A single approach to culture transformation may not fit all

Courtesy of McKinsey & Company

By Emily Field, Elizabeth Pears, and Bill Schaninger

Imagine a large consumer-packaged-goods (CPG) organization with lots of business units, all seeking to maximize their own profit-and-loss statements (P&Ls). To keep up with and ultimately surpass competitors, senior leaders at the center of this CPG behemoth want to make significant investments in innovation and new markets—and, in a change from current cultural practices, they want all the business units to cooperate to fuel this growth.

The problem is that the organization isn’t ready to abandon its decentralized operating model, which allows business unit leaders to establish their own cultures and execute with autonomy. As a result, senior leaders at the center are left with a playbook of strategic moves that need to be copied, cut, and divided across business units, as well as the nagging feeling that transforming the organization unit by unit is unlikely to work.

In our work supporting transformations at a range of global organizations, we’ve seen this scenario play out time and time again. It doesn’t have to, however. Companies can achieve cohesion among decentralized business units and transform their cultures—but only if senior leaders take time to identify and commit to a common cultural goal and then set minimum standards for how each business unit will achieve it. That involves asking what is the business unit expected to change, how will it change, and who is responsible at that level?

The companies that embrace this loose–tight structure may realize quicker decision making, greater operational agility, and stronger buy-in and engagement from teams—usually resulting in better overall performance.

Committing to a common cultural aspiration

Research shows that transformations are more likely to succeed when the proposed culture change is in line with the company’s overarching strategy and value creation goals.

In practice, it can be difficult to get such agreement. Imagine an internal product team and a sales team within a large organization. The product team is necessarily focused on continuous improvement—engaging in lengthy quality-control processes, for instance. The sales team, by contrast, is focused on fast-changing market and customer behaviors. One is focused internally, the other externally. The organization will end up working at cross-purposes if people in these groups run off in separate directions, doubling down on their own timelines and approaches to management.

Instead, senior business leaders could identify a common cultural aspiration that will require the business units to consider their approaches to management in the context of how they create value for the whole organization (not just their unit) and, therefore, which actions to take to help transform the organization.

How can senior business leaders identify this common cultural aspiration? Put simply, it will require data and debate. Senior business leaders can use surveys to gather insights from leaders and employees in the business units about perceived sources of competitive advantage. And they can conduct workshops, focus groups, and other forums for debating the merits of various business units’ approaches to management: Do current incremental improvements to existing products yield better results than would a shift to bold product innovations? The time it will take to craft this story will depend on organization- and sector-specific factors, but eventually, a list of standard management practices and a cohesive change story should emerge from these discussions.

Through this exercise, leaders in the individual business units will be able to draw explicit connections between their day-to-day work and the organization’s broader strategic objectives. In the case of the product and sales teams, for instance, a product manager would better understand how her team’s quality-control processes might benefit from the same external, customer-focused lens her colleagues in sales are using—even if the primary goal of those quality-control processes is to foster continuous improvement internally.

To put teeth into the organization’s common cultural aspiration, senior business leaders need to identify and ask the business units to commit to KPIs that are directly linked to the achievement of this aspiration, as well as the desired management practices or behaviors. The product and sales teams, for instance, may both be working toward a group target of achieving top-quartile organizational health within 24 months.

Making change happen: What, how, and who

When the business units within a federated organization are asked to come back to the center, the tension can be palpable. The central team managing the cultural transformation may be viewed as doing something to the business units rather than with them. Having a common cultural aspiration as the touchstone can mitigate some discomfort and miscommunication—but so can letting the business unit leaders retain ownership and accountability for what’s changing, how it will happen, and who is responsible.

What you’re changing: Mindsets and behaviors

To transform the organization, companies should consider identifying the discrete day-to-day individual behaviors that need to change. Do you want to move away from a federated model? You could encourage leaders to be more collaborative in their decision making and provide more incentives to employees to share knowledge and work across silos. Do you want to emphasize continuous improvement in products or operations? You could establish mechanisms by which managers can regularly provide and solicit feedback from direct reports. Do you want to lead the market in innovation? You could teach employees about product development and customer needs assessments and find ways to help them protect their time for entrepreneurial projects.

In all these cases, no one intervention will fit the bill. Companies can, however, apply four established change management levers, in some combination, to shift individual mindsets and behaviors relevant to cultural aspirations. These are the four levers: role modeling, understanding and conviction, formal reinforcement mechanisms, and confidence and skill building. Each business unit can be responsible for creating and implementing standard interventions in these four areas—although they should be given leeway to determine how and when to initiate them.

When it comes to role modeling, for instance, the most influential employees and those in the most critical roles should be encouraged to lead initiatives associated with achieving the common cultural aspiration—for instance, asking them to pilot a “role rotations” program across business units to encourage collaboration and break down organizational silos. To create greater understanding and conviction, business unit leaders could define and use KPIs that are directly linked to the agreed-upon common cultural aspiration, and senior management could find ways to communicate early and often about the overarching change story and how various business units are playing their parts.

Formal reinforcement mechanisms, such as holding an annual “Innovation Olympics,” could be introduced across the business units—although each could deploy these mechanisms differently based on priorities specific to the business unit. In a product team, for instance, the competition might be focused on how to better address customer pain points, while in the sales team, the theme of the Olympics might be on ways to shorten the sales cycle and increase conversion rates. When it comes to capabilities and skill building, senior managers at the center and the business unit leaders could jointly identify critical skills to, say, lead the market in innovation. They could then develop “learning journeys” that could be applied in a fit-for-purpose way, depending on roles, responsibilities, locations, and so on.

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About the author(s)

Emily Field is an expert associate partner in McKinsey’s Seattle office, Elizabeth Pears is a manager of strategic projects in the Waltham, Massachusetts, office, and Bill Schaninger is a senior partner in the Philadelphia office.