Brokerage Ops the May 2015 issue

Cultivating Your Edge

An effective culture helps your firm recruit top talent, helps that talent retain vital skill sets and encourages reliable work force behavior.
By Russ Banham Posted on May 29, 2015

Is your organization alive with constant innovation? If your answers to these questions are “Maybe,” then there could be something very wrong with your firm’s culture.

Ten years ago, few consultants talked about the relationship between an organization’s culture and its ability to generate profitable business growth. Today, a slew of studies pinpoint culture—a self-sustaining pattern of behaviors—as perhaps the most important factor in any successful enterprise.

An effective culture helps your firm recruit top talent, helps that talent retain vital skill sets and encourages reliable work force behavior. It also drives innovation. These traits combine to differentiate companies from their competitors.

Seems easy enough, yet cultivating the right culture (or changing an inferior one) is not a breezy walk in the park. For one thing, a culture is an inherited philosophy, born with the founding of the business. Consequently, no two organizational cultures are alike—or should be. “Every company has a unique culture, whether they’re deliberate about it or not,” explains Rutger von Post, a partner and leader of the organizational change practice at the consulting firm Strategy& (formerly Booz & Company).

This uniqueness is directly linked to the character, personality and philosophy of a company’s founder. As poet and essayist Ralph Waldo Emerson wrote, “Every great institution is the lengthened shadow of a single man. His character determines the character of the organization.”

The inimitable qualities of Henry Ford, for instance, were stamped on the Ford Motor Company the minute he incorporated the entity. He hired individuals of like mind and personality, who then hired others of the same ilk. The collective decisions made by these people essentially conformed to the principles set out by the founder, differentiating Ford Motor Company from other automakers. From a cultural standpoint, Ford today is no different than it was when it was founded 112 years ago.

Many insurance brokerages, both old and new, have come to realize the importance of identifying their unique cultures, codifying it in words and then instilling it throughout the firm. A company’s culture is considered highly strategic by CEOs, who strive to live up to the stated ideals of their organization’s founder. Among them is Greg Collins, president and CEO of Parker, Smith & Feek in Bellevue, Wash. “I consider myself our chief culture officer,” says Collins. “Our core values and our culture are synonymous.”

Culture and Performance

Like many ideas that sprout from the minds of strategic management consultants, the need for a defined organizational culture was initially viewed with skepticism. Many academics, for example, doubted its value. “I was not a big believer,” concedes Robert Ployhart, Bank of America professor of business administration at the University of South Carolina. “I didn’t believe it made much of a difference to a business. It was not something tangible or something you could see on a balance sheet. Today, I would tell you the opposite.”

When Ployhart teaches his undergraduate business students about the importance of a business culture, he describes it to them in indefinable terms, such as the feel of humidity on a hot summer day. “Like humidity, culture isn’t something you can see,” Ployhart says. “Yet the minute you walk out of your air-conditioned home you can feel it all around you. The same applies when someone is working for a company. They have a sense of what this company is all about and what it means.”

Many describe culture in similar terms. “Culture is the things that happen when nobody is telling employees what to do,” says Josh Bersin, founder and principal at HR consulting firm Bersin by Deloitte. “It’s what people do when you aren’t watching them. You can sense it when you’re talking with employees. Their collective behaviors exemplify what is uniquely different about the organization.”

Every company has a unique culture, whether they’re deliberate about it or not.
Rutger von Post, partner, Strategy&

Rita McGrath, an associate professor at Columbia Business School, has divided organizational cultures into four archetypes—creation, collaborative, competence and control. “A creation culture is one where everyone pulls together for the sake of the brilliant founder’s dream to change the world, whereas a collaborative culture is one where everyone is motivated by customers to be the best they can be,” McGrath says.

A competence culture emphasizes individual high performance. Such organizations tend to be meritocracies that encourage competition internally. In contrast, a control culture is hierarchical, along the lines of the military or big bureaucracies, in which 20 people have to sign off on a particular expenditure before it can be earmarked.

“They all respond to different levers and can all be very successful,” McGrath says. “With a collaborative culture, for instance, the customer is the lever, whereas with a competence culture, it’s all about winning. Living the dream drives the creation culture, and with a control culture it’s about effectively executing the plan. The challenge is to have the right one in place in the right organization.”

Her point resonates. A former army general is not likely to be an effective business unit leader at a highly collaborative culture like the one in place at Google, much less within the competence culture that permeates Microsoft. It is foolhardy to expect that an organization with a particular culture will benefit by merely changing its culture to mimic the one in place at another organization.   

In other words, cultures are different for a reason. “A company that is intensely focused on sales revenue and hitting the numbers will create a culture of financial performance and not one of teamwork and collaboration,” Bersin says. “A company that is highly collegial, on the other hand, may not achieve the same financial performance, but its employees will likely be happier and more engaged. The return in both cases is positive.”

The CEO Is the Culture

Each business, in effect, has a DNA all its own. Their products or services may be copied, but their unique culture cannot be replicated because it derives from its founder. As Herb Kelleher, founder and former chairman of Southwest Airlines, famously said about the company’s competitors, “They may be able to match our fares, they may be able to match our frequency, but they can never match our people.”

Kelleher is a perfect example of a company founder whose philosophy infused an organization and continues to inspire its employees more than four decades after its incorporation. “Kelleher forged a culture that was based on a few distinctive elements, such as cultivating collaborative and fun employee interactions,” von Post says. “He also encouraged employees to engage the airline’s travelers in personal interactions. He committed the company to addressing customers’ problems with courtesy and compassion. And he promised to do all of this less expensively than the competition charged.”

