Here's why both your
customers and employees will remain loyal if your company's culture is right.
It's back. (It never left!) Your employees crave it. Your
customers will love it. (And the one who needs it most is you.)
Amy Miller has
a secret. Granted, it's an open secret, not the kind she tries to keep. But to
too many American companies and management experts--and, fortunately for
Miller's business, to most of her competitors--it's a secret all the same.
Amy's Ice Creams,
Miller's seven-store chain of premium-ice-cream shops in Austin and Houston,
Tex., sells terrific products and gives excellent service. But that's where the
similarity to other scoop shops ends. Visit an Amy's store--the one in Austin's
Westbank Market, say, on a Friday night--and you'll see employees performing in
a manner you won't forget. That's right: performing. They juggle with their
serving spades, toss scoops of ice cream to one another behind the counter, and
break-dance on the freezer top. If there's a line out the door, they might pass
out samples--or offer free ice cream to any customer who'll sing or dance or
recite a poem or mimic a barnyard animal, or who wins a 60-second cone-eating
contest. They could be wearing pajamas (because it's Sleep-over Night) or masks
(Star Wars Night); there might be candles (Romance Night) or strobe lights
(Disco Night). They wear costumes. They bring props. They pop trivia questions.
They create fun.
Miller
obviously sells entertainment along with ice cream. That's her strategy. But
her managerial secret--the real source of her competitive advantage--isn't the
strategy, it's how she makes the strategy work. The real secret to her
company's success is its corporate culture.
Culture?
Competitive advantage? But corporate culture's been done, you say. Way done.
(Isn't it something we believed in back when Reagan was president? Didn't it
fade when Silicon Valley grew up, and fold when Wall Street grew imperious?)
Everybody knows that success in today's business world comes from clinical,
tough-minded stuff: a hot technology, savvy strategy and positioning, and
brutal cost control (sorry, that's "business-process reengineering").
The competitive environment calls for hard edges now. And culture--all those beer
blasts and Outward Bound excursions, all those golden retrievers by the water
cooler--is so soft. So sentimental. One doesn't even see that sort of thing in
commercials anymore.
Tell that to
Miller--or to any of the dozens of other market-beating CEOs whose practices
prompted this article. Culture's time, they argue, is now. Companies with
clever, highly evolved cultures have an advantage precisely because of the
particular challenges of the current marketplace. Culture helps companies
compete.
The challenge
for Amy's Ice Creams? An increasingly universal one: it must keep its stores
from becoming just another commodity. Miller saw superpremium-ice-cream stores,
once a safe niche, become almost as easy to find as espresso shops. Her way to
differentiate her stores was to sell an experience with every triple-scoop
cone. Her way to sustain that difference--to ensure you'd encounter the
experience that sets her stores apart--was to create and nurture a culture that
made that experience inevitable. She had to get the right people and get them
to behave in the right way. And because their behavior needed to be inventive
and unflagging and self-initiated, she somehow had to get them to know what the
right way was, without being told.
That's what
her company's culture accomplishes. It's also what smart, intense cultures do
for many other hot young businesses--and, it turns out, for some of the
country's more established entrepreneurial successes, as well. The right
culture isn't just the product of what a founder willfully wants his or her
company to feel like (though it can be that, too). Through the symbols and
practices that give it life, the right culture solves a company's most critical
competitive problems.
Out of fashion
for a decade, corporate culture--as the examples here demonstrate--may be the
best response there is to the business conditions that all company builders
face right now.
Does your
company have a corporate culture? Culture refers to the values, beliefs, and
attitudes that permeate a business. It defines what the company considers
important and what it considers unimportant. If strategy defines where a
company wants to go, culture determines how--maybe whether--it gets there.
Every business has some kind of culture, just because it's an organization of
human beings. But most businesses never give the topic a second thought. Their
culture is to do things the way they always have or the way everybody else does
them.
A few
companies, by contrast, have explicit, highly distinctive cultures--strong,
focused cultures that stick out from the crowd like the Grateful Dead at a
marching-band convention. They have mission statements and values that mean
something, and that people take seriously. They have a set of overarching
beliefs that serve as powerful guides for everyday action--and that are
reinforced in a hundred different ways, both symbolic and substantive. You'll
recognize the classic examples: 3M Corp.'s relentless focus on innovation,
Disney's commitment to treating its theme-park customers as guests. Those cultural
values inform every move and decision made by employees or managers at those
companies. (And in the cases in which they haven't, you're probably looking at
a former employee or manager.)
