Business Management Blog

We can learn a great deal from organizations whose strong and adaptive ownership cultures give them a powerful competitive edge. Here are our top 10 lessons.

1. Leadership is critical in codifying and maintaining an organizational purpose, values, and vision. Leaders must set the example by living the elements of culture: values, behaviors, measures, and actions. Values are meaningless without the other elements.

2. Like anything worthwhile, culture is something in which you invest. An organization’s norms and values aren’t formed through speeches but through actions and team learning. Strong cultures have teeth. They are much more than slogans and empty promises. Some organizations choose to part ways with those who do not manage according to the values and behaviors that other employees embrace. Others accomplish the same objective more positively.

3. Employees at all levels in an organization notice and validate the elements of culture. As owners, they judge every management decision to hire, reward, promote, and fire colleagues. Their reactions often come through in comments about subjects such as the “fairness of my boss.” The underlying theme in such conversations, though, is the strength and appropriateness of the organization’s culture.

4. Organizations with clearly codified cultures enjoy labor cost advantages for the following reasons:

• They often become better places to work.
• They become well known among prospective employees.
• The level of ownership—referral rates and ideas for improving the business of existing employees—is often high.
• The screening process is simplified, because employees tend to refer acquaintances who behave like them.
• The pool of prospective employees grows.
• The cost of selecting among many applicants is offset by cost savings as prospective employees sort themselves into and out of consideration for jobs.
• This self-selection process reduces the number of mismatches among new hires.

5. Organizations with clearly codified and enforced cultures enjoy great employee and customer loyalty, in large part because they are effective in either altering ineffective behaviors or disengaging from values-challenged employees in a timely manner.

6. An operating strategy based on a strong, effective culture is selective of prospective customers. It also requires the periodic “firing” of customers, as pointed out in our examples of companies like ING Direct, where thousands are fired every month. This strategy is especially important when customers “abuse” employees or make unreasonable demands on them.

7. The result of all this is “the best serving the best,” or as Ritz-Carlton’s mission states, “Ladies and gentlemen serving ladies and gentlemen.”

8. This self-reinforcing source of operating leverage must be managed carefully to make sure that it does not result in the development of dogmatic cults with little capacity for change. High-performing organizations periodically revisit and reaffirm their core values and associated behaviors. Further, they often subscribe to some kind of initiative that requires constant benchmarking and searching for best practices both inside and outside the organization.

9. Organizations with strong and adaptive cultures foster effective succession in the leadership ranks. In large part, the culture both prepares successors and eases the transition.

10. Cultures can sour. Among the reasons for this are success itself, the loss of curiosity and interest in change, the triumph of culture over performance, the failure of leaders to reinforce desired behaviors, the breakdown of consistent communication, and leaders who are overcome by their own sense of importance.

We have learned repeatedly that there is a pattern in the actions and activities involved in developing strong and adaptive ownership cultures. When an organization consistently builds and reinforces such a culture, it creates a competitive edge that is hard to replicate.