These guiding principles ultimately guided “instinctive behaviors” in Southwest Airline’s employees, he adds. This is a good thing, Bersin says. “People know what is expected of them from the cultural influence, which drives their behaviors and leads to organizational stability,” he says. “In many ways, my organization’s culture is a reflection of me.”

In business theory, this principle is called “attraction, selection, attrition.”

“The characteristics of the founder influence certain types of people who are attracted by the possibility of working with this person,” Ployhart says. “As the organization grows over time, it becomes homogenous in its culture and values, which differentiates it. The reason Coca-Cola and Pepsi are different companies is because they attract different types of people, even though they sell similar beverages. A lot of what permeates organizations today can be traced back to elements of the founder.”

Every great institution is the lengthened shadow of a single man.
Ralph Waldo Emerson

Von Post agrees. “When two people come together with a laptop at a coffee table and subsequently launch a startup company, whether consciously or not they have established a pattern of working and a set of behaviors that will transmit to all future hires,” he says.

Greg Collins says the culture at 78-year-old Parker, Smith & Feek had long been established by the time he joined the brokerage almost 30 years ago. “While generational changes have left their mark on the organization, the values that existed at the beginning have not changed,” he says. “Although the founder did not specifically state what these core values were, they were already in place when we put them into words.”

The firm’s core values are: to act with uncompromising integrity, to focus on client objectives, to demonstrate intellectual curiosity, and to commit to the success of all team members. “We have 200 employees, and each time I sit down with a new hire, my job, besides welcoming them, is to imbue them with who we are,” Collins says. “I want them to clearly understand what kind of organization they have just joined.”

Dan Keough, chairman and CEO of insurance brokerage Holmes Murphy, based in Des Moines, Iowa, says the 83-year-old firm’s culture also stems from the founder’s principles. “The heart of what we do is all around the customer—they’re the ultimate decision maker and our boss,” Keough says. “This concept began with the founder, and it has been nurtured ever since by every CEO here. We believe in this mission and live it every day.”

Both brokerage firms would fall into McGrath’s archetypal collaborative culture. Holmes Murphy strongly encourages teamwork to serve client interests. “Ray Murphy (one of the firm’s founders) was a member of the University of Iowa’s famous Ironmen football team of 1939,” Keough says. “Consequently, winning through teamwork has been part of our culture since the beginning.”

Turning a Battleship

When a business falls behind the competition, it often can be traced to cultural misalignment. Often such an enterprise tries to be something other than what it’s been since its founding. Business literature is littered with such examples.

“A case in point is the disastrous decision by J. C. Penney’s board to bring in the fellow who developed Apple’s highly successful retail stores and had made Target such a cool place to shop to turn the company around,” Ployhart says.

Culture is the things that happen when nobody is telling employees what to do.
Josh Bersin, founder and principal, Bersin by Deloitte

He’s referring to Ron Johnson, who was summarily fired by the board after its stock price nosedived less than two years after he was hired. Johnson was trying to change J. C. Penney’s stodgy culture into something more along the lines of Target, where he was vice president of merchandising. Advertisements looked similar to those that promoted Target for years, which focused on more youthful customers. At the same time, he wanted J. C. Penney stores to be fun places to convene, much like Apple stores.

All well and good, but when Johnson instituted a company-wide ban on discounts, it distanced longtime older customers, who simply stopped shopping there. The company lost money each quarter Johnson was in charge. The lesson is clear: “You can’t change a company’s culture overnight,” Ployhart says. “It’s like turning a battleship around.”

Living the Culture

When a new CEO comes into a firm, he or she must respect the existing culture. “It’s the leader’s responsibility to determine the existing cultural traits and then preserve and build upon them,” von Post says.

This practice is in place at IMA Financial Group, an 83-year-old Denver insurance brokerage led by chairman and CEO Robert Cohen. “You walk into the office here and you can feel the energy of our culture from the lobby up through what each person is doing,” Cohen says. “It’s almost like it palpitates.”

This energy is fueled by the firm’s five core values of professionalism, relationships, service, balance and results. “We live these values each day to the point where they’ve now become norms,” Cohen says. “We’ve always attracted people that shared these values. Over time, this has reinforced the culture we’ve had in place since the beginning. On the surface we may look and dress differently, but once you talk to us we come across as a unified whole.”

Cohen sees the organization at IMA Financial as a singular entity that separates it from the cultures in place at peer brokerages. “I truly believe that our culture is unique and cannot be duplicated or replicated,” he says. “It is what sets us apart.”

Collins agrees. “I have friends who lead other insurance brokerages, and their cultures are different,” he says. “Now this doesn’t mean their cultures are inferior. Some have a very producer-centric, sales-focused culture that drives the behaviors they want. That’s fine for them, but that’s not us. Our focus is on the customer, which drives our behaviors.”

The firm has developed 10 key performance indicators (KPIs) to encourage these actions, which then inform each employee’s incentive compensation. Of the 10, the most important is business retention, Collins says. “Our objective is 95% and our historical average over the last 10 years is nearly 96%,” he adds. “Obviously, we’re doing something right.”

That something right is operating an organization with a purpose—the raison d’etre that was why the founder launched the business in the first place. As Ployhart puts it, “It’s the culture that matters.”

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