Now that we’ve covered rewards, let’s return to our earlier discussion of the levers that organizations have at their disposal to promote the critical path.
Another major lever is the organization's culture. Culture is made up of the values, norms, beliefs, and behaviors that define what the organization is about and how it gets things done. If you think about Whole Foods, Costco, Google, or Southwest Airlines, an image comes immediately to mind about that company and how it conducts its business.
Your organizational culture needs to embody and reinforce the critical path. When Southwest Airlines opts not to give out seat assignments, it does so not for arbitrary reasons but because such a decision reinforces its critical-path promise to turn around the planes rapidly and have on-time takeoffs. When Southwest pioneered not serving meals on is planes, it underlined its commitment to low costs that allowed lower fares. When Southwest’s flight attendants joke during take-off and landing, it helps put the fun back in flying. These are all expressions of its culture that also link directly to the company’s critical path.
Culture matters, but it is often a misaligned tool when it comes to the critical path. Remember the earlier example of JC Penney, where employees at corporate headquarters watched 5 million YouTube videos in one month while the company was losing customers and money. Its culture was at odds with its critical path. Instead of focusing on the customer, the HQ staff was engaged in activities that had no positive impact on the critical path. Worse, JC Penney’s organizational culture allowed it to occur. As pointed out earlier, why didn’t the CIO notice that ⅓ of the entire IT bandwidth was consumed by YouTube videos? When the culture tolerates managers who take their eye off the critical path, it should not be surprising that lower-level people will do the same.
As you think about your organization’s culture and its alignment with the critical path, you might consider the following factors identified by my Carnegie Mellon University colleagues Dave Lassman and Denise Rousseau:
FOCUS: What do the leaders focus on and what gets talked about the most inside the company: Internal politics? Competitors? Gossip? Customers? HR problems? Operations? Management decisions? The internal bureaucracy? Government regulations? New products/services? Who is getting promoted/demoted? Or something else?
The answers to the above will tell you much about the company’s culture. If the culture is critical path–focused, the topics that receive the most attention will be customers, new products/services, and operations. If the organization is getting off the critical path, it tends to spend too much time on internal politics and gossip, the bureaucracy, HR issues, and decoding management decisions.
As for competitors, as discussed earlier, you need to be mindful of them—but not overly mindful. As executives from Amazon, Google, and Walmart have told me: When your culture becomes more focused on your competitors, rather than your customers, you are losing your critical path focus. If you think most about your customers and how you can make the critical path better, shorter, faster, smarter, more effective, and more profitable for them (and you), then your competitors have to play catch up to you. Your concern with the competitors should only be if they are offering a better critical path that separates your customer from you. If you are truly focused on the customer’s critical path, you should do a better job to anticipate their unmet needs and expectations before your competitors do.
INTERNAL TALK: How do people describe the culture? Do they say it’s a fun place to work? Highly competitive? Male-dominated and macho? Laidback? Academic? Caring? Fair? Work hard-play hard? Family-friendly? Cost-conscious?
How the employees talk about the culture sends a message as to what is valued (and what is not) and how you are expected to behave. You would hope that you would hear that customers come first or that the critical path drives decisions. If not, what would it take to make those part of your culture?
MEETINGS: Where do meetings take place—near the critical path or away from it? I am always amazed that most corporate meetings are held away from the critical path, at fancy hotels or at company headquarters. People fly in from all over the country to discuss the business that is now physically distant from them.
I recommend that many, if not all, corporate meetings be held at critical path locations. If you are a mining company, hold them at the mines. If you are an oil company, hold them near the oil fields or the processing plants. If you are a grocery chain, hold them in or near the stores. If R&D drives your company, as it does in pharmaceuticals, then hold them at the R&D campus. If sales is what separates you from your competitors, then meet at a major sales office.
The reasons are fourfold:
It communicates to everyone that the critical path is important;
It makes the critical path workers feel important;
It allows all the top executives to see the critical path in operation—the strengths and the weaknesses.
It allows the executives to learn firsthand from the critical path workers what is working and what is not.
When I suggest this to companies, I often face significant pushback. Headquarters executives will say that it is time intensive and expensive to fly all the HQ executives to a critical path site (though I seldom hear this complaint when they all meet at a fancy 5-star resort). Instead, they say, it is cheaper to fly in the remote people. Or, they will view it as a waste of time taking them away from their other obligations. Or they say that they are in accounting or human resources and that they don't need to visit operation sites to do their jobs as well.
I remember a CFO grumbling that seeing the operations just wasn’t that important considering everything else he had to do. His colleague, the company’s CEO, replied, “Tell me what is more important than our critical path?”
