How do you change a company’s culture?

Inertia can be a deceptively powerful force in corporate life. Even when there is talk of dynamic change and the need for businesses to become more responsive and “agile”, old habits may die hard. Frustrated leaders can get impatient, and declare that “things are going to have to change around here”. But making that wish come true is one of the hardest management tasks of all.

It is not for the want of trying. Ever since Harvard Business School’s John Kotter published his book Leading Change in 1996, managers have had at their disposal a plausible eight-step programme to help embed lasting change in their organisations. Those steps — create a sense of urgency, build a guiding coalition, form a strategic vision, enlist a volunteer army, enable action by removing barriers, generate short-term wins, sustain acceleration and institute change — all make sense. The difficulty comes when putting all this into practice.

Some have criticised the Kotter approach as being a little dry. The need for emotional “buy-in” from colleagues in recognising the need for change could get overlooked. Indeed, when Kotter returned to the topic a decade later he recognised that step one, creating a sense of urgency underpinned by that kind of buy-in, was perhaps the most important one of all (so much so that he chose A Sense of Urgency as the title for the follow-up book).

Culture can be a slippery and elusive phenomenon, hard to pin down. Experienced colleagues, when asked to describe their corporate culture, may resort to the familiar thought that it is “just the way things are done around here”. That is a useful starting point but it cannot tell the whole story.

The academics Chris Argyris and Donald Schön showed that human behaviour at work could not always be explained by mere surface level observation. There could be a difference, they said, between the “espoused theory” of a business (the official line, what leaders say they want and expect) and the “theory in use” (what people actually do in reality).

Similarly, the business theorist and psychologist Edgar Schein argued that underlying assumptions and values could lie unseen below the surface of everyday life at work, which was characterised by what he called “artifacts” — the layout of an office, the official language used, the dress code and familiar behaviour patterns.

Is it any wonder, then, that understanding and changing culture can be so difficult? Add in the complexity that inevitably arises in a post-merger environment and you can see why so many “culture change” programmes fail or disappoint.

In a recent Harvard Business Review article, a team of UK academics reported back on their latest research with businesses and their experience of attempting to shift corporate culture.

Their conclusion? It is visible behaviour and actions, not communication and messaging, that changes minds. “If culture isn’t consistently modelled at the highest levels, it won’t take root anywhere else,” the authors said. “Middle managers cannot enforce what senior leaders won’t embody. Culture isn’t a message to be passed down. It’s a behaviour to be practised up close.”

Lesson from the past: give middle management a voice

When James White stepped in to take over as chief executive at Jamba Juice in 2008, he was a first-time CEO inheriting a mess. The recession-hit, lossmaking drinks company was running out of cash. His friends wondered why he wanted the job.

“The company needed to have its strategy reworked and culture reset,” he says. “And we needed to raise capital.” The company needed thoughtful leadership and had to be “intentional about culture”, White says. (He explains more of his thinking in a new book out later this year, Culture Design: How to Build a High-Performing, Resilient Organization with Purpose, co-authored with his daughter Krista.)

For White a key question is: how do you operationalise strategy through the culture you create inside the company? At Jamba he rapidly assessed the strength and health of the company’s values.

“We went through an auditing process with key stakeholders — investors, suppliers, and colleagues,” White says. “We used a start, stop and continue mechanism, at the same time. Start doing X, stop Y and continue those things we value the most and will make us a better company.” The mission was simply to “save the company”.

“I felt when I took over I had six months to really show progress,” he says. In the end he stayed for almost eight years, during which time the company’s market capitalisation increased 500 per cent.

White used a “future-back” approach he had seen in practice while working at Nestlé Purina and Gillette. This involves imagining a more successful future and then working out what is required to get there.

His approach was welcomed, and it worked. “The main thing was giving people a voice in what the change might look like, empowering different levels,” he says. “Middle management — general managers — were really critical. They were given a voice in the turnaround.”

The twist here is that Jamba Juice nearly hired a different chief executive to lead the turnaround. “Literally I was one of the last couple of candidates they were looking at,” White says. “Originally they had a [different] choice in their mind.

“They weren’t going to do the full interview. It was going to be a courtesy one hour with the board member. They brought the chairman down that evening. And the rest is history, as they say.”

So that is perhaps one other thought to bear in mind when embarking on culture change: it helps to be lucky and find the right person to lead it.

Today’s challenge: culture and structure are intertwined

Next year Octopus Energy will be 10 years old, and in that time it has gone from a start-up to being the UK’s biggest household energy supplier. That sort of growth has been made possible in part by a dynamic culture.

Chief executive Greg Jackson had launched other businesses before. He says: “When you start from fresh you can say, look, with everything I learned from the last one, how do I start this one in the best possible position? We said, even when stuff is going to be hard, we’re going to avoid the temptation to do what everyone says you should do.”

For example, when initially customer response rates were not good enough, Octopus could have opted for the “more metrics” route, with big screens displaying employee data. But Jackson wanted colleagues to feel a sense of ownership in their work.

“We broke the customer service team into small teams of about 10 people, and gave them almost total autonomy and total ownership . . . each team had its own core queue, and if one of them was getting long, well, it was their responsibility to sort it out.” The company was inspired by Daniel Pink’s book about motivation, called Drive, which discusses people’s need for “mastery, autonomy and purpose” at work.

“Culture and structure are kind of intertwined,” Jackson says. “What we could do was give every single team member the same software so that they could resolve every issue, from front to back . . . 97% of the time, if you get in touch with us, whoever you deal with can sort your issue.”

Octopus has grown organically and by making acquisitions. Jackson is confident that new colleagues pick up the Octopus approach fast. After acquiring Co-op Energy, which had been “a very traditional, hierarchical, organisation”, 97 per cent of the people Octopus wanted to keep “stayed