When culture kills the killer app
This article was co-authored by Helen Rosethorn, Partner, Practice Leader – Culture, Capability & Engagement, London, and Josh Feldmeth, Senior Partner, New York, at brand marketing consultancy Prophet.
Every industry has been disrupted by a technology-enabled alternative promising faster delivery, lower costs, and delightfully better user experiences. In many sectors, these former disruptors now occupy dominant positions.
Amazon and Alibaba are closing in on Wal-Mart as the largest retailers in the world. Tesla’s market cap briefly eclipsed General Motor’s. Uber is the world’s most valuable private company. The killer apps are now category killer enterprises.
These companies have grown by deploying the post-digital operational playbook: social marketing instead of broadcast; IoT and AI rather than legacy systems; software/hardware ecosystems, not simply linear supply chains; agile NPD processes over incremental process improvement.
However, there is one strategic operating principle that has not been replaced or retooled for the post-digital economy: culture.
Uber and the cultural imperative
Culture is organizational DNA. It powers corporate capability and motivations. It transfers values across teams and operating units. It guides decision making, shapes talent philosophies and ultimately impacts how organisations learn and grow.
When culture it is managed and strong, it focuses an organization on what matters and reinforces the behaviors that drive progress. When it’s weak and not managed in sync with strategy, it can take any company off the rails.
While there are many leaders who struggle to get their heads around culture, there is one inescapable truth they cannot ignore: culture always takes its cues from the top.
Uber is learning this lesson the hard way.
Uber is the ultimate killer app enterprise. Through a radical (and radically simple) business model, effortless UX and regulatory fearlessness, Uber became the world’s most valuable private enterprise and inspired a generation of disrupters to be “like an Uber” for their category
Despite the meteoric growth, it is now clear that Uber was an incomplete and underperforming enterprise, constrained by flaws in its cultural DNA. The evidence has travelled the world, including: the CEO berating an Uber driver; underpaying drivers; accusations of sexual harassment and gender bias; a very public CEO/founder power struggle.
Admirably, Arianna Huffington and the Uber board are addressing the issue head on. They have exited the CEO, recruited a new breed of leadership and are retooling its driver program, among other initiatives. In these moves, Uber appears to be both honest about its past and clear about what needs to come next. In his introduction to the company, new CEO, Dara Khosrowshahi, admitted the need for change: “what got us here is not what’s going to get us to the next level.” While publically painful for Uber, the case provides a critical lesson in the value of culture.
The Economic Case for Culture
Culture should be the economic engine of any healthy enterprise but if you don’t look after your engine it will fail – in other words, you will get the culture you deserve.
Culture as a well-tuned engine will perform – enabling people power, whether that be to drive productivity and operational excellence or to push the boundaries of innovation – or whatever is in focus to harness capabilities and motivate actions to meet desired goals.
As leaders recognize their responsibility to manage culture, and customers demand authentity and transparency, the importance of purpose and values wthin the cultural ecosystem has come to the fore. Cultures grounded in purpose and shared values – let’s call them purposeful cultures – are the ones consumers admire and in which people want to work.
The public demands trust, consumers want relevance and when they see a brand at odds with the world in which they want to operate, then that’s not a brand on their side. Equally, as employees we all prefer workplaces where purpose and values are more than words, so much so that some of us are prepared to take a pay cut to be part of them.
It’s the “more than words” element of course that is today laid bare and we are empowered as both consumers and employees to uncover. Even when an organisation’s misbehaviors are not caught on camera or in social media, which they now routinely are, it is impossible to operate a relentlessly relevant brand when a culture is at odds with its customer promise. A brand can never be on the outside what it isn’t on the inside.
And when it breaks, culture is costly. According to estimates, Uber’s basket of scandals has lowered the firm’s valuation somewhere between 15-30% from a high of nearly $70b. It’s not just the disruptors though who have been taken down by their culture.
In 2015, Wells Fargo was briefly the world’s most valuable bank and an industry benchmark for its focus on banking basics over trading and sophisticated financial products. However, a scheme to create fake accounts came to light and it rocked the bank. New checking accounts and credit card applications have fallen over 40%. Drops in customer experience scores will take a long time to improve.
Volkswagen, which topped Toyota in 2016 as the largest auto maker in the world, faces tens of billions of dollars in fines and legal liabilities after it was revealed that the company systematically manipulated the diesel performance data of some of its vehicles.
Today, VW has a new CEO and an ambitious vision to transform the automaker into a renewable energy leader, yet despite the public and painful scandal, and the fact that he actually has a plan to remain relevant in the post-Tesla world, VW's CEO is apparently struggling to motivate a layer of leaders to move forward.
There are many who would say that Wells Fargo or, earlier, RBS and very recently VW got the culture they deserved – so what should leaders be doing to avoid the mistakes of the past?
Three steps to a healthier culture
There are many stories of organisations new and old where their attention to culture is acknowledged to be fundamental to their success. There are the classic examples: Southwest Airlines, Starbucks, Innocent Drinks - pre-digital disrupters that continue to create superior value for customers and shareholders alike through insightful CEO-supported cultures.
Culture is key to digital disruptors like Betterment (Wealth Management), OneMedical (Healthcare), and Net-A-Porter (Fashion Apparel) that are enabled by technology but founded upon belief systems. And you can see it in the companies that relentlessly renew over decades. AT&T’s upskill-or-else corporate education program and GE’s Fastworks come to mind.
Yes, every industry has been disrupted; the rules of the game of change. But the cultural imperative for every organization in any industry remains a constant.
Here is a simple three-point health check on the vitality of your organization's culture:
- A shared and strategic purpose - your leadership is aligned around a clearly articulated purpose that links the assets, capabilities and activities of an organization (“what we do on the inside”) to a relevant, living brand system (“what our stakeholders including customers experience on the outside”).
- A capable and engaged team - your organization has hardwired its purpose and operating principles/values into the systems that run the company so that people are enabled to be purposeful.
- A culture/brand operating model - the culture creates disproportionate value for customers throughout the brand experience. This can be in the form of product innovation, design quality, service standards - whatever is appropriate to deliver the strategic imperatives of the firm.
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Helen is partner at Prophet, who brings over 20 years experience working with clients locally and globally on the engagement of talent. She joined the firm to grow its portfolio of work in employee engagement, employer branding and culture – elements seen as increasingly critical to business success. Her early assignments have included a...