications of the new behaviour. The new CEO of a large financial-services institution announced one of his highest priorities: a new approach to managing the trade-offs on uncertain deals, which he called taking measured risks. Although he talked about it constantly, and employees understood its importance, many people still needed more guidance. “I work in legal,” someone might say, “and I’m not sure what this means to me. Am I supposed to be taking more risks, or am I supposed to help others by pulling on the reins when they go too far?” The answer might well have been “a bit of both,” but it needed to be spelled out.

Similarly, in the midst of any cost reduction exercise, people need guidance about new behaviours. How will they monitor expenses from now on? How should they call attention to wasteful activities that they do not control? If a utility shifts from being a government-owned enterprise to a privately held company, the culture may need to become more focused on customer service. What kinds of things could people do differently? What kinds of regular reminders can be put in place to reinforce key behaviours? Which aspects of subscriber outreach matter most?

Culture Consciousness in Times of Change

Every corporate culture has behaviours that will help you enable the change you want and others that will hinder it. As you become skilled at picking the enablers out and developing them, this kind of adaptability will become part of your own distinctive corporate identity. This is critical to the lasting success of peak-performing enterprises. Your culture can thus become a major factor supporting your strategy. Its overall strengths are one of your company’s intangible assets, and it should be factored into where you decide to compete, how you intend to win, and what operating model you work within.

As you continue to work with and within your culture, you will find it continually changes, keeping pace with the changes in the marketplace. Your operating model and the execution of your strategy will change accordingly. To be sure, deeply embedded cultures change slowly — far more slowly than the business environment. But some cultural elements can adapt more rapidly, particularly if you encourage your pride builders, culture carriers, and leading-edge thinkers to experiment with new ideas, such as digital media or new forms of customer service, and spread their experience through the networks that you have fostered.

Whatever happens in the outside world, however, keep your internal focus on the few critical behaviours that matter most — those that determine your strategic and operating performance. Find ways to measure both the behaviour change itself, and the results it produces. Resist the temptation to attempt changes in the behaviours, attitudes, and values of the system all at once. Remember, it is much easier to act your way into new thinking than to think your way into new actions.

Reprint No. 11108

AUTHOR PROFILES:

 

RESOURCES

  1. Joel Cooper, Cognitive Dissonance: Fifty Years of a Classic Theory (Sage, 2007): Solid introduction to Leon Festinger’s grand idea and its relevance to today’s conflicts.
  2. Jon Katzenbach and Zia Khan, Leading Outside the Lines: How to Mobilize the (In)Formal Organization, Energize Your Team, and Get Better Results (Jossey-Bass, 2010): Integrating formal and informal measures (with more on the Aetna story).
  3. Jon Katzenbach and Zia Khan, “Leading Outside the Lines,” s+b, Summer 2010: How StockPot, a division of Campbell’s Soup, used metrics to shift cultural behaviour.
  4. Richard Pascale, Jerry Sternin, and Monique Sternin, The Power of Positive Deviance: How Unlikely Innovators Solve the World’s Toughest Problems (Harvard Business Press, 2010): Changing behaviour by championing people who get better results.
  5. Edgar H. Schein, The Corporate Culture Survival Guide (rev. ed., Jossey-Bass, 2009): Realistic, masterful handbook for diagnosing your culture and raising its tacit assumptions to the surface.
  6. The Katzenbach Center website: Ongoing source of research and insight on culture change theories and methods.
  7. For more thought leadership on this topic, visit s+b’s website at: www.strategy-business.com/organizations_and_people

 

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