Is it really true that “Culture eats strategy for breakfast”?

My early experience with organisational culture

Early in my career I worked for a few small privately owned businesses. In one the man who owned and ran the business initially presented himself as reasonable and friendly. Over time I discovered that he had a terrible temper and I (and others in the business) could never tell when it would surface. This usually ended with the targeted individual being yelled at and made to feel terrible about something they had or hadn’t done. Fairly predictably he was usually very pleasant for a period after he had been so angry.

I came to expect the behaviour but one weekend I spent time trying to figure out if the problem was me or him. It took the whole two days to land on him being the problem. If I had made the decision that it was me, I suspect it would destroyed my self-confidence.

I came to understand that he ran his business with a bullying culture and relied on fear to get things done.

The above quote “Culture eats strategy for breakfast” is attributed to Peter Drucker, the famous American management consultant and author. I have often wondered if it was true as I had seen poor culture make it hard to get the best out of people, but was unsure if it could actually destroy a strategic initiative.

Discussions on the importance of having good organisational culture have been prominent in the Australian media recently with issues raised in relation to perceptions of bad behaviour in the Australian banking industry. This has resulted in the Labour party calling for a Royal Commission into the industry as part of its 2016 election platform.

Other industries have come under media scrutiny including Coles, Woolworths and recently, 7-Eleven franchisees that were outed by the Sydney Morning Herald and Four Corners for taking advantage of some of their employees by significantly underpaying them.

To answer the question in the heading of this article we need to understand what Organisational Culture is, what Strategy is, what bad culture is and then look for a business that publicly initiated a major strategy that failed due to a bad culture?

What is organisational culture?

A succinct definition for the purpose of this article is found in the Hubspot “Culture Code”;

“A set of shared beliefs, values and practices”

What is strategy?

The Oxford Dictionary defines strategy as;

“A plan of action designed to achieve a long-term or overall aim.”

The overall aim is usually to improve financial outcomes for a business and its owners. The enabler of improved financial outcomes is often an improved competitive position.

Do we know what bad organisational culture looks like?

In his February 27, 2015 article Organisational Culture: Toxic Culture and Business Performance Jim Riley Calls out a number of behaviours that are involved in a bad or “toxic” culture. The key theme in all of them is that the behaviours will make many people uncomfortable:

  • “Weak leadership
  • “Double standards by leadership
  • “Authoritarian or bullying leadership”
  • [Lack of]”Openness and honesty”
  • “Lack of transparency and morality”
  • “Dishonesty and corruption”
  • “Reluctance to embrace change
  • “Rampant gossip/rumours”
  • “Us/Them mentality”
  • “Retaining poor-performing staff”

Read more:

To these I have to add arrogance and not being customer centric as two other elements of a bad culture.

So does a bad culture really cause strategic failure?

Earlier I mentioned a number of businesses in the news. Of those Woolworths is the one that stands out as having publicly initiated a major strategy to enter another retail “vertical” and take on Bunnings in the hardware space.

The project was called “Oxygen” as it was intended to starve Westfarmers of the cash needed to grow its Coles business (a major competitor of the Woolworths supermarket business) which was in the middle of a major turn around, and using a lot of cash to improve its stores, a significance portion supplied by Bunnings.

Woolworths formed a partnership with Lowes (a major American hardware business) to roll out a series of over 100 big box hardware stores across Australia. In addition the business bought the Home hardware business. The strategy started under Woolworths MD Michael Luscombe and continued on under his successor Grant O’Brien for six years but in the end failed.

The thing that is interesting about this is that there is an obvious position for another major player to provide an alternative to Bunnings in Australia. So why did it go wrong?

Elizabeth Knight (A business columnist for the Sydney Morning Herald) in her June 20, 2015 article “Woolworths is far from a supermarket” stated the following;

“Despite protestations to the contrary, Woolworths is viewed as an arrogant organisation, even though [Grant] O’Brien [the CEO] could not be similarly described.”

She also stated;

“Masters has been one of the great own-goals of Australian corporate history and one that stands as a testament to the corporate and cultural arrogance Woolworths has been accused of.

Rather than inflicting wounds on its enemy Coles, the Masters gamble has placed pressure on Woolworths’ own capital and restricted its ability to invest in lowering supermarket prices to compete with Coles.”

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In his November 26, 2015, AGM 2015 – Chairman’s Address to shareholders Gordon Cairns, the new Chairman of Woolworths, stated that the business needed to change. An extract from is address is below;

 “We need to restore the culture of customer centricity, which was our hallmark for years. The most important people in our business are our front line staff, for they interact with the customers on a daily basis. They know what we need to do better, and we must listen to them, and empower them to act.

And in order to integrate this into the business, we need to change from a knowing culture to a listening culture: listening to our store staff as to what we could do better, listening to our customers on whether we provide value, and listening to our suppliers on how we improve the partnerships.

This cultural transformation is fundamental and will ensure that the strategies and programs we implement will stick.”

Read more:

“Culture eats strategy for breakfast”

Gordon Cairns admission to Woolworths business performance and cultural deficiencies, is evidence that culture does eat strategy for breakfast.

This means that it is imperative that businesses focus on the quality of their culture and if it is deficient, work hard to improve it.

There are other examples of the impact of bad culture on businesses and other organisations. In his February 27, 2015 article Organisational Culture: Toxic Culture and Business Performance Jim Riley mentions a number of organisations which suffered for their bad or toxic cultures including Goldman Sachs and Barclays.

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So, why don’t other businesses that are called out for bad culture, fail?

Some possible answers are;

  • The bad culture is affecting business and strategy performance but not to a level sufficient to be noticeable externally.
  • The organisations involved have not initiated a major strategy and the business continues with business as usual…but not great performance.
  • The business could have a privileged position that makes it very difficult to fail.
  • The bad cultural issues that are reported by those on the outside are part of sub-cultures but not the main culture of the business.
  • The bad behaviour is a pre-cursor warning of poor performance to come.
  • Work is being done in the organisation to improve culture and this is reducing the likelihood of poor performance.

One thing to remember is that the issues with the hardware strategy at Woolworths took a long time to manifest and in the first few years was not obvious from the outside.

Key takeaway

The key takeaway from this article is that Drucker was right. A bad culture will impact a business’s ability to implement strategy and in some instances cause major damage to or the destruction of a business. As noted above not all businesses with cultural issues fail. However the businesses are all damaged in some way when their culture is poor and it doesn’t matter if they are small, medium or large.

Please check for the follow on article on how to improve an organisation with a poor culture.

Tom Newton is the Principle Consultant at Competitive Insights.

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