Culture is manifested through the people who make up the organization.  So how much can you change the culture, without turning over at least some of the people?  When a large company wants to shift its culture, there are many tools that can be brought to bear.  But how deep is the change if you look around and see the same faces as have always been there?

A culture that didn’t change.   As the Deepwater Horizon was spewing oil into the Gulf of Mexico, Tony Hayward, CEO of BP got massive negative press for saying “I want my life back.”  To the media and the public, his statement demonstrated a corporate culture that was entirely self-centered, where “it is all about me” and it implied that the biggest concern for BP was the inconvenience the spill caused him and the company.  Many people assumed the impact on the environment and the people of the Gulf coast must be secondary concerns if the guy at the top of BP was worrying about himself enough to complain publicly.

Some people argued the criticism was unfair.  That Hayward had spent several years changing the culture, focusing the company on safety and that his comment just reflected a moment of stress. 

I’m not so sure.  Hayward’s attitude was exactly the same as at least one other senior BP executive’s, as expressed after their last Gulf region disaster.  In 2005, an explosion at BP’s Texas City oil refinery killed 15 workers and injured 170.  The Associated Press, reporting on the subsequent trial in 2007, said John Manzoni, BP’s former refining and marketing chief executive, sent an email complaining that he had to spend the day at Texas City right after the accident “at the cost of a precious day of my leave.”  Manzoni was on a skiing vacation in Colorado when the accident happened.

It strikes me that maybe BP’s culture has not really changed that much, if major catastrophes are still viewed as “inconveniences” by senior management.  Hayward has moved on, but I doubt that will do much to shift the culture.

A culture that changed too much.  Recently I’ve begun working with a small pharma company.  The CHRO says they are engaging in a “re-transformation.”  Over the last few years they expanded, and added a lot of people from bigger pharma companies, including a new president.  As the business grew, there had been a feeling that more structure was needed, and perhaps it was time to move beyond some of their entrepreneurial ways.  A year or so into the process, things weren’t going so well.  Flexibility and agility were rapidly being replaced with bureaucracy and silos. 

Now they are “re-transforming” back into a nimble, responsive organization with a focus on innovation and risk-taking.  And a lot of the newer employees are suddenly very uncomfortable.  In fact, quite a few have been transitioned back out of the company – including that new president.  An interesting case study in how changes in the people making up the company can really drive the evolution of its culture.

I believe that it is possible to change culture without wholesale changes in personnel.  But it requires more than training and communication programs.  You need a systematic, long term effort, including regular assessments such as employee surveys.  But some current employees and leaders won’t be a fit with the new culture, so you also have to be prepared to make a few replacements.

Each of the tactics for managing through an economic downturn described in Parts 1 and 2 can be considered reductive, if not outright destructive in their fundamental nature.  Leaders may choose to think of them as “pruning now for future growth,” but that does not change the fact that such pruning has serious repercussions for employees and the customers they serve.

Cost-cutting that Reinforces Engagement

In our study of 2,000 companies, we found one strategy that did not fit the mold.  One strategy that cut costs and actually improved alignment, capabilities and engagement.

The one tactic that had a positive impact on ACE?  Identifying process changes to reduce costs.  Companies using this tactic found a strong positive impact on alignment and engagement, and a moderate positive impact on capabilities.  This tactic likely maintains consistency with pre-existing goals.  Thus looking within the organization to collaboratively make improvements and reduce costs actually increases alignment.  For employees, it represents the company choosing surgery over amputation.  Not surprisingly, this path can actually lead to higher levels of engagement.  Employees are highly attuned to organizational behavior that values people and that recognizes their ability to help a company prevail in challenging times.  And chances are, the stated values of the organization are much more in line with this approach than any of the other cost-cutting techniques.  There is a lesson here for every organization facing a difficult future. 

However, this is not a tactic that should be limited to the production side of the business.  If you are in HR, IT, Finance, or other shared services there are techniques now available to support intelligent cost reduction by focusing on both demand-side and supply-side waste, such as Functional Lean.  Applying tools like Functional Lean underscores that everyone is in the same boat, and we all have to work together to survive — you can’t just count on shop floor lean six-sigma to save the day.

Lesson #3:  Live those corporate values.  Treat those “most valuable assets” as if they really are just that.  Tap into the wealth of knowledge they have to drive cost out of your systems.  It may not be as fast as pink slips, but in the long run it will absolutely serve your organization better.

There are more options than slash and burn, however.    Some responses to the downturn were less extreme than such direct tactics.  What we found in studying over 2,000 companies, however, was that less direct can actually mean more insidious when it comes to keeping an aligned, capable and engaged workforce.

The Link Between Customer Risk and Employee Risk

We discovered that greatest negative impact on ACE did not come from eliminating people or reducing compensation.  Surprisingly, the most powerful negative effects occurred when companies chose to reduce service levels to customers and when they made changes that reduced services internally, between departments.  Reducing services to customers had a strong negative impact on alignment and engagement.  It would seem that employees see a serious disconnect between oft-repeated strategies and mission statements that emphasize customer service, and actions that may damage customer relationships, if not harm the customers themselves.  It is no shock that aspects of engagement such as advocacy (willingness to recommend the company) and discretionary effort might also decline in such a context.  A lesser effect was observed for capabilities, which may mean that employees realize that the capabilities for good service remain in place; they are just being underutilized.