WHERE DO PEOPLE WANT TO WORK? At most companies, the ladder climbs to the corporate headquarters building. The goal is to move up from your function closer to the seat of power. It generally means better working conditions, better offices and perks, more pay and status, often less travel, and more regular hours. So, the very best people strive for these office jobs.
This often signals to me that the culture is not aligned with the critical path. Instead, you’ve “made it,” career-wise, when you are no longer directly involved with the critical path on a day-to-day basis. This seems at odds with critical path cultures where you aspire to work on the critical path. In the grocery business, you want to run a grocery store or a region. In a bank, you want to manage customer accounts. In a university, you want to teach students and do leading-edge research. Why should it be otherwise at your company?
I always think of the U.S. Army. The key to officer advancement is to lead soldiers successfully in combat missions, i.e., the military’s critical path. This is true at all levels from new green lieutenants to battled-tested generals. You earn new rank by demonstrating that you contribute to the critical path at increasingly higher levels. As a result, officers look for regular combat deployments rather than stay in staff jobs located in the USA. The jobs in between combat deployments are aimed at rounding out their skill sets so that they can take on higher critical-path jobs later.
The Army equivalent in business is to look for and take critical path jobs of increasing responsibility. These are the jobs that employees should aspire to and which companies should reward with money, status, and other items from our earlier reward discussion.
RULES and POLICIES: Culture often embodies rules and policies that can support or undermine the critical path. Rules about how to dress or behave set a clear tone. Punching a time card is a rule that sends the message that the company doesn’t trust you and has to make sure that you were actually present that day for the hours shown on the time card. Of course, time cards say nothing about your critical path productivity during those hours. In contrast, a rule to wear safety equipment, like goggles, along with penalties for not doing so, can reflect a culture that doesn’t want its employees to get hurt. Rules are formal expressions of the culture.
Policies, such as getting back to customers in less than five minutes, indicate that serving customers quickly is important. Quality control policies aimed at getting the right product to the right customer at the right time put the critical path front and center.
In contrast, one very large manufacturing company decided to create its own parts company rather than buy from outside suppliers. This parts company would supply the parent company’s divisions and subsidiaries, as well as sell to outside companies on the open market. The company then required that every company division and subsidiary had to buy from the firm’s own parts company. On paper, the decision made sense: in addition to lowering company-wide costs, the new parts company would also bring in additional profits for the parent company by selling to external customers.
The problem arose when the parts company discovered just how competitive the parts business actually was. In order to attract outside customers, they had to match competitors’ prices, which only allowed razor-thin margins. In order to show that they were making a profit, they charged their internal customers higher prices than the outside customers. In effect, the larger company was now subsidizing the low prices received by the external customers. This drove up the costs to the parent company, which they either had to eat or pass onto their external manufacturing customers. The decision to get into the parts business and the subsequent policy forcing the divisions and subsidiaries to buy internally now undermined the larger business’s critical path.
Even good policies can inadvertently stumble on the critical path. A friend of mine worked for a high-end computer company had put in place a very sophisticated decision review process to guide their investment in every new product. It required a timetable with milestones and decision review meetings to help make sure the investments were on track and still deserving support at each step along the way.
The problem came when the majority of the company’s new products kept lagging the market in new innovations, thus missing the window to gain market share from their investments. An analysis of the company’s products that were successful vs. the unsuccessful ones indicated that the successful ones did not use the required sophisticated decision review process while the unsuccessful ones did. The successful products took 18 months, on average, from conception to market introduction; the unsuccessful ones took 36 months. This well-intended practice to ensure success actually led to failure because it simply took too long.
As a final example, I was once asked by a major oil company to do an all-day program for their oil exploration division. As we were walking through the offices, I noticed that every office looked the same, with almost no discernible differences. I asked my host about it. He told me that company policy dictated both the furniture and what you could put in your office. You were allowed to have one 5x7 family photo on your desk and only one piece of company-approved art on the wall. If you were not in your office, you were to leave nothing on your desk while you were gone. At night, a security monitor visited every office to make sure all offices were in compliance with policy. If they found anything on the desk or un-approved photos/art, the item(s) were confiscated with a note on how to retrieve your stuff.
You can just imagine the messages such policies sent to employees. The irony is that they asked me to help them with their lack of creativity and innovation. Like fish who aren’t aware that they live in water, their culture shouted “Conform!”
MAKE-WORK: Culture infiltrates everyday practices within a company. One common byproduct of organizational cultures is make-work, discussed earlier in Lesson 24. As we asked then, does the company expend energy on seating charts at meetings? Do people sweat over the proper listing of names on emails? Do people jockey to get included in meetings or retreats? Do people over-rehearse presentations or over-edit memos and emails? All this is energy better expended on the critical path.