For a while--it really was back when
Reagan was in the White House--corporate culture of this type was hot stuff.
The book Corporate Cultures: The Rites
and Rituals of Corporate Life, by
Terrence E. Deal and Allan A. Kennedy, became a big best-seller. Every CEO
worth his or her inflated salary had to nod knowingly when the talk turned to
squishy subjects like mission and values. But then the fad dissipated, as fads
do. More important, the demands of the marketplace intensified. Competition
heated up. The pace of technological change quickened. In the 1990s businesspeople
seemed to survive and prosper only if they could cut costs beyond recognition,
deliver unprecedented levels of quality and service, and develop relationships
with customers so intimate they were almost embarrassing. Nobody had time for
luxuries like corporate culture. Probably nobody thought it would play too
well, either. Even corporate executives can't expect employees to get
misty-eyed over a new mission statement right after thousands of their
colleagues get the ax.
Of course,
some companies never got the message that they were supposed to forget about
culture. Three come to mind immediately.
The first is Quad/Graphics, the
Wisconsin-based printer. (Full disclosure: Quad is Inc.'s printer.)
Founder Harry Quadracci takes his trust-the-employees culture so seriously that
he still runs his annual Quad/University, in which managers literally walk out
of the plant for up to three days and leave it in the hands of hourly workers.
The second is Southwest Airlines, famous for its wild and woolly--not to say manic--culture.
Everybody at Southwest, from CEO Herb Kelleher to the newest gate attendant,
pitches in to make sure that customers have a good time and that airplanes get
unloaded and reloaded and back in the air fast. The third: Nucor, the steel
company, with its austere egalitarianism ("Senior executives do not enjoy
any traditional perquisites," proclaims a company document) and day-in,
day-out focus on production.
All three companies went from Inc. 500 size to Fortune 500 size in only a few decades, even
though they were competing in some of the toughest businesses around. They're
growing and thriving today. The graybeards in those industries are still
wondering how they do it.
How they do it. the fact is, powerful
cultures have powerful effects on how a company's people work together. Look at
Southwest. Its strategies are no secret. Other airlines have duplicated its
no-frills, point-to-point service. But maybe you remember that Wall Street Journal article a few years ago detailing the
intricate, help-each-other-out teamwork necessary for a Southwest ground crew
to turn its planes around in one-third the time other airlines require. Reading
the article, you could only conclude that those employees wanted to get that
plane back up in the air and making money. Somehow it's hard to imagine the
workers at American or Delta caring much, one way or the other.
Walk into a
high-culture outfit and you feel the difference right away. Earlier this year I
spent a day at AES Corp.'s Thames facility, near New London, Conn. Only 15
years old, AES operates electric-power-generating plants in 35 countries. In
1995 it racked up $107 million in earnings on $685 million in revenues. It's a
company that does bizarre things like planting millions of trees in Guatemala
(to make up for the carbon dioxide produced by its facilities) and asking teams
of hourly workers to manage its multimillion-dollar cash-reserve funds. No
doubt I sounded a little skeptical when I asked one of the technicians about
the latter practice. "Yeah, I was a little nervous at first," he
agreed. Then he proceeded to explain how, with just a few phone calls, he had
learned to get a good rate on $5 million worth of commercial paper. "It
was a lot of fun," he concluded.
In such an
outlandish atmosphere, the unusual becomes the usual. At AES,
materials-handling technicians negotiate contracts with coal suppliers, thereby
reducing the need for high-priced managers. Machine operators order replacement
parts themselves, ensuring a minimum of downtime. When plant manager Dan
Rothaupt wanted to change the bonus plan, he put it to a vote of the employees.
It lost resoundingly--and so no one was left feeling that management had rammed
an unwanted compensation system down employees' throats. With such a culture,
is it any wonder that AES thrives even in today's competitive environment?
A successful
corporate culture, however, is not some kind of black magic. It derives its
power not just from abstractions but from specific practices that employees
understand as symbolizing and representing the culture. It pays off not because
it's some kind of softheaded do-goodism but because it relates to the specific
competitive demands of today's marketplace. Consider a handful of mini case
studies illustrating the relationship between the practices of culture--the
artifacts, so to speak--and how they enable companies to outstrip their
competitors.