I have to say that I was perversely encouraged by these findings.  It says something positive — maybe even a little defiant – about employees’ commitment to the customer.

When companies reduced services between departments (internal customer service), there was a strong impact on all three ACE factors.  Changes which imperil a department’s ability to service other internal groups would logically lead to lower perceptions of capabilities.  And internal service breakdowns often lead to failures with customers.  Employees may feel less certain that they are on the same strategic page as senior leadership, thus lessening alignment.  The strong impact on engagement is a little more puzzling.  Perhaps, it is in part a reaction to being placed in a situation where, as an employee, one is prevented from doing the best work possible, resulting in a certain degree of cognitive dissonance.  Or perhaps it flows from frustration with a lack of support from other parts of the organization.

Lesson #2.  The biggest risk to employee alignment, capabilities and engagement is not be the most obvious.  If you use service cuts in a downturn to save money, you may inadvertently be driving down ACE far more than you would expect.  No one comes to work wanting to do a poor job.  But if you put people in a position where they can’t deliver the same level of performance as before, then ACE will suffer greatly. 

Next time: the strategy of first resort.

*adapted from my article in the April issue of Quality Progress.

Common wisdom has it that the steps companies typically take to manage an economic downturn have an across-the-board negative impact on employee morale. But in a study of over 2,000 companies, we found that there are big differences between the various recession tactics that companies utilized and the impact of those actions on the critical People Equity factors of employee Alignment, Capabilities and Engagement (ACE).

The latest economic data indicates the pace of the recovery may be slowing, and a double dip recession is still possible.  So this seems like a good time to look back and see what we learned during the hard times just past.

So, first off, yes, lay-offs, budget cuts and hiring freezes all had a negative impact on A, C and E.  These actions, which include the most severe responses to the recession, can leave the remaining employees feeling they now have to carry a heavier load, with no additional recognition.  With fewer resources, capabilities decline.  The perceived inequity of these tactics weakens engagement.  Implementing resource reductions also can lead to a value disconnect between employees and their company, thereby undermining alignment.   Employees find it difficult to be in sync with the strategic direction of the company when those around them are losing their jobs.

But what about more targeted strategies?

It turns out that the effects of compensation-oriented tactics were very different.  Pay cuts, pay freezes and benefit reductions did have a negative impact on employee engagement. This should come as no surprise.  But compensation cuts had no significant impact on alignment or capabilities.  It is possible that these actions, while not welcomed, are more likely to be viewed as rational and acceptable – sharing the pain through lower profits for the company and lower rewards for staff.  Thus, alignment may be maintained, and with resources preserved in the organization, capabilities remain largely intact.

But even among compensation cuts, not all strategies are created equal.  Furloughs are typically used to cut pay by cutting total work hours.  Like the other techniques, use of furloughs had no impact on alignment and capabilities.  But neither did furloughs affect engagement.  Perhaps that is because unlike the other actions, a furlough may be viewed as somewhat more equitable – you do not get paid, but neither are you required to work during the furlough.

Lesson #1. Pay cuts are less damaging than lay-offs, and furloughs are the least onerous method of pay cuts. Obvious, you say? The millions of Americans let go during the recession (rather than furloughed) probably wish it had been more obvious to their companies.

UPDATE (Aug. 9). Interesting comments by Wayne Cascio (U. of Colorado) on NPR today: Research finds that companies making extreme job cuts (>20%) in recessions see a short term profitability boost but then lag their peers for up to 9 years post-recession.

Next time: the biggest risk to ACE is not what you thought.

*adapted from my article in the April issue of Quality Progress

Also, those who communicated effectively about business challenges and the company’s priorities in addressing them found that their employees were better aligned with the mission and direction, while organizations that elected to pull back on communications rather than share news of difficult conditions found that alignment had declined. Those who have elected not to survey have had to fall back on management’s impressions of the work climate, gleaned from qualitative and perhaps unrepresentative sources.

Now, as conditions begin to improve, and as organizations gear up to lure away their competitors’ top performers, companies need to know what their employees are feeling. I believe that those who have kept close watch on the mood of the workforce–not just with impressions, but with a sound quantitative assessment, will be much better positioned in the recovering economy.

Organizations considering surveying in 2010 need to overcome several common objections to moving forward. Below, I want to share some of the most common objections that I hear, along with why I don’t believe that these objections have merit.

• Employees are bound to respond unfavorably given what we’ve been through. As noted above, the reverse may actually be true. If employees have been enlisted as partners in facing adversity, engagement may have increased. If instead, the relationship between employees and the company has worsened, it is important to know how much, with what groups of employees, and what needs to be done to address the issue.

