A conversation between James Paterson and Liz Crede – March 2016

Liz, can you talk about the idea of a right culture?

In my opinion there is only a right culture if it has the right fit for your organisation, business and its strategy. What would be a good culture for one organisation may not be so for another, due to the fact that their context may be different.

An effective culture is one that ensures your organisation is achieving the results you want to achieve, both externally and internally – and in all areas. It’s not just about profit and return on investment. It is about achieving the right results in terms of human performance, people being engaged with their work, doing the work they want to do as well as delivering on innovation as well as robust risk management and accounting practises.

Can you expand in more detail on the idea of different contexts demanding a different organisational culture?

Let me share my experience from two different industries I have worked in. In the pharmaceuticals sector, part of their culture is for it to be process orientated and to think in longer-term time horizons because it takes a long time to find and develop new drugs. So the whole process of creativity and experimentation and longer time frames is necessitated by the business and should be part of the culture.

However, if you go and work in a retail environment you’ve got to make decisions about what to do tomorrow which might be different from what you did yesterday; the context demands very fast paced, very quick reactions, so that business imperative feeds through back into the whole organisation. You couldn’t have a pharmaceutical type culture in a retail organisation or a retail culture in a pharmaceuticals company. It just would not work because of the need for immediacy and response, with a fast paced turnaround of trying things, and getting results and building on that in a very quick time scale versus the need for a more deliberate approach.

Consequently a good culture in a retail context is one that would enable decision making at the customer facing end, where face to face with customers you need autonomy of decision making, and a culture that supports, that empowers people, to enable them to do that, which is very different from a culture in pharmaceuticals that needs to double check decisions before putting a new drug out into the market. This context has a very different risk profile and requires a different organisational culture.

In summary, in pharmaceuticals you might need to have a process orientated culture, because that’s the sort of culture that will make that sort of business succeed. Then in retail you need a more dynamic, autonomous, culture because again that’s the sort of culture you might need to make that sort of business succeed. Pursuing this further, can you talk about the role of values as well as culture in the context of different businesses?

Yes. So matching the culture to the business is one aspect of a good culture but it is also about fitting the values, so in either one of those organisations (pharmaceuticals or retail), you can have a company built on very different values, either of them could be very profit orientated, running a lean machine, not very interested in people satisfaction or engagement, “we are in it to make money, we will get as much out of people as we can” versus another set of values, which is based on the idea that “people are our most valuable asset” and “we should pay attention to their development and to the working environment”, on the basis that that is the best way to get the best out of everybody and to get our company results. So I think the values in operation will be another key factor in defining what the culture will be.

Can you discuss the extent to which there can be one company culture versus a range of sub-cultures?

When I worked at one international company, there was an overall company culture. It was innovative and rewarding, but also known for cutthroat business since it was in a very competitive environment with another company. That meant that whatever you wanted to do would be discussed in terms of how it would impact the status of the company against its major competitor.

But then you can then look at what creates different subcultures and one factor is when you have geographical differences. Consequentially you can expect different cultures depending on whether you are in America or the UK or India or wherever. On top of this you have also got different cultures in different areas of an organisation such as marketing, operations, R&D, finance. You can expect them to all have slightly different cultures.

Sub-cultures can even operate at the level of a specific location or office. In this case it’s the way people behave on a day-to-day basis that is a key factor in what the subculture actually is compared to anything that might be espoused by the organisation at a higher level. One key factor will be the way things get rewarded in the location either through formal mechanisms or informal mechanisms.

Can you say more about the importance of paying attention to local sub-cultures, not just the overall culture, when thinking about organisational risk and performance?

My experience is you should never underestimate the power of local behaviour, regardless of what the culture is stated as being. Key is to understand how values are put into practice on a daily basis and what is rewarded around here, and more importantly what is intrinsically rewarded compared to extrinsically rewarded. As an example, in one organisation I came across there was a formal protocol that before safety permits were issued for new activities there should be a visit by someone independent to confirm everything was in order. However, it was custom and practice to trust the representations of the operators who brought the documents for sign off that they would have checked the work environment was OK. That was not what the rules stated, the rules were that each new activity should be independently checked. However, people were busy, and there was a lot to do. Custom and practice was that it was ok to trust the operator. This shows the power of local practice and I think that it is a key thing to understand about culture; an overall culture is a nice idea but most important is what is it happening on a day-to-day, detailed level!

