Culture broken, Strategy eaten…What next?

As my research into organisational culture has progressed, I can’t help reflecting on the businesses that I’ve worked in. I don’t believe any of the leaders that I’ve worked with actually achieved a lasting cultural change. One of the reasons that I attribute to this is that none of them managed to stay in their position for more than five or six years. Most held their position for much less time.

Many of those leaders attempted to drive some form of cultural change. Of those only a couple had any form of lasting impact. By lasting impact I mean that an element or two of the culture being driven, was taken into the way we did things. Not the whole change.

It is certainly clear that without people there is no culture and without long lasting and strong leadership it is very difficult to change.

In this second article on culture I want to explore what a business does when they have “Culture eat strategy for breakfast”, what criteria to look at prior to trying to put a new culture in place and what Woolworths has done in their first 100 days under new leadership.

Cultural change is often difficult and takes a long time

Cultural change is not a fast or easy process. It is often compared to a  stretched rubber band; if you let go, it snaps back into its old position. Organisations that have been heavily downsized often retain the old culture even when they hire a lot of new people. So a leader can drive short term change, but building and maintaining a new culture is a combination of time and a lot of effort.

In the July 23, 2011 Forbes article “How Do You Change an Organizational Culture?” Steve Denning makes extensive reference to cultural change attempts at the World Bank from 1968 to 2011. In that forty three year period in which the bank was led by seven different leaders, he claims that only one, Robert McNamara, was able to achieve cultural change.

Denning summarises the elements that McNamara used to drive cultural change as follows;

“McNamara thus arrived with a clear vision for the organization: it was to be a lending organization that was lending a great deal more money. He had a clear idea of the management he wanted introduced: hierarchical bureaucracy. He introduced systems and processes that focused everyone’s attention on his vision of the World Bank as a rapidly growing lending organization and the type of management required. Those systems are still largely in place today and still guide management action.”

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In addition to the above McNamara had 13 years leading the world bank and started his leadership when the bank was only 24 years old.

What does a business do when it has failures due to a bad culture?

In the first instance it is vital for the business to be aware that things have gone wrong and acknowledge that it needs to change to improve its culture and performance.

Using the Woolworths example, Gordon Cairns (the new Chairman) made it publicly clear in his November 2015 speech to shareholders that business performance and culture in the organisation were unacceptable and that organisational culture needed to change for the business to improve. He emphasised that the company needed to move from “a knowing culture to a listening culture” as well as becoming more customer centric.

Leadership has to change to enable the cultural change

Strong and capable leadership is critical when a business sets out to transform itself. This is highly unlikely to be achieved by the incumbent or weak leader, so new leadership is required.

In the case of Woolworths, the Chairman and the CEO both left the business with further changes to the board of directors.

The new Chairman, Gordon Cairns, brought a suppliers understanding of the business and experience in driving cultural change from his time at Lion Nathan.

The new CEO, Brad Banducci, was an internal appointment who had been running the supermarkets division and had been with Woolworths for the past five years. He also had experience in a number of other businesses including fifteen years at the Boston Consulting Group. Gordon Cairns had some key comments to make on Banducci when he announced his appointment:

“He’s very self-effacing but he has a wonderful track record in retailing.”

“Banducci exemplified the kind of leadership and strategic insight that Woolworths’ renewed board was seeking”

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Banducci’s pitch to the board must have hit the right spot and dealt to Gordon Cairns and the boards’ concerns on culture. By appointing an insider they took a risk, as insiders tend to find it very difficult to change the culture in a business they have been living in.

To add to Brad Banducci’s challenges the structure of the supermarket industry in Australia had changed with the arrival and success of Aldi and Costco, not to mention the success of a resurgent Coles. As a result price and service competition in the industry has intensified significantly. This makes it less likely that Woolworths can return to the very high margins they enjoyed in a less contested market.

Sometimes the structure of the business has to change

Often when businesses have performance and cultural issues they have been brought to light by failed strategic growth initiatives. When new leadership comes into the business there are often attempts to get back to the original core of the business by exiting recently entered areas, where the organisation has failed.

In the case of Woolworths the new Chairman and his board decided to exit the hardware segment prior to putting the new CEO in place. This allows the new CEO to completely focus on the critical core of the business. In this case the food and liquor retailing business.

What business factors do you look at when planning cultural change?

The degree and type of cultural change that is needed to improve a business’s performance is dependent on:

• Business age,
• Business size (number of employees),
• How it was built (takeovers or organic growth)
• How long the toxic or bad culture has had to become entrenched.
• The amount of strategic change needed for the business to survive and improve.

A relatively small business that is only a few years old is a totally different issue compared to a large billion dollar revenue business built on acquisitions, with five different, warring cultures. This is different again from a large old business that was primarily built on organic growth.

