Corporate Culture

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.

http://www.inc.com/magazine/19961101/1861.html