CFO Insights November 2016 Culture shift: Changing beliefs, behaviors, and outcomes Culture is like an iceberg. The part that precisely articulate and deal with culture. leadership success and corporate can be seen above the water reflects the Indeed, Deloitte’s Global Human Capital performance. In this issue of CFO Insights, isolated behaviors and outcomes that Trends 2016 report,1 based on a survey we outline some straightforward ways in can surprise and sometimes frustrate of more than 7,000 business and human which executives in general—and incoming incoming executives. The bulk of it, though, resources leaders, found that 82% of executives in particular—can diagnose the the submerged part, comprises the respondents view “culture as a potential prevailing culture and, when needed, ways “shared beliefs and assumptions” that are competitive advantage,” while only 28% in which they can work across the C-suite to often shaped over generations and can believe they “understand their culture well,” drive cultural change. sometimes punch a hole through titanic and 19% believe their organization has the corporate initiatives. “right culture.” That is why changing organizational culture Little wonder that not systematically is often both a priority and a challenge. It is understanding culture and addressing also why many executives find it difficult to change when needed can undermine CFO Insights Culture shift: Changing beliefs, behaviors, and outcomes Deconstructing culture Diagnose, name, and validate the fully share opinions, and chose to delegate culture. The first step is to diagnose and up critical choices to minimize personal Going back to the iceberg metaphor, what articulate the beliefs that comprise the risk. That culture can persist long after the we see above the surface is often the existing culture. To do this, it is useful CEO who created it has departed. artifacts and consequences of culture rather to have executives think through and that the values, beliefs, and assumptions Not all cultural attributes are bad, of name organizational outcomes they have that actually drive the culture—and the course. It’s important to be clear how to observed and that they do or do not like. behaviors and outcomes that result. work with and utilize the current culture for Next, they should hypothesize behaviors competitive advantage before seeking to Changing culture thus requires change at that led to these outcomes, and then the transform it. An incoming executive focused the beliefs level, which is often substantially beliefs driving the behaviors underlying the on culture change should first diagnose the more difficult than changing business outcomes. (By identifying specific frustrating prevailing culture and determine whether processes or information systems. To outcomes and hypothesizing the behaviors and to what degree to fit within and leverage complicate matters, there may be an overall that appear to drive those outcomes, it is it, or establish strategies for transforming it company culture and sub-cultures across possible to get at the likely underlying beliefs in order to execute effectively on strategic groups that can sometimes be in conflict. more easily.3) (See box, “Diagnosing and priorities. In the latter case, the costs and While CEOs have the authority to lead reframing culture in practice.”) timeframes for manifesting cultural change cultural change across a company, typically Once the hypotheses about the beliefs must be balanced against the benefits that other C-suite executives, including CFOs, can that comprise culture are diagnosed, it is can flow from the new culture. only be supportive of a CEO’s companywide important to validate them. This begins culture change efforts, or they are limited with the recognition that existing beliefs in scope to drive belief changes in their did not arise in a vacuum and often served specific sub-organization. Yet, every C-suite a good purpose even if they are not useful executive should be able to diagnose now. When you hypothesize a belief that no dysfunctional cultural attributes and get at longer serves your company very well, try the underlying beliefs to help CEOs drive to validate it as the prevailing belief through companywide culture change. discussions with your peers, and try to The classic culture change model builds understand its origins and the purpose on three stages: “unfreezing” the beliefs it served. in an organization through critical events; Keep in mind that the origins of beliefs “change” through role-modeling and setting can go back many generations of CEOs. new behaviors and beliefs; and “refreezing” A company’s current CEO, for example, the organization to lock in a new culture (see may be widely regarded as congenial Lewin-Schein Models2). A pragmatic way and supportive of collaboration, yet the to put this model into practice is to frame prevalent culture may be characterized it as four distinct steps: diagnose, name, by extensive delegation upward and lack and validate the culture of the organization; of information sharing and ownership reframe the cultural narrative; role-model of decisions across key leaders. Why? A and communicate cultural change; and previous CEO may have created a culture in reinforce a new belief system. Let’s examine which many managers did not feel safe to each step in more detail: 2 CFO Insights Culture shift: Changing beliefs, behaviors, and outcomes Reframe existing narratives. The second in a sustained way, it is important to revisit beliefs that no longer serve the company step to culture change is to reframe the incentives and performance management well; they can create credible narratives that narratives that will be used to change policies and align them to the culture you reframe beliefs to drive more productive beliefs. To begin, it is important to create want to create. For example, if you want outcomes; they can role-model new beliefs a narrative that shows the value of the different units to cross-sell and collaborate and behaviors; and they can communicate widely held beliefs and also the pitfalls but compensate leaders in each business desirable beliefs and behaviors. and inappropriateness of the beliefs in unit solely on the performance of that To define culture and change it is hard. By other contexts. It can also be useful to specific business unit, you are unlikely to working backward from observed outcomes articulate, in detail, the beliefs, behaviors, foster cross-selling and collaboration. to behaviors and beliefs, however, you and outcomes that are desired (see Through every stage of the cultural change can hypothesize and begin to validate key box, “Diagnosing and reframing culture and reinforcement process, it is important cultural attributes and understand their in practice”). In practice, narratives to to communicate beliefs and expected value and origins. Strategies for modifying challenge existing beliefs need to be behaviors, and to explicitly articulate the cultural narratives, reframing beliefs carefully crafted (and communicated) to and reinforce the desirable beliefs. Some through role modeling and selective acknowledge the value, but also disaffirm companies, for example, are publishing recruiting, and reinforcing cultures through the misapplication of the beliefs. cultural manifestos.4 And today, video and metric and incentive changes and targeted Role model and communicate cultural electronic media, used well, can further communications can then be deployed to change. While specific narratives may amplify and expand the reach of critical drive culture change. Not engaging and disaffirm beliefs, replacing existing beliefs communications and cultural narratives to understanding culture systematically, requires articulating and demonstrating the key audiences. particularly early in an executive’s transition, behaviors and supporting beliefs required increases the likelihood of the observation, Catalyzing organizational change to deliver desired outcomes. Establishing widely attributed to Peter Drucker, that new beliefs requires role-modeling— C-suite executives have fundamentally “Culture eats strategy for breakfast!” demonstrating by doing things consistent different roles in catalyzing culture change. with new beliefs and rewarding those CEOs need to own the narrative and be the * This edition of CFO Insights was adapted from champion of companywide culture change. Catalyzing organizational culture change, by Ajit who behave in ways that support desired Kambil. For more information on team dynamics, outcomes and beliefs. Others in the C-suite, while generally limited visit the Executive Transitions collection on Deloitte in scope to lead culture change, should University Press. The first step is to communicate what support the CEO in such efforts. is valued not only at the outcome level, but also at the belief level. This is likely to That said, the entire C-suite can play a vital entail creating and executing a consistent role across the culture change steps. They communications strategy around the culture can work together to name and disaffirm the change you are trying to deliver (see “A plain Diagnosing and reframing culture in practice English talent agenda for your transition”). By noting down the frustrating outcomes of behaviors that appear to drive the outcome, it Next, as a leader, you have to behave and is possible to get at the likely underlying beliefs. Consider how the undesirable outcome is act in a manner consistent with the culture diagnosed in the example