So surveys of culture need to pick up, at the very least, these more localised cultural attributes.

There is a lot of interest at the moment in what would be the culture that would stop another financial crisis or a business surprise? There are a number of organisations suggesting that you can use a cultural survey to diagnose whether the culture is healthy or not. Can you comment on this?

A few things there, the first one is that there is not such thing as one ideal culture. As discussed before this is because an ideal culture needs to be considered in the context of the organisation, what it is trying to achieve and the values it is trying to promote (e.g. success being measured in non financial terms also).

Better is to diagnose – based on the context and strategy – what an ideal culture needs to be for your business, and then you could measure against that specific set of requirements the current practice. From this you could identify specific gaps and then consider what needs to be done to shift the culture. And that is when the real work starts –because then you have to look at the whole organisation (its structure, systems, processes and management practices) to diagnose why the culture may not be in line with what is wanted. This is important in order to understand the leverage points that you need to move in order to get a switch towards a better culture. Looking at one aspect of the culture or the organisational design it isn’t going to change things for the better on a long-term basis. If you think of a rubber band and you stretch it by doing some work on one part of the system, and as soon as you don’t pay attention to the rest of the system it brings the rest of the rubber band back into its original position. Shifting culture means operating at the level of paying attention to behaviours, the management practices, the leadership style, the reward system, the communication processes, the decision processes, they’ve all got to be looked at as a whole because that is what’s gives you culture.

A very common idea in risk culture models is the notion that there should be a culture of greater challenge. Let’s assume for various reasons that an organisation accurately surveys itself and says yes there isn’t enough challenge. Can you share your experiences of the practical challenges to move from not enough challenge, to the right amount of challenge?

So let’s imagine that an edict goes out from the senior management that there should be more challenge. And then, in a meeting, an employee decides to challenge their senior manager. Clearly if the senior manager balls them out of the office and says don’t challenge me on this topic we can see an immediate risk of a gap between the espoused and the actual culture. However, its often more complex than this, the manager may not shout at the employee that has made the challenge, but instead send signals through informal conversations, or personal development discussions, that they need to be careful “not to get carried away” with the notion of challenge, since being effective is also about good team working.

Thus we can see that in parallel with any request to challenge more there would need to be “accept challenge more” and that is where the real work starts because the habits of working in the old way are often strong; those engrained patterns of dialogue and power structures. In other words sometimes employees may not know how to challenge more. The key message is you have to work on the day-to-day interactions between people, since that is where the culture shifts, but this is often set in a pattern.

Can you say more about other challenges of defining the ideal culture for an organisation, for example because some of the attributes wanted may be in conflict?

I would say you are always going to have some values and preferred cultural attributes that are in conflict with one another. For example you could be told to challenge more but also be a team player, well how does that fit? Or be creative and take risks, but try to get things right first time to be efficient. In my experience it is inevitable there will be times when even if you agree to a set of values, those values be in conflict with one another. It is how those conflicting moments are dealt with that determines the type of culture that you are going to end up with.

Linking behaviour to culture surveys can you highlight some of the complexities that need to be borne in mind when interpreting a cultural survey?

The first thing to say is that when someone completes a survey you will always have their individual bias to bear in mind: do I score high, low or in the middle, that’s one factor to bear mind. Beyond that is the question of the immediate context that the person completing the survey is in. if I am having a great time and feeling good about my job and enjoying my work, I am far more likely to view the overall culture more favourably than if I am fed up with my work and I have just had a row with my boss and I am filling in the survey on Tuesday when I am overworked. So in summary I think it’s a bit of a blunt instrument the results of which can be influenced by behavioural factors that may be quite fleeting.

Can you explore further the sorts of things to bear in mind when interpreting a culture survey?

