Critical Issues for Business in the 21st Century
As we move into the 21st century there are four concerns above all others that are preoccupying the boardrooms of both large and small companies around the world:
How do we attract and keep talented people?
How do we increase profits and shareholder value?
How do we increase creativity and productivity?
How to ensure ethics permeates the corporate culture?
The answer to all these questions is, “By building Cultural Capital.”
What is Cultural Capital?
WHAT IS CULTURE?
Individuals have personalities. Groups of individuals have cultures. We distinguish individual personalities by their values, beliefs and behaviors. We also distinguish cultures by their values, beliefs and behaviors. Geert Hofstede, the Dutch social researcher defines organizational culture in the following way:
“The collective programming of the mind which distinguishes the members of one organization from another.”i
When individuals enter an organization they encounter values that may be similar to or different from their own. When the values are similar, there is a “values alignment.” When the values are different, there is a “values misalignment.”
There is considerable evidence to suggest that there is a strong link between values alignment and organizational effectiveness, and values alignment and financial success.
During the 1990’s the average annual shareholder return for the companies that make up the “100 Best Companies to Work For in America” was 23%. The average annual shareholder return of the Russell 3000 Index (a general index of American industry) over the same period was only 14%.
In 1998 there were 164 publicly held companies represented in three lists of “best” companies: Fortune Magazine’s list of 100 Best Companies to Work For, Industry Week’s 100 Best Managed Companies, and Working Mother’s list of 100 Best Companies. Of these 164, thirty-eight were on more than one list. These “best” 38 showed consistently superior financial performance over a ten-year period of several percentage points over the 164, and the 164 showed a consistently superior financial performance of several percentage points over the Standards and Poor 500.
In Corporate Culture and Performance, Kotter and Heskettii show that companies with strong adaptive cultures based on shared values outperformed other companies by a significant margin. Over an eleven-year period, companies that emphasized all stakeholders – employees, customers and stockholders, and focused on leadership development, grew four times faster than companies that did not. They also found that these companies had job creation rates seven times higher, had stock prices that grew twelve time faster and profit performance that was 750 times higher than companies that did not have shared values and adaptive cultures.
In Built to Last, Collins and Porrasiii show that companies that consistently focused on building strong corporate cultures over a period of several decades outperformed companies that did not by a factor of 6 and outperformed the general stock market by a factor of 15.
Because values alignment is essential for success, it is important to understand what values an organization currently has and how they were created. Let us begin by understanding how cultures are created:
“The culture of an organization is a reflection of the personality of the current leader and the heritage of the personalities of past leaders.”
In other words, the collective programming of the mind that distinguishes one organization from another is the personal and societal programming of the leader(s), or the heritage of the personal and societal programming of past leaders.
This phenomenon can be clearly seen in small organizations. The cultures of small organizations are almost always a reflection of the personality of the leader. It is only when the founding father or mother fully steps aside that the culture has the opportunity to change. The changes that take place will always reflect the personality of the new leader.
Research carried out with large companies supports this finding. In “Built to Last,” Collins and Porras found that in successful companies the Board of Directors usually search among internal candidates to replace the leader.iv They promote from within because they want to preserve a successful culture. When a company is failing, the Board of Directors will usually look for an external candidate to replace the leader.v The reasoning behind such a decision is that they feel the need for the organization to undergo a culture change. The outsider brings a different mental programming. Someone from the inside would be too indoctrinated by the existing culture to be able to change it.
What can we conclude from the above discussion?
The personality of a leader(s) has a significant impact on the culture of an organization. The leader and/or heritage of past leaders creates the tone of an organizational culture.
Values alignment occurs when the values and behaviors of the organization resonate with the values of the employees.
Conflicts arise when the values and behaviors of the organization do not resonate with the values of employees.
With this understanding of “Culture” as it applies to organizations, let us now return to the question “What is cultural capital”?
WHAT IS CAPITAL?
Capital can be defined as:
The assets available to an individual or a group that can be used for the creation of wealth.