The White-Paper-Bag Job Application.
Remember the challenge Amy Miller
faced? Used to be, market niches were safe. All you needed was the best
location. Or a distinctive product. Or a capability that no one else had. Today
there are no safe niches. Make a little money doing something, and you can bet
that competitors--often competitors with deeper pockets than your own--will
show up looking for a piece of the action. That's what might have happened to
Miller. She started Amy's Ice Creams in 1984. It wasn't long before national
companies such as Baskin-Robbins and Steve's were setting up shop close by.
The thing is,
as we've said, Miller wasn't just selling ice cream. Anyone can sell ice cream.
She was selling entertainment. All that crazy stuff her employees do--the theme
nights, the impromptu musical comedies, the costumes, games, and jokes--keeps
customers coming back for more. And it keeps Amy's Ice Creams (now at $2.2
million) growing about 20% a year.
Miller
sends her cultural message to employees--this is what we value above all, this
is what makes us different--from the day they show up looking for a job.
Instead of a formal application form, they get a plain white paper bag along
with the instructions to do anything they want with it and bring it back in a
week. Those who just jot down a phone number will find that "Amy's isn't
really for them," says Miller. But an applicant who produces "something
unusual from a white paper bag tends to be an amusing person who would fit in
with our environment."
Unusual,
indeed. Applicants use the bags to create cartoons, board games, works of art,
and elaborate parodies ("The Amysburg Address"). One job seeker
turned his into an elaborate pop-up jack-in-the-box--and became a scooper at
the Westbank Market store. That store's former manager painted an intricate
green-and-blue sphere resembling the earth atop a waffle cone on his bag. Later
he could be found passing out $5 gift certificates to customers willing to do
their best animal impression or otherwise act up in ways that, among the Amy's
staff, pass for normal. Like any performers, employees of Amy's can't rest on
their laurels. The half a dozen or so white paper bags that applicants turn in
during busy weeks remind them that there are plenty of creative people out
there--and that creativity, not just ice cream, is what their boss really puts
a premium on.
The War Room.
Customers used to be less demanding,
too. Now their expectations have ratcheted up several notches. Manufacturers
have to deliver near-perfect quality. Service companies have to--well, almost
set up housekeeping with their customers. Because what the customers expect in
today's market isn't just a service, it's a solution to their problems. That's
why travel agents have started to offer full travel-management capabilities
along with plane tickets and hotel reservations. It's why distributors have
begun running clients' inventories instead of just shipping them parts.
And in
advertising, as Roy Spence and his colleagues have figured out, it's why
agencies can't just dream up clever ads and do the media buys. Clients don't
want advertising. They want to increase market share. They want to better their
margins. They want marketing effectiveness, as measured by the attainment of
specific, well-defined objectives.
Spence's agency, GSD&M--also in
Austin, as it happens--is a monument to that realization. The agency's billings
have grown nearly sixfold in the past decade. It counts blue-chippers such as
Wal-Mart Stores and Southwest Airlines among its 22 clients and boasts a 90%
client-retention rate. Part of GSD&M's pitches to prospects: measurable
goals. Goals are a subject of discussion at the start of a campaign.
("Clients let us know how they definewinning," says
one staffer.) Progress toward them is scrutinized carefully as the campaign
progresses. The agency hands out bonuses when clients achieve their goals, not
when GSD&M achieves its own.
The artifact
that reinforces the culture of pure client-centeredness is called a war room,
and GSD&M invented it six years ago. "We were working with a client
and really needed to concentrate," explains Spence. "So we just took
over an empty office and started posting urgent information on the wall."
Today
the war rooms have evolved into a kind of command central. They're often
painted in the client's colors. Red phones, exclusively for calls to and from
the client, dot the tables. Up on the wall are the client's (and sometimes its
competitors') earnings reports, stock price, newspaper clippings, competitive
analyses, and weekly sales figures; along shelves are products, industry
paraphernalia, and personal items that the client's customers might possess. In
the war rooms, agency staffers prepare pitches or repositioning initiatives.
They conduct conference calls, look at reels of past commercials, brainstorm,
and debate. "War rooms raise the intensity level and give us a mental
edge," says Spence. "They remind us to keep our eye on the
prize," the prize being the client's success. Forget your office, the
rooms broadcast to employees, this isn't about you. It's about the needs of the
people who've hired us.
