Nobody knows for sure if management expert Peter Drucker ever really said “Culture eats strategy for breakfast,” but he certainly believed in the idea. Why? Because it’s very, very, very much true; no matter what strategy you think you are following, if the culture that emerges is contrary to it, then culture will win every time.
So, what’s the effect, why does this happen, and how can leaders avoid it?
Looking for examples, we have seen this clash at Uber in the past, and it still faces challenges with its new leadership. Under former CEO Travis Kalanick their culture seemed to mirror Mark Zuckerberg’s famous dictum to “move fast and break things.” This had a negative impact on its strategy in some markets, and even now that culture clashes with the strategy introduced by its new CEO.
First, consider how Uber entered Asian markets. Following its strategy of global growth, their culture encouraged a common approach to local taxi and business regulations that seemed to be “better to ask forgiveness than to ask permission.” In other words, Uber would often introduce the app into a market, sign up drivers, start offering rides, and then deal with local regulators. This may have worked in a society like the United States that respects the entrepreneur, but in many Asian markets, where harmony is often favored over disruption, that culture was destined to create too much friction and derail their business strategy.
Case in point: the Philippines. Transportation regulators in Manila ordered Uber and Grab (a Southeast Asian company) to stop accepting new drivers for their apps while the government clarified its rules for the ridesharing industry. Grab complied, but Uber didn’t. In August 2017, Uber was told to suspend operations, a decision they chose to appeal. Following their culture that encouraged them to “break things,” Uber decided that it would continue operating while appealing its suspension, a step that angered local regulators. In the end, Uber paid the government nearly $4 million in fines. It’s worth noting that less than a year later, Uber sold its regional operations to Grab and exited Southeast Asia.
The clash between culture and strategy continues on a company-wide scale. Uber’s new leadership is attempting to change its strategy by putting dozens of projects on hold and emphasizing slow and thoughtful improvements to existing capabilities rather than a sudden introduction of new technology. The new CEO hopes to create a culture to support that strategy, in which progress is “a game of inches” rather than big, bold moves, something that will be especially important as they confront the risks of testing self-driving cars. For now, however, the old culture of “move fast and break things” has yet to be replaced, and it affects Uber’s ability to pursue a new strategy successfully. When people are confused about what to do, they end up taking actions that conflict with the strategy, or they just don’t do anything at all while they wait for explicit directions, or they quit. In any case, it’s hard to drive a strategy when the culture does not support it.
In a different vein, recent reports about sexual harassment problems at Nike show how a company’s culture can affect revenue by causing the company to miss opportunities, while also raising costs associated with high turnover or promoting the wrong people for the wrong reasons. Even a simple strategy like “maximize profits” can be hurt by a toxic culture.
A culture that tolerates harassment can affect business performance by excluding high performers from senior roles, or leading the best employees to leave (and not just women, either; plenty of men are uncomfortable being part of such a culture, and it affects their performance and their desire to stay with the company, too). It becomes harder to implement a business strategy if the people who are best equipped to do that aren’t in a position to do so. A toxic culture – whether due to harassment, discrimination, or just plain ol’ poor leadership – makes carrying out the business strategy a challenging proposition. An article from the Australian HR Institute notes that
“The lack of diversity at Nike appears to have been negatively impacting the company’s bottom line for a while. In an organisation where half of the employees are women, yet only 38 per cent of directors and 29 per cent of VPs are female, they seem to have failed to understand the impact on their consumer base.
Of Nike’s $34.4 billion generated in revenue last year, only a fifth of that business came from sales of Nike womenswear. Given that female activewear is a $45.9 billion dollar trend and growing, this seems like a huge missed opportunity for the brand. Perhaps it’s evidence that gender discrimination and lack of diversity really doesn’t pay.”
The argument here is that a culture that left female employees feeling marginalized, and discouraged from remaining with the company or seeking leadership roles, may have led Nike to ignore or silence the viewpoints that could help them understand a growing market. A poor culture can undermine even the strongest business strategy.
Our research into organizational culture over the years suggests that the creation of a culture follows a pretty simple formula: Strategy – Structure – Culture.
Strategy Figure out what’s important to you, including not just your priorities but also the values that support those priorities. What do you want to accomplish, and how do you want to get there? This includes your business strategy and also your “people strategy.”
Structure Create the right policies, processes, organizational chart, and office setting, to create the working environment that gets you to your business goals. For example, if you think collaboration is important for achieving success, then don’t have a performance management system that only rewards individual success.
Culture As your goals and priorities are identified, and your structure drives certain behaviors, a common understanding of norms and expectations emerges. People learn how they should perform and what they can expect from others, based largely on the impressions created the processes and policies you put in place, and how you enforce them.
Very often, the culture conflicts with strategy because of problems in the structure.
- In the case of Uber’s entry into Asia, the “one size fits all” processes that worked for entering markets in the US may not have been appropriate for other countries, ultimately contributing to Uber’s failures in China and Southeast Asia.
- At Uber now, a new strategy is being implemented that conflicts with an existing culture. This is a case where a new culture needs to develop, something that will only happen with then company creates a structure that supports their new strategy and encourages new norms and expectations.
- At Nike, an HR structure existed on paper to support a good working environment, but its requirements reportedly went unenforced, which only furthered the belief by some managers and leaders that harassment was acceptable.
The key lesson for leaders to take from this is that culture will often be based more on structure than on strategy (and when strategy and structure are in conflict, the resulting culture can be pretty weak and unhelpful). A CEO can stand up at a town hall meeting and talk about big plans, and a strategy team can publish a glossy brochure with lots of pictures, but employees are going to pay more attention to how they get rated, what they get paid to do, and who gets promoted.
So, if you want a culture that supports your strategy, you need to consciously make that happen. If you want an innovative culture, you need policies that encourage people to take risks and learn from failure, rather than being afraid of it. If you want your junior employees to raise their concerns with you or set realistic expectations for your clients you need to reward people for coming forward and being transparent. In most cases, the right culture is unlikely to just emerge on its own; you need to make it happen.
If you want to avoid having your culture eat your strategy for breakfast, then cooking up the right structure is the key.