From the August 2007 issue of Investment Advisor • Subscribe!

Prevailing Winds

Cultures often stagnate when the biggest windbags get their way

"Culture eats strategy for breakfast." I've pondered this line, attributed by a Stanford professor to a sign in the Ford Motor Company board room, as I work with firms that struggle with the simple acts of implementing their strategies. For at least half my consulting career, I focused on the mechanics of business planning, business management,

and strategic focus, with less emphasis on the environment in which all this took place. Now, I'm trying to understand what defines an organization's behavior and actions, what kind of people are attracted to certain businesses, and how infected cultures become impediments to progress.

It has become clear to me that many advisory firms suffer from "cultural lock-in," in which businesses refuse to adapt their enterprises to a new environment in spite of obvious influences that tell them they should. It could be market dynamics, talent shortages, new competition, or client demands that force advisors to revisit their business models. But inevitably, there are people who say, "What has worked for us so far, will work for us in the future. If we aren't growing fast enough, then people have to work harder; if we aren't profitable enough, then people have to work harder; if they don't like it here, they can leave."

Intransigence is rarely an appealing trait for business leaders, and it is especially maddening in organizations in which the leaders do not tolerate fresh approaches and challenges to their vision. We consistently find that people who have deluded themselves as to their own greatness, instead of being self-aware, suffer from this ailment the most. They are able to fill windsocks with a bluster and bravado that stifle other points of view, even if those contrary perspectives might help to salvage their businesses. Cultures that encourage discussion, debate, and closure seem to flourish. Business owners who are threatened by the possibility that those who work for them may in fact have the design for a better mousetrap often lose the opportunity to change and grow.

One firm we worked with last year typified this problem. They had multiple partners ranging in age from 35 to 60. The firm had an excellent reputation in its community, and client surveys consistently described them as trustworthy, responsive, and technically proficient. Yet all the advisors operated in silos, with little integration among them, and in most cases, each partner could hardly abide the others. We were asked to help them develop a succession plan, but what we discovered was a business that had the potential of imploding well before they got to the next stage in their development. Each partner was protective of his turf and unwilling to adapt the business to the reality that confronted them. While the public perception was one of excellence, the internal perception was one of incompetence and arrogance. The younger advisors were encouraging a change of course, but the loudest voices shouted them down and in fact resented any suggestion that there could be a better way.

Eventually, the wheels came off. Due to cultural lock-in, the older, dominant personalities prevailed in their positions, but the talented younger staff defected to competitors or to form their own firms. The shame of this episode is that the younger folks were actually onto something and were not posturing to gain position but were trying to make a constructive change in the direction of the business. The inability of the younger staff to communicate clearly and the unwillingness of the older partners to respond like adults put them on a path to self-destruction. Eventually, all actors in this play found it more fulfilling to talk negatively about their colleagues to others. This was the beginning of the end. The older partners got their way, but at what cost?

This Pyrrhic victory is quite commonplace in entrepreneurial businesses when the leaders are threatened by change and paralyzed by fear of the unknown. Instead of viewing open dialogue and even criticism of processes as constructive ideas, they see themselves under personal attack. While these emotions may be real, they are not helpful. The hardest job of a manager or leader is to accept that criticism from the troops is part of the job. The challenge is translating this tension into forward movement for the business. The healthy response is to see confrontation as teaching moments and opportunities to create a positive, productive culture.

Take Inventory

A few years ago, we surveyed the staffs of advisory firms to understand their attitudes toward their bosses, businesses, and careers. Almost a quarter of the respondents indicated they were looking for jobs elsewhere, and the biggest reason cited was lack of confidence in management. Not money, but work environment.

As advisory practices evolve into larger enterprises, it's important for the principals to take inventory of the culture they have built and make adjustments to form a culture that they and motivated people will enjoy. In his Corporate Culture Survival Guide, (Jossey-Bass, 1999), Edgar Schein outlines how to do so:

1. Mission: What is the fundamental mission of the organization? What is its reason for being? Where did the strategy and goals come from?

2. Means: How did the organization develop its approach to meeting goals? Does the structure and design of how work gets done reflect the beliefs of the leaders of the organization?

3. Measurement: What are the means for tracking errors in your organization? How do you discover that you are not meeting goals and targets on a real-time basis, and what do you do about it?

4. Common language and concepts: Does your business use special jargon that you take for granted but that an outsider would find indecipherable?

5. Group boundaries: What are the badges of membership in your business? Do you use special symbols or privileges to symbolize degrees of "membership"?

6. Relationship definitions: If you disagree with the boss, do you feel encouraged or discouraged to voice your opinion face to face? Is it okay to disagree in front of others? If your boss asks you to evaluate him, how comfortable will you be?

7. Rewards and status: What do you consider a reward or a punishment? What signals do you pay attention to in order to understand how you are doing? When others get visible rewards, is it clear what they did to deserve them?

The culture is also defined by your relationship with others in the firm, how decisions are made, and how time and space are managed. Perhaps the most visible statement about respect and acceptable behavior is about how others deal with time and space. For example, what does it mean to be late or early? How does the physical layout reflect working style and status?

The Space Is the Place

SEI Investments is a good example of a firm whose space makes an interesting cultural statement. Each of the desks, including the top executives', can be moved into pods or working groups by unplugging and rolling to another location on a big, open floor. Meetings take place in scores of conference rooms around the complex. The top people are easily accessible and open to innovation.

Another firm we've worked with prefers more hierarchical spaces--the top people are on a separate floor in nicer offices than the rest of the staff. Status is clearly valued.

Advisory firms seem to be giving a lot more attention to the space relationships between staff and owners, to how work is functionally performed, and how people need to communicate with each other. Oftentimes, making changes in a less hierarchical direction conflicts with those who are more status conscious, and perhaps that will compel them to leave.

But as such practices grow into more complex businesses, the more difficult issue is managing span of control, meaning the number of optimal internal relationships one can manage. As owners retain a death grip on all activities, they often squeeze out the time needed to oversee people. Eventually, one creates a culture of indifference, a condition in which all those eager for change get frustrated, and those supposedly leading the change get annoyed.

When doing strategic planning for advisory firms, we begin to look and listen more closely to how individuals communicate. All practices--but especially larger ones--suffer from triangulation, a practice of talking about your problems with someone other than the person who can effect change. Eventually, this becomes a negative force that breeds mistrust and fosters insecurity.

We realize that defining the strategy, aligning the roles, and matching people to the jobs they are best suited for are critical elements in business success. But ultimately, the leader's job is to create an environment in which motivated people will flourish. This is not just about the money, but about how people are treated, and how they are given opportunities to learn, grow, and challenge conventional thinking.

Culture and not strategy is the prevailing wind that helps organizations change directions. Each advisory practice is buffeted by new challenges daily. Clarity of vision to respond to these challenges is important, but effective execution of the strategy is totally dependent on the will, drive, and motivation of the people within these firms. Too many strategies fail because of indifference, a lack of accountability, and in many cases, a misplaced sense of priority as to what is really important to the business.

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