And is it any
surprise that clients like the war rooms, too? (Think of the message sent about
where GSD&M's attention is.) When the agency moves into new quarters later
this year, there will be eight war rooms as opposed to the three in its current
facilities. Says Spence, GSD&M's president, "Clients see that we're
100% focused. And as we build their business, they build ours."
Open-Book Wallpaper.
Customer expectations aren't just
higher; sometimes they change character completely. And that kind of
marketplace volatility presents a challenge of its own: sometimes you have to
turn your company on a strategic dime. Pat Kelly, CEO of Physician Sales &
Service (PSS), based in Jacksonville, Fla., found himself in just such a
situation a couple of years ago. Kelly built PSS into a leading distributor of
supplies for doctors' offices mostly on the basis of top-level service. Surveys
showed that was what his customers wanted. And the extraordinary service
allowed him to charge a premium. When the Clintons took office, however, health-care
reform was in the air, and suddenly doctors were worried about costs. In just a
matter of months, price went from last to first on their list of concerns.
So
Kelly decided that PSS had to become a low-cost supplier, even while
maintaining its service levels. He launched some innovative strategic moves,
such as setting up a frequent buyers' club. He also had to tell his salespeople
and employees that commissions and bonuses would likely take a hit.
Companies
rarely make that kind of change easily. Employees grumble. They quit. The work
doesn't get done the way it once did. At PSS, the opposite happened. No one was
exactly overjoyed--but no one left. The company made the move, experienced a
tough year, and rebounded quickly. PSS continued its breakneck growth and is
now the national leader in its industry.
The
difference? PSS has a share-the-wealth, share-the-information culture of a sort
rarely found in American business. Every employee is a shareholder; some have
more than a million dollars' worth in their accounts. Every PSS branch meets
monthly to review its profit-and-loss statement. But it isn't just the P&L
that gets employees' attention. Branches seem to paper a sizable portion of
their walls with financial information: What salespeople X, Y, and Z sold
yesterday. How much gross margin each of them realized. How the branch is
doing, week by week and month by month, against plan. The wallpaper sends a
strong message to everybody, every day: There are no secrets here. Nobody will
ever try to put one over on you.
In an
environment like that, it's impossible for employees to be cynical about the
management's motives or actions. When Kelly told the PSS rank and file why a
strategic shift was needed and what it would entail, employees believed him.
Remember--and this is important to note--he hadn't just opened his books all of
a sudden, when the crisis came; he'd had them open all along. He'd earned his
employees' trust. He knew that the power of culture comes in part from its
consistency. It has to seem as natural as the air employees breathe. That's the
way we do things around here.
As a
result of PSS's culture, Kelly could ask for--and get--the extraordinary
cooperation and commitment needed to make a painful change. And PSS could
convert short-term pain into long-term gain.
Different
as they are, the cultural artifacts at Amy's, GSD&M, and PSS all belie the
stubborn notion that the point of corporate culture is to accommodate
employees' wishes--to make employees comfortable at the expense of their
employer's competitive health. (Although comfort is occasionally the means to a
competitive end: Born Information Services Group, a $36-million
information-technology consulting firm in Wayzata, Minn., maintains lakefront
vacation homes for employees' use--the better to keep turnover negligible in an
industry in which it's the number one problem.) Contrary to the stereotype,
high-culture organizations tend to be both tough and practical. The artifacts
that animate their cultures emerge not from abstract theory but from clever yet
simple responses to a business threat or opportunity.
For
example, at Direct Tire and Auto Services, a Greater Boston tire retailer, the
tactical desire to make a notoriously low-rent industry more professional
inspired the construction of a now-renowned customer waiting room--which
reminds employees how different their company is, and how differently they
should perform for it, every day. At Pentagram Design, a small, internationally
esteemed design firm with offices around the world, the constellation-like
organizational chart defines and lastingly reaffirms the company's
unique-in-the-industry network of 14 autonomous yet interdependent partners.
(Pentagram's resulting competitive advantage: the ability to operate like a big
company and a small one at the same time.) And at Zingerman's Delicatessen, in
Ann Arbor, Mich., cofounder Ari Weinzweig writes an internal newsletter to
spread the company's service-is-everything gospel. Filled with super-service
war stories, letters from grateful customers, service contests, and profiles of
employees who win service awards, it helps propagate Weinzweig's zeal now that
the $9-million company is too big for him to convey his message directly to
everyone. "Culture spreads because one hourly person tells the next hourly
person," he says. The newsletter places his voice in that conversation
among frontline sandwich makers.