HISTORICAL LEGACY and HOW THINGS GET DONE: One of the definitions of culture is “how things get done around here.” Companies develop practices that might have served a useful function at an earlier time but have outlived their usefulness and become a drag on the critical path.
Consider purchasing decisions. When a company is new and growing, the founders and first hired employees decide what equipment to buy. As the company grows, purchasing decisions might also need founders’ approval because they have their prior purchasing experience and they know whether the company can afford it. Now fast forward to when the company has grown much larger. Now who decides what equipment is bought for the employees? Does the person who will use the equipment have a voice or is it decided “upstairs” by the purchasing manager? As my colleague Dave Lassman says, “Does the butcher have a say in the knives she uses or does one of the ‘suits’ make that decision?” Is the company’s purchasing practice a result of “that’s the way it’s always been done”? Or, is it done to be most successful on the critical path?
DECISION-MAKING: Cultures embed how decisions are made. Is it top down or consensual? Are decisions made according to what’s best for the bottom line or what’s best for the decision maker’s own department or career? After a decision is made, can people lobby the decision maker to change it or go over the decision maker’s head to get it overturned? When new data becomes available, such as sales data or customer complaints, can the decision be revisited?
Intel, the longstanding maker of high-end computer chips, is known for its tough decision-making culture. Workers are encouraged to put their best ideas forward. The culture is one of fierce debate where no one holds back criticism. However, you have to have a thick skin to work there because, even though you are encouraged to tear apart others’ ideas, your ideas also get shot down. It’s a free-for-all with the critical path as the final arbiter for all decisions. The goal is that the best idea to serve the critical path wins.
LEADERSHIP: Leaders have a strong influence on an organization’s culture. They can set a top-down, autocratic tone or an open-door, collaborative atmosphere. They can be accessible, close to where the action is, or inaccessible while holed up in a corporate tower. They can visit the critical path often or they can just get reports about it. They can promote a data-driven approach or a go-with-the-gut style. They can reward people for giving them accurate information, even the bad news, or they can kill the messenger.
Sam Walton, as discussed earlier, liked to get into the Walmart stores to hear employee suggestions and issues directly. He opened up direct communication lines between his critical path employees and his executive team. When he heard several complaints about an abusive store manager, he went to the store personally to learn more. He listened to both the employees and the manager. He decided that the employees were right and fired the manager.
When other managers commented that he should have had his manager’s back and worried that this precedent would encourage more employee “mutinies,” he told them to not think about it as employees vs. managers. Instead, ask themselves what was best for Walmart’s critical path? Employees deserve managers who create an environment where they can do the best for the customers and the company. In other words, he wanted Walmart’s culture to include not only what you contributed to the critical path, but also how you did it.
Corporate culture includes other aspects of organizational life, such as performance measures, rewards, and risk-taking—all of which we discussed earlier.
The main point is that organizations whose cultures are not aligned with the critical path self-handicap their potential for success. Critical-path cultures use the all-powerful force of culture to promote success.
Jay Forrester, the well-regarded MIT professor who pioneered systems thinking in management, related how a company with a cost-cutting culture might undermine its critical path.
“For instance, a company seeking to hold down costs might delay investing in production capacity. When inadequate capacity delayed order fulfillment, customers might walk away. Salespeople would then offer discounts to lure customers back, but that would destroy profit margins, depriving the company of the means to increase capacity.”
If managers fail to discover the concealed causes of such woes, he warned, they might keep pulling the wrong levers. “As matters get worse, it becomes more and more of an incentive to do the very things that are making matters worse.”
Contrast this to Netflix’s critical-path culture, which we discussed earlier and which you can read on their website. Here are a few snippets:
The overall goal of the company is to take care of their customers.
Netflix is about building a dream team, not a family.
Employees should not expect the company or their managers to take care of their careers. That is not their job; it is the employee’s responsibility.
Netflix makes clear that it keeps "only our highly effective people."
"Succeeding on a dream team is about being effective, not about working hard. Sustained 'B' performance, despite an 'A' for effort, gets a respectful generous severance package."
Netflix’s culture lets every employee know that the critical path is what is expected and how you get ahead.
Critical Path Action Items
What is the culture of your organization?
Which aspects of the culture define it internally and externally?
Which aspects reinforce or undermine the critical path?
Does your culture attract top talent that can drive the critical path and value added outcomes?
What cultural changes need to be made to drive the critical path and value added outcomes?