• The job market is poor. Employees have nowhere to go, so listening to them is a luxury, not a necessity. While the early phases of the recovery may be jobless, high performers often have options that others do not. You cannot afford to have your top talent walk out the door. Also, an engaged work force will do a far better job of directing its energies to help the company improve business results.

• We have limited human resource dollars to spend, and a survey is not the best way to spend them. Return on investment in a well-targeted strategic survey is positive in the near term. Opportunities to make quick improvements in productivity in such areas as coordination of effort, eliminating unnecessary work, and improving information flow will be identified if the right questions are asked. And longer term, decisions about how to set HR investment priorities can be identified through a thorough assessment of employee views and perspectives.

• If we ask, we open the floodgates and raise expectations for action. No one expects management to address every issue identified in a survey. But if the right questions are asked, a few strategic imperatives that warrant action will rise to the surface. Employees will understand and welcome a response to their input that makes good business sense.

The alternative to an effective survey is setting HR initiatives and investment priorities based on soft information. It is not a viable alternative as companies strive to improve results with still-scarce resources.

Let us know what your experience has been. Did you survey throughout the recession? If so, did you see a drop in engagement like the common wisdom suggests, or did you buck the trend?

Wait a minute—I thought the supervisor was the focal point for employee Engagement! Perhaps not as much as you have been led to believe. As early as 1983, Brian Morgan and I wrote a book entitled Supervision in the 80s that documented the critical role that the supervisor plays in motivating employees to create satisfaction and energy. It is important not to forget, however, that other factors play an equally important role. I was disturbed to see that, with the growth of focus on engagement, and on the immediate supervisor, top management was no longer being held accountable for its role.

Unfortunately, the supervisor only controls so many cards in an Engagement deck that is largely designed by top leaders and function heads, such as Human Resources. I have spoken with many supervisors who are frustrated (and themselves becoming disengaged!) at their inability to deliver on engagement commitments due to a lack of adequate tools and resources. For example, at many companies there are clear examples of supervisors who are great at recognizing their people—a big driver of Engagement–but if the “big boss” doesn’t even say hello to employees he/she encounters, it can negate the supervisors efforts.

I find the pay debate to include both level of pay and the way pay is managed and communicated. The emphasis tends to be on the former, but in many companies, the supervisor can influence only the latter. When the plan doesn’t demonstrate a clear connection between contribution and pay, the supervisor can do little beyond administering (and apologizing for) the weak pay plan.

Growth is another major driver of employee engagement, especially among younger generation workers. People want to be able to develop new skills, take on new responsibilities, and grow into more challenging roles. Strong supervisors will be able to find new skills and challenges through job rotation or expansion, but if the organization has no training budget, little job movement and poor career growth opportunities, the supervisor cannot create these on his or her own. And, if the top team does not have a clear, well communicated vision about the future of the company, including new opportunities for the employees, even the most compelling communicator simply has no story to tell.
I’d like to see more top leaders taking a strong hand in Engagement, working with, rather than passing the buck to front line managers. Actions that I have seen to be successful include:

• Creating a compelling vision and direction for the organization among its workforce—(notice that I did not say “communicating” because too often that means a video and “back to work”)

• Challenging Human Resources to create people systems that drive high engagement—a climate of growth, recognition opportunities, practices that engender feelings of fairness, reward systems that truly motivate, and performance management systems that create growth and improvement—not simply punishment and scoring!

• Get out and talk to employees. Executives don’t have lots of free time. But part of being leaders is talking to followers. I am always impressed at how important a few words can be to a front line service employee or someone in the “back room” when it comes from a caring senior leader.

How do you compare the supervisor and leadership roles in creating engagement in your organization?
We welcome your comments–please post here!

Why this phenomenon?  I ask the reverse question.  Did we think all along that Engagement was a function of the economy and not organizational actions—leadership communications, human resources policies, and supervisory behaviors?  It’s interesting to note that during stable and growth economies, most people attribute high and low Engagement to things that happen within organizations, most especially leader and supervisory behaviors; yet during a recession, more is attributed to “bad times.”

Most research has demonstrated a set of factors that seem to drive Engagement across most situations:  supervisory behaviors such as fair treatment and honest communications, leaders with a vision, solid values, and opportunities to learn and grow at work, which can apply in good times and bad.

No, I think what we are seeing is more a reaction to How organizations are handling the recession than the recession itself.  How are we treating employees?  How are we communicating?  Are we living our values?  Are leaders inspiring and painting a future vision, or just hunkering down?  We are finding increases Engagement scores both in firms that are financially stable or growing as well as ones that have been hard hit economically.

Could it be Contrast?

Another factor to consider is how employee compare their relative situation to others.  Early on in the recession, expectations of and actual reductions of perks such as travel and training perhaps were viewed as takeaways.  As the recession has deepened, having a stable job with reasonable policies and treatment may look pretty good compared to friends and family members who do not have a job or have one that is draconian in employee treatment.

As in most things in life, people often judge their situation relative to others, and in the current environment, having a stable job with decent policies and a fair boss may not be so bad after all!  I could get engaged with that notion.

Bill