Friday, January 14, 2011

Assessing Your Firm's Culture

Most A/E firm principals give little formal attention to corporate culture. Maybe they don't understand its powerful influence on business performance. Perhaps it seems too complex or intangible, a matter outside their expertise. Or maybe they simply take it for granted, assuming that the firm's culture naturally mirrors their own values and perspectives.

Whatever the reasons, ignoring culture may hinder your firm's success. That's because culture strongly shapes how things get done within the firm. It often overwhelms attempts to change strategy, procedures, or organizational structures. It defines the company's real values, no matter what precepts are officially espoused. Culture largely determines the nature and quality of the work environment.

So what is your firm's culture like? Have you ever made a detailed assessment of it? Have you ever clarified what you wanted it to be? Does your culture align with the way
you want to do business?

Admittedly, evaluating your culture can be complicated. One study, for example, identified 39 important cultural indicators. Various classification systems have been devised, and there's little commonality among many of them. But thankfully there are simpler and more practical cultural models out there that you can use in looking at your firm's culture.

I've adapted one such model from a white paper by Bruce Tharp, w
ho based his model on the synthesis (by others) of several studies on organizational culture. This research concluded that corporate culture tends to be shaped along two dimensions, what I call:
  • What drives you, which relates to focus, motivation, and priorities. In the matrix shown below, this is the horizontal axis between internal focus and external focus. Both are critical elements of a firm's culture, but the question is: What tends to take priority? Clients or projects? The practice or the business? Building your expertise or strengthening your market position?

  • What steers you, which relates to structure, organization, and control. It's how you do the work. This is the vertical axis between the two poles of empowerment and control. Once again, you need aspects of both, but where does your firm place the emphasis in trying to maximize technical and business performance? Individual performers or teams? Decentralized or centralized authority? Loose or tight?
To assess your culture, start by plotting where on the matrix you think your firm best fits relative to each axis. I realize this can be difficult because different aspects of your operations will likely fall different places along the two axes. You may be "tight" with respect to quality control, for example, but "loose" regarding billing and collection practices. It may be helpful to break out different aspects of your firm and plot them separately, then chart your position based on the resulting cluster.

Remember that the discussion surrounding this exercise is more valuable than how you plot your position on the matrix. The matrix is a tool to support your analysis, not the ultimate outcome. I would also encourage you to engage people from different levels of the firm, and from different offices. They are likely to bring significantly different (and possibly more accurate) perspectives to this exercise than that of management alone.

With your position plotted, you will find yourself in one of four quadrants corresponding with four basic types of organizational culture. These are briefly described below:

Collegial culture. This culture is characteristic of perhaps most A/E firms, where there is a looser structure and the focus is on doing the work. Technical professionals tend to resist management control and prefer concentrating on their areas of expertise. Many collegial cultures offer an open and friendly place to work, where teamwork and consensus are valued. With seniority there is a substantial amount of freedom and discretion permitted. Leaders tend to be more mentors than managers, their stature within the firm often based more on technical qualifications than leadership skills.

Entrepreneurial culture. This culture is more common among younger, smaller firms that have a strong marketplace orientation combined with a flexible, dynamic structure. A passionate focus on building the business and responding to clients tends to resist organizational constraints. These firms often promote innovation and are willing to take risks. Individual initiative and creativity is encouraged. There is usually an emphasis on growth and carving out a competitive edge. Leaders in an entrepreneurial culture are also more likely to be like mentors than bosses, but their status in the firm is based more on their client skills and ability to bring in the work.

Hierarchical culture. As firms grow larger there is a tendency to exert management control through standardization and a well-defined structure for authority and decision making. The focus is more on internal operations and organization. There's a heavy emphasis on "making the numbers," but attempts to improve performance tend to stress internal functions rather than market-based strategies. Hierarchical cultures are usually characterized by ever-increasing rules and bureaucracy. Effective leaders in this culture excel at organizing, coordinating, and monitoring people and processes.

Competitive culture. Firms with this culture have similarities with the hierarchical model in their preference for organizational stability and control. But they maintain a strong focus on clients and the marketplace in which they compete. Competitive cultures stress performance improvement based on excelling at business development, client retention, and market positioning. These firms share the external focus of entrepreneurial firms, but approach it with more structure and process. They tend to favor a more transactional (as contrasted with a relational) approach to developing new business. Leaders in this kind of firm are similar to those in the hierarchical model, but stress competitiveness and differentiation.

So Why Does This Matter?
This topic is likely to seem tangential to many of my readers. Does it really matter if you understand what your firm's culture is like? What are the practical benefits of assessing your culture as I've outlined above? Let me attempt to make the business case for taking a closer look at your culture:

Strong corporate cultures deliver better business results. Harvard researchers John Kotter and John Heskett found that companies that had a well-defined culture built upon a foundation of shared values outperformed other companies by a large margin: Their revenue grew 4x faster, their rate of job creation was 7x higher, their stock price grew 12x faster, their profits were 7x greater.

Strong cultures are the product of deliberate design and effort.
The research of Kotter and Heskett also bears this out. To have a culture that drives better business performance, you need to start by understanding what you currently have. What elements of your culture do you value and want to reinforce? How? What aspects of it need to be changed? For more on this topic, check out my earlier post, "Natural Selection vs. Intelligent Design."

Strong cultures are threatened by lack of operational alignment. Shared values and consistent practice form the foundation of strong cultures. When some company practices and policies conflict with the cultural norm, it weakens the culture. Lack of operational alignment is quite common, in large part because it's not recognized as such. Doing a cultural assessment is one way to bring this problem to light.

Strong cultures are threatened by growth and turnover. If you haven't articulated what your culture is, it's very difficult to pass it on to new employees. I've seen firms essentially lose their cultural identity through staff growth, turnover in key positions, and mergers and acquisitions. If you want to preserve the cultural strengths that define your firm, it's important to clarify what those are.

Effective change must be embedded in the firm's culture.
Since culture innately defines how things are done in a firm, any attempt to change practices must be done in cultural context. Connecting change to culture was one of the critical steps that Kotter observed in his study of successful organizational change initiatives. This is difficult to do if you're not really sure what your current culture is, or how you might like to change it to achieve your firm's strategic goals.

So if you haven't already, let me urge you to take some time to explore your firm's culture. Is it really what you think? Look at the evidence. Remember, your true culture is expressed in behaviors and practices, for good or bad. If you examine it more closely, you might be surprised what you find--for good and bad.

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