We now can combine our definition of culture with our definition of capital to define cultural capital.
Cultural Capital is the value attached to the collective mental programming (values, beliefs and behaviors) of the organization that supports its relationships with its employees, customers and society.
Cultural capital can appreciate or depreciate in value.
It is difficult to create cultural capital.
It is easy to loose cultural capital.
The value of cultural capital is not captured on an organization’s balance sheet.
Cultural capital makes a significant contribution to an organization’s market value (between 60% and 85%).
How Can We Measure Cultural Capital?
Traditionally intangibles such as culture have been difficult to measure. However, in 1997 Richard Barrett developed a completely new innovative set of Cultural Transformation Tools® to map the values of individuals and organizations. The tools are based on the Seven Levels of Personal Consciousness and the Seven Levels of Organizational Consciousness (See Figures 1 and 2). The models and tools are described in Richard Barrett’s book Liberating the Corporate Soul.vi The tools are available in seventeen languages and have been used in companies and organizations such as Siemens, Volvo, Kraft, World Bank, SEB Bank, ING Bank, Microsoft, PriceWaterhouseCoopers, Cap Gemini Ernst & Young, and KPMG.
The Seven Levels of Consciousness model is an expansion and extension of the work of Abraham Maslow. The fundamental basis of the Seven Levels of Organizational Consciousness is that organizations and groups are comprised of individuals and act as living entities with similar motivations and similar needs to those of individuals. The model substitutes levels of consciousness for hierarchy of needs and gives more definition and depth to the spiritual motivations that Maslow refers to as self-actualization. Each level of consciousness focuses on a specific life theme. Potentially limiting behaviors such as control, blame, and information hoarding show up in the lower three levels of consciousness. This is where the ego’s fears can dominate our behaviors. It is the arena of self-interest. The three upper levels of consciousness represent the motivations of the soul. It is the arena of the common good. The Seven Levels of Personal and Corporate Consciousness are described below:
THE SEVEN LEVELS OF PERSONAL CONSCIOUSNESS
Level 1: Survival: This level focuses on matters of physical survival. It includes values such as financial stability, wealth, safety, nutrition, health, and self-discipline. The potentially limiting aspects of this level are generated from fears around survival and physical safety. Limiting values include greed, control and caution.
Level 2: Relationships: This level concerns the quality of interpersonal relationships in an individual’s life. It includes values such as open communication, family, friendship, conflict resolution and respect. The potentially limiting aspects of this level result from fears around not belonging, not being loved and personal security. Limiting values include rivalry, intolerance and being liked.
Level 3: Self-Esteem: This level addresses an individual’s need for recognition. It includes values such as being the best, ambition, professional growth, and results. The potentially limiting aspects of this level come from low self-esteem. Potentially limiting values include status, arrogance and image.
There are no potentially limiting values in levels 4 through 7.
Level 4: Transformation: The focus at this level is on self-actualization and personal growth. It contains values such as courage, responsibility, knowledge, and independence. This is the level where people work to overcome their fears. It requires continuous questioning of beliefs and assumptions. It also is the level where they begin to find balance in their lives.
Level 5: Internal Cohesion: Level 5 concerns the individual’s search for meaning and community. Individuals operating at this level no longer think in terms of a job or career, but in terms of a mission. This level contains values such as commitment, creativity, enthusiasm, humor/fun, excellence, generosity and honesty.
Level 6: Making A Difference: Level 6 focuses on making a difference in the world. It also is the level of active involvement in the local community. Individuals operating at this level honor intuition and contribution. They may be concerned about the environment or local issues. This level contains values such as counseling, community work, empathy and environmental awareness.
Level 7: Service: Level 7 reflects the highest order of internal and external connectedness. It focuses on service to others. Individuals operating at this level are at ease with uncertainty. They display wisdom, compassion and forgiveness. They have a global perspective. They are concerned about issues such as social justice, human rights and future generations.
