Organizational Culture is the Best Predictor of Success
What determines people’s behavior in organizations? Gustavo Grodnitzky, Ph.D., the featured speaker at a recent YPO global conference call, says that while psychology and biology affect behavior, it is the environment or culture that affects both and matters most.
An expert and frequent speaker on how environment and culture affect behavior and author of “Culture Trumps Everything,” he presents compelling evidence that in the corporate world, as in every day life, culture has a disproportional impact in how individuals think, feel and behave. To ensure the success and sustainability of any organization, he encourages business leaders to focus on developing a business environment and set of social norms for a wider definition of success that includes all stakeholders.
An actionable definition of organizational culture
Human behavior occurs in context, and that with a change in context behavior changes follows. This, Grodnitzky explains, is in line with findings from the field of psychology that confirms that context is a better predictor and controller of behavior than individual attributes.
“Culture is context in which we live and work. In the business environment, if you change organizational culture, behavior changes,” says Grodnitzky, who compares corporate culture to a garden that always needs attention. “Culture is cultivated just like a garden. Left unattended, a garden will grow all kinds of weeds and plants that can actually choke out the fruits, flowers and vegetables you want to grow.” Another important attribute of organizational culture is that it starts at the top and affects everyone. “We (as leaders) get the culture we cultivate, the culture we deserve.”
The profit paradox of capitalism
To further explain the different cultural environments found in businesses, Grodnitzky presents the profit paradox concept and its implication on different business models. “Companies that focus on profit directly make less profit on culture. Companies that focus on culture first make more profit. Culture therefore comes first. It precedes profit.”
In the classic capitalism business and economic model, shareholders determine the decision-making process. In contrast, in the social or what is sometimes referred to as conscious capitalism model, the company builds culture first, balancing the needs of all shareholders so that no one stakeholder should profit on expense of another.
“Social capitalism is not charity. But these companies lay off people as last resort, a lagging response to downturn because people are key stakeholders,” says Grodnitzky. Tracing the performances of the different companies in both models over more than three decades, he shows how social capitalist companies have outperformed classic capitalist companies “on their own metrics.”
Business norms versus social norms
Whether a company chooses to follow a classic capitalism versus a social capitalism model is key to understanding the culture of the organization. “Classic capitalism is supported by business norms and social capitalism by social norms. Norms are the contexts we bring to our culture so these two contexts drive different behaviors,” says Grodnitzky. “Business models are more competitive while social norms drive more collaborative behavior. Social norms are also more ambiguous and have the capacity to drive stakeholder anxiety, so can be pushed out by business norms.” This is where the role of leadership becomes especially important as social norms require courageous leadership to manage the anxiety of stakeholders.
“Business norms, based on quid pro quo, tend to push out social norms even if driving behaviors we don’t want. But you can’t have it both ways,” says Grodnitzky. “Pick one and stick with it. We know that social norms outperform business norms and require great leadership; stick with social norms.”
The ‘quintessence’ advantage
When the variety of factors — including behavioral norms, alternative corporate models and enough time (Grodnitzky predicts a 12-to-18-month timeframe for meaningful change in corporate culture) — converge, the result is the creation of “quintessence” in organizations.
“Quintessence is what gets your employee to think that ‘I could never work anywhere else,” says Grodnitzky. “It is the fruit of your culture, also your competitive advantage. It is this quintessence — or lack thereof — that ultimately determines the success and sustainability of organizations.”