Business Size and Age

The Woolworths business is very large and has been in existence for ninety two years. Until three years ago the business had been a stock market darling providing excellent performance for investors. To achieve high performance the business would have had a good quality culture that contributed to the businesses outstanding outcomes.

Leading a major change in the Woolworths culture is likely to be extremely difficult, if not impossible. Making adjustments to elements of the current culture is likely to be easier and more successful.

How was Woolworths built?

Woolworths has mostly grown organically and geographically. Most of the acquisitions were relatively small and closely aligned to its core businesses. Though the acquisitions would have brought different cultures into the fold they were likely swallowed by the core Woolworths’ culture.

How long has the bad culture been in place?

In his June 3, 2016 article in the Sydney Morning Herald “Slaves to the share price: legendary CEO Paul Simons on why Woolworths needs to stock up on humble pie”, Michael Pascoe quotes former Woolworths CEO Paul Simons as saying;

“Simons thinks the rot started with the change of the company’s culture when it was being run by Roger Corbett and Bill Wavish – when executive pay went through the roof and those at the top became massively incentivised to boost the share price.”

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Roger Corbett became MD of Woolworths in 1999. If Paul Simons is correct that the cultural decline started then, the business had a period of cultural decline of just over 16 years. More than enough time to set a range of new cultural behaviours firmly in place.

How big a strategic change is required to get Woolworths back on track?

Looking at the Woolworths Ltd website the four strategic initiatives for the business have not changed. The only real change is that the order of the strategies has changed compared to the half year results presentation from January 2015.

Woolworths’ current business growth plan is built on four key strategic priorities.

1. Extend leadership in food and liquor (1 in January 2015 half year results)
2. Act on our portfolio to maximise shareholder value (4 in January 2015 half year results)
3. Maintain our track record of building new growth businesses (2 in January 2015 half year results)
4. Put in place the enablers for a new era of growth (3 in January 2015 half year results)

The strategy page on the Woolworths website does make mention of Listening to Customers. This ties back to the chairman’s comments on “listening culture” and being “customer centric”.
There appears to be no change in strategic direction, but possibly a change in emphasis (this assumes the website is up to date). The major changes seem to be in how the strategies are being implemented and the behaviours that are expected within the business.

So what type of cultural change is Brad Banducci attempting?

It appears that Mr.Banducci is attempting to restore many aspects of the culture that Woolworths had in place prior to the cultural degradation. That culture helped Woolworths win in the supermarket wars and certainly was customer centric and more likely to listen.

In this we can say that he has a higher likelihood of success compared to an attempt at massive transformation. Any attempt at massive transformation is likely to be rejected by an organisation that has had nearly a century to form its culture.

What is the early progress of the Woolwoths change program?

On June 3, 2016 Sue Mitchell from the Sydney Morning Herald wrote an article “Woolworths CEO Brad Banducci’s first 100 days: the report card“.
In the article she stated “Mr Banducci has made significant headway since taking the reins in February”.

Some of the key elements already in place are “shifting the focus from profits to customers, giving his divisional heads more accountability, encouraging innovation and teamwork, and acknowledging mistakes rather than burying them.”

Other key programs mentioned in the article are:

• Introduction of “a store induction process for all new head office or support centre staff, who must now spend their first week working in a store.”
• The leadership team have” “adopted” a group of stores to better understand how head office can support them.”
• Voice of the customer surveys around retail basics
• Improved quality management in relation to fresh food
• More staff in stores on weekends to replenish shelves
• Investment in price to better compete against Coles, Aldi and Costco
• Starting the process of improving relations with suppliers, including walking the stores with some of them on weekends.
• Review of the total business and its structure
• Unwinding shared services and returning them to the divisions.

The article also mentioned that;

“Staff and management morale has slumped and, as Mr Banducci told suppliers at a food industry conference this week, high levels of churn have made his turnaround task even harder.”

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Key takeaways

Woolworths and Mr Banducci have made a good start in the process of changing the businesses culture. The initiatives are sensible and focussed on areas where the business needs to improve.

At this early stage there is no indication of vision and more importantly values to be found on the Woolworths Ltd website (I hope I just missed them). Where a business has been perceived as arrogant or “knowing” I believe that a clear simple set of values is critical to the change process.

The degree of cultural change required is relatively small and there has been no overt change in the strategy. In spite of this, the change process is likely to be very hard. It will disrupt existing power bases and behaviours/beliefs. There will be those who resist both passively and aggressively. Many of those who don’t want the change will have to leave the business, though they may take their time in the hope that the new leadership does not last.

Finally the cultural change process is a long term one. This is a marathon, not a sprint. It will take a huge level of commitment from both Mr Banducci and the board of directors. After an initial period, business performance will have to improve if they want to have the right to continue with the change process. This is often difficult in a public business under the intense scrutiny of analysts, the financial press and investors.

Please check for the follow on article on the key tools that can be used to drive cultural change.

Tom Newton is the Principle Consultant at Competitive Insights.

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