All a culture survey gives you is a set of results at a point in time, some of which may be very short term and local. Most of all a culture survey does not normally give you the cause for the results. If you are going to work on culture you need to look at the causes, you need to look at all the elements of the organisation design to say how these are combining to give the culture that we are saying that we have got. That’s where the work begins, and from that you are going say where are the levers we need to change if the culture if we want to change the culture to be X rather than Y as an output. I remember working with a team where staff were dissatisfied and not happy and didn’t feel they were being treated well. With these results you could have spent a lot of time giving staff more training and development opportunities and carrying out team building exercises. However, the key issue was they could not see a career path for themselves; there wasn’t a route up through the organisation; that was the issue that needed to be addressed as a priority. So unless you look at the organisation as a system and why it’s giving the cultural and behavioural messages it is, you won’t see the real reasons and connections for these issues.

Changing tack, there is often a view that getting managers and staff aligned behind the mission and vision of the organisation is a good thing – but my experience is that too much alignment can actually lead to issues – can you expand on this idea?

If we go back to our mission it’s why we are in business, your strategy is what are we in business to do and your values are how are we going to go about doing business, then underneath that there are management practises. If you are living true to your values and they are good values, and they are followed, you will be working ethically, morally and financially properly. Then that’s all well and good. However where it can get out of kilter is when the pressure for coming up with results, or a solution to a problem quickly, overrides appropriate values. Sometimes it is informal reward systems that can cause this, the result being an organisation that pursues short-term gain at the expense of longer-term solutions.

One of the things listening to what you are saying, is the distinction between the “what”, the “why” and the “how” and also the sense that it’s easier to reward the “what” than the “how”.

Yes that’s correct: just because you have got values written on a piece of paper that everyone agrees to (about how we should operate), that does not mean they are going to be followed. This is because individuals can interpret what values mean in practice and easily rationalise away that what they are doing is in line with this (even if it is not).

The importance of paying attention to behaviours is starting to come through strongly in relation to everything you have said and it makes me think there is probably a need to up-skill the organisation in seeing what values would mean in behavioural terms on a day-to-day basis. Is that the direction organisations need to go in?

Yes I would say so. In workshops I have carried out you need to take a set of values and spell out “this is what they mean, and this is what they do not mean”. Getting that level of granularity can be a challenge for some senior leaders, because: A- it will expose them, B- they will have to change some of their own behaviour, probably, and C – they then have got to live by it.

So every time a senior leader does something which is on the “this is not permitted” list, it gives signals to the organisation that it is actually the true value. That is the message it sends, because no matter what you think about hierarchies, the people at the top they are the guys who set the culture, “do as I do”. Lots of people lower down going “oh I know these are the official values but I’m not rewarded for them. This gives staff and managers an excuse – and they stick with it”.. You know it is the behaviour of the senior leaders that has the most impact on culture.

Do you have any advice you would give to an internal audit team before it starts to embark upon becoming more serious about the cultural space, what can it do, who does it need to safely partner with to make this a successful intervention?

It needs to partner with Organisational Development staff, if the organisation has got any, or HR or external specialists.

This links nicely to an IIA standard that asks auditors to ensure they have the right expertise before moving into new areas. And coming to a close now, to what extent can we meaningfully draw a distinction between the overall culture and the risk culture of an organisation?

Of course there is an environmental risk and regulatory context that should influence the optimal culture of an organisation, but I am uncomfortable with the idea that there is such a thing as a risk culture that is separate, or outside of, the organisational culture. This is because peoples approach to risk is part of culture and habit, its intrinsic in their everyday decision-making and the way they go about their business every day. It’s in every conversation, so you can’t say it’s on this day or at these meetings that I will do my risk culture activities, it just doesn’t work like that.

I have heard of anecdotes where management seem to be pleased that audit or risk or HR are taking a driving role in relation to risk culture. Is there anything problematic about this?

For a start there is the risk that it might help managers to abdicate their responsibilities. It allows risk culture to stay in a bubble, in a risk culture box, that is dealt with by specialist functions, rather than getting managers to think about the overall culture and the day to day behaviours that play an active role in moving it forward or holding it back.

This links with the IIA guidance that reminds us to recognise the roles of the 1st and 2nd lines of defence. Thanks for sharing these thoughts Liz.

For more information: www.credeconsulting.co.uk and www.riskai.co.uk