Figure 1: Seven Levels of Personal Consciousness
THE SEVEN LEVELS OF CORPORATE CONSCIOUSNESS
Level 1: Survival: Level 1 focuses on financial matters and organizational growth. It includes values such as profit, shareholder value, financial stability, and employee health and safety. The potentially limiting aspects of this level are generated from fears about survival and physical safety. They include such values as control, short-term orientation, caution and exploitation.
Level 2: Relationships: This level addresses the quality of interpersonal relationships in the organization and between employees and customers/suppliers. It includes values such as open communication, conflict resolution, customer satisfaction, courtesy and respect. The potentially limiting aspects of this level arise from fears around a lack of belonging, a lack of friendship and personal security. This leads to manipulation, blame and internal competition.
Level 3: Self-Esteem: This level is about performance, measurement, best business practices and systems and processes that improve work methods and the delivery of services and products. Values at this level include productivity, efficiency, professional growth, skills development and quality. The potentially limiting aspects of this level result from low self-esteem and a lack of regard for order and measurement. Potentially limiting values include status, arrogance, bureaucracy and complacency.
There are no potentially limiting aspects to levels 4 through 7.
Level 4: Transformation: Level 4 focuses on continuous renewal, continuous learning and the development of new products and services. It contains values that overcome the potentially limiting values of levels 1 to 3. Values at this level 4 include accountability, employee participation, learning, innovation, teamwork, personal development and knowledge sharing.
Levels 5, 6 and 7 represent increasing degrees of connectedness within the organization and between the organization and external partners.
Level 5: Internal Cohesion: Level 5 focuses on building internal cohesion and a sense of community spirit inside the organization through shared values and shared vision. It includes values such as trust, integrity, honesty, cooperation, commitment and fairness. The by-products are enjoyment, enthusiasm, passion, dedication and creativity.
In addition to focusing on internal connectedness, Levels 6 and 7 focus on external connectedness.
Level 6: Making a Difference: Level 6 focuses on the deepening and strengthening of internal and external relationships. Inside the organization, it includes values such as leadership development, mentoring, coaching and employee fulfillment. Externally, it includes values such as customer and supplier collaboration, partnering, strategic alliances, community involvement, environmental awareness and making a difference.
Level 7: Service: Level 7 reflects the highest order of internal and external connectedness. Inside the organization, it includes values such as compassion, forgiveness and humility. Externally it includes values such as human rights, social responsibility, philanthropy, justice, peace, societal common good and future generations.
Figure 2: Seven Levels of Corporate Consciousness
Cultural Transformation Tools
The Cultural Transformation Tools® survey instrument is Internet based (paper surveys can used if necessary), takes about and 15-20 minutes to complete, and provides a complete diagnostic of a corporate or team culture. The instrument measures the degree of alignment of personal values, current culture values and desired culture values. Each employee is asked three questions:
Which of the following values and behaviors most represent who you are, not what you desire to become? (Personal Values)
Which of the following values and behaviors most represent how your organization operates? (Current Culture Values)
Which of the following values and behaviors most represent for you an ideal, high performance organization? (Desired Culture Values)
Employees pick ten values from a list of 90-100 values. Each value is related to one of the Seven Levels of Consciousness.
The template of personal values is different from the template of organizational values in that it does not contain values such as customer satisfaction or employee fulfillment. These types of values are however included in the organizational templates. The templates of values can be customized to include the values that are particular to the type of business of the company and/or the values that are included in the company’s mission, vision and values statement. The degree of alignment between these espoused values and the current culture can be measured.
Differences in the culture of departments, offices, factories, and managers and staff can be measured. The survey instrument can be also be used to map the values and measure the alignment of individuals and teams.
The following two examples show the results of culture assessments from a company with a misaligned culture (Company A) and a company with an aligned culture (Company B).
