When the pace of change inside the company is slower than the pace outside, it is a key indicator that there is trouble ahead. Research from Stanford’s professor and Change Logic co-founder Charles O’Reilly demonstrates that having a culture of adaptability is critical to overcoming this threat.
Organizations with a widely shared and strong culture of adaptability – which includes a willingness to experiment, a tolerance of failure, and an openness to quickly pursue new opportunities – perform much better in the long run, in terms of revenue growth, market value, employee ratings, and investor analyses than those without.
In this video, Charles O’Reilly describes the relationship between culture and performance and the importance of adaptability in driving long-term growth. He also shares four tips for turning the organizational culture at your firm into a sustainable and competitive advantage and tool for long-term success.
How does a culture of adaptability affect company performance?
What we found was that organizations that had strong norms for adaptability that were widely shared and strongly held…Those organizations perform much better. They perform better in terms of net income growth. They perform better in terms of revenue growth. They perform better in terms of the market-to-book value of the company. They perform better in terms of employee ratings. And they perform better in terms of analyst recommendations to buy the stock. So, this was, this is really the first study that demonstrates, conclusively, that there are very clear relationships between culture in an organization, and firm performance.
How do you define adaptability?
It includes things like willingness to experiment, being quick to opportunities, being flexible, being willing to tolerate some failure. So, all these are specific behaviors that I think managers can be thinking about when they’re encouraging people to be adaptable. So, it is not just a global label that means nothing. It has some very concrete meaning, that can be managed.
How can managers create a culture of adaptability?
When managers think about culture in organizations, they should be sensitive to the fact that what they’re really trying to do are create norms, create expectations among employees around this notion of adaptability, and to make sure that those norms are widely shared within the organization. We’ve actually looked at how managers create cultures and there are really four big mechanisms that managers use.
First of all, the signals that they send. That is, the questions they ask, where they spend their time. So, what are the messages that they are sending, through both their words and their actions? The second lever that we talk about is the involvement of people, getting people engaged so that people understand that what they’re doing is important. The third big lever that managers used to shape culture has to do with the vivid illustrations that they send to people, sort of what gets held up as exemplary, what is recognized and approved of. And the fourth lever has to do with rewards. But, typically, not money. Money is not a particularly good way to shape culture. When we talk about rewards, we’re really talking about what gets recognized, what gets approved.
I mean, one of the companies we looked at, they explicitly talk about honoring people who share the values. So, think about those four levers as a manager. Then, what I can do is I can use these four levers to think about what are the signals I’m sending about. Is it okay to explore new avenues? Is it okay to take the initiative? Is it okay to be fast? And if you use those four levers and you constantly repeat the messages, then people will begin to understand that look, this is important.
You know, Jack Welch said something interesting about culture. He said, most managers fail at managing culture because they get bored. I mean we give the same talk five times, and we want to give another talk. And what Welch says is, if you want to be effective at managing culture, you’ve got to be two things as a manager. You have to be relentless; you have to be boring. What he meant by that is, you have to repeat again, again, and again these messages. So, the extent in which managers in organizations constantly reinforce to their employees that we want you to take small risks, we want you to try new things, we want you to sort of take the initiative. That’s what creates this, this culture of adaptability.
Why is a culture of adaptability key to long-term success?
Culture can be a real competitive advantage or a competitive disadvantage. And a question I think for managers, is to really think hard about what the culture is that you need to execute your strategy. In that process, the culture that works for today’s strategy may not work as the world changes. And, therefore, the key to long-term success is to have a culture that’s aligned with your strategy but also has embedded in it, norms that promote adaptability.
If you think about organizations that survive for long periods, they’re around today only because they had leaders who were able to help them succeed in the short term in one environment. And then, as the world changed, to help them shift to a new a new alignment of culture. And the norms for adaptability are what we believe help them do that.