More
examples of practices that began as simple management moves and evolved into
cultural symbols:
The Stump-the-CEO Contest.
AGI Inc., a Melrose Park, Ill., designer and printer of
nontraditional packaging for cosmetics, compact discs, and multimedia software,
has grown to $97 million by outinventing its competitors. Its culture, CEO
Richard Block explains, maintains that creative edge by promoting open debate
and the combustive rub of ideas--"an environment that is for
experimentation and that urges you to take responsibility for a problem instead
of working at concealing it." To underscore that principle, Block submits
to lively interrogation at a monthly companywide meeting--and rewards his
toughest questioner with a prize. The message: Nothing is sacred. Questions are
good. We're all--the CEO included--accountable to one another.
The Barroom Production Meeting.
Visual In-Seitz, in Rochester, N.Y.,
creates business presentations for companies such as Xerox and Kodak.
"Timelines are very short and client demands very high," says CEO
Charles Engler, "which equals stress." How to vent it? Hold
Thursday-afternoon production meetings off-site--at a bar. Employees share
problems and tips, track performance, and voice complaints that (they hope)
clients will never, ever hear. The message: we see the pressure you're under,
and we value how you handle it; let's devote time to fixing snafus here, so our
customers never experience them.
The Customers-Only Hiring Policy.
How does Black Diamond Equipment, in Salt Lake
City, keep ahead of its rivals in the trendy rock-climbing-equipment industry?
By filling its workforce with the sport's enthusiasts--the users of its
products--and capitalizing on their passion. "We breathe it, live it,
think about it constantly," says human-resources vice-president Meredith
Saarinen, "which makes the whole company a marketing and design resource.
It kills complacency." The messages: 1) What we do here makes possible a
sport so devotion-worthy that people build their lives around it; what work
could be more important? 2) You and your coworkers are our ideal customers, so
satisfy one another and yourselves. "It's not that our employees can make suggestions," adds Saarinen,
"but that they have the duty to make them."
Saarinen's
insistence may come as close as any comment yet to describing the business
condition that makes company culture more important today than ever. At Black
Diamond, where competitive advantage depends on every employee's doing product
research and development; at Zingerman's, where frontline service will make or
break the business; at GSD&M, where small teams must hoist customers to
their goals; and throughout the new economy at businesses both high-culture and
low-, real responsibility for company success has been spread to every employee
in the organization.
Confronted
by today's unprecedented customer expectations of perfect quality, errorless
service, and tailored-to-their-needs relationships, every employee is making
key judgment calls--whether when moving a product down an assembly line or
handling a client's complaint. Whole companies are only as strong as their
weakest links. Employees in networks, teams, or flat organizations (remember,
all the middle managers were fired) must make good choices on the fly, without
being told how. They need help, and it can't come from supervisors. They need a
set of overarching beliefs that serve as powerful guides for everyday action.
They need a culture.
Companies
with such strong corporate cultures have an almost unfair competitive head
start. The work they do is invested with meaning. Their employees have reasons
to care about how they perform. Even the challenges presented by mind-bending
change--whether imposed by the marketplace or necessitated by internal
growth--are easier to handle because a stable culture begets a fast-moving,
flexible company.
Companies
these days have to change all the time. They find new customers, develop new
product lines, enter new markets, introduce new technology. Employees in
conventional companies find all those moves unsettling, even unnerving. They
worry about their jobs and about their futures. A strong, distinctive culture,
however, offers a fixed reference point--and means that change is that much
less threatening. "A strong culture is sort of an anchor for letting
people loose to create a lot of change," not to impede it, says Rosabeth
Moss Kanter of Harvard Business School.
AGI's
Richard Block and his peers already know that. Better still, they know that
culture has made their companies the kind that every CEO dreams of growing: the
kind nobody wants to compete with. "If you were a customer and you came
here," he says, "and then you went to all your other suppliers, I
guarantee you that the place you'd enjoy most--the place you'd want to do
business with--is this one. Just because of how it feels.
"And
though that's a competitive advantage that isn't patentable," he adds,
"it's also one that nobody can steal."
Vera
Gibbons, Phaedra Hise, and Mike Hofman contributed to the reporting of this
article.