Figure 3 shows the top ten personal values, current culture values and desired culture values of 53 senior managers in Company A. Figure 4 shows the distribution of all the values that were voted for by the 53 senior managers in Company A. Figure 5 shows the top ten personal values, current culture values and desired culture values of 35 senior managers in Company B. Figure 6 shows the distribution of all the values that were voted for by the 35 senior managers in Company B.
The lack of values alignment in Company A is evidenced by four factors:
• There are no matching values between this group’s personal values and the current culture of the organization.
• There are seven potentially limiting values in the current culture.
• There is only one matching value between the current culture and desired culture.
• There are no values in the current culture in the upper three levels of organizational consciousness.
In Figure 4 we see that 41% of this group’s votes in the current culture were for potentially limiting values – this is reflective of the cultural entropy – the energy that is tied up in non-productive work. 42% of this group’s personal values are in the upper three levels of consciousness, whereas only 13% of the current culture values are in these levels. 33% of their desired culture values are in the upper three levels of consciousness.
Two of values in the desired culture – accountability and commitment – also appear in the top personal values, but only one of desired culture values appears in the current culture. The top four values this group wants to see more of are customer satisfaction, accountability, continuous improvement and commitment. Twenty-four people voted for continuous improvement in the desired culture as opposed to fourteen in the current culture.
The strongest level of personal values (Figure 3) is at level 5 – the level of meaning and community. The strongest level in the current culture of the organization is at level 3 – the level of performance and best practice. The strongest level in the desired culture is level 4 – the level of continuous renewal and transformation.
The people in Company A are not happy in their organization. They want the company culture to shift from level 3 to level 4, to be more in alignment with their desired culture values. Their personal values are at a sufficiently high level that they could implement this cultural shift. Company A is struggling with relationship issues.
The strong values alignment in Company B is evidenced by four factors:
• There are three matching values between this group’s personal values and the current culture of the organization – respect for others, striving for excellence and approachability.
• There are no potentially limiting values in the current culture.
• There are three matching values between the current culture and desired culture – striving for excellence, customer first and teamwork.
• The top ten values in the current culture almost cover every level of organizational consciousness – full spectrum consciousness.
In Figure 6 we see a very low level of cultural entropy – only 2%. The distribution of values in the current culture is relatively even across all levels of consciousness. The distribution of desired culture values is very similar to the current culture.
The three of top values in the desired culture are also in the top five of the current culture (See Figure 5). This group thinks the organization is on the right track, but would like to see more focus on shared vision, agility and profit. They are also looking for more personal responsibility.
The people in Company B are very happy in their organization. They want to see a slightly stronger focus at levels 4 and 5 in line with their personal values. Their personal values are at a sufficiently high level that they could implement this cultural shift. Company B is very successful and is expanding its field of operations.
Richard Barrett is the Managing Partner of Richard Barrett & Associates, a Cultural Transformation and Leadership Development Consultancy. He is the creator of the Cultural Transformation Tools®. He is an author, keynote speaker and change agent. Prior to starting his management consultancy practice Richard was Values Coordinator at the World Bank from 1995-1997. His books include, Liberating the Corporate Soul: Building a Visionary Organization, published by Butterworth-Heinmann, A Guide to Liberating Your Soul, published by Fulfilling Books. He is currently working on two new books entitled A Whole System Approach to Cultural Transformation and Love, Fear and the Destiny of Nations.
i Geert Hofstede, Cultures and Organizations: Software of the Mind, (New York: McGraw-Hill) 1991
ii John P. Kotter and James L. Heskett, Corporate Culture and Performance, (New York: The Free Press) 1992
iii James C. Collins and Jerry I. Porrass, Built to Last, Successful Habits of Visionary Companies (New York: HarperColllins) 1994
iv James C. Collins and Jerry I. Porrass, Built to Last, Successful Habits of Visionary Companies (New York: HarperColllins) 1994
v John P. Kotter and James L. Heskett, Corporate Culture and Performance, (New York: The Free Press) 1992
vi Richard Barrett, Liberating the Corporate Soul, (Boston: Butterworth-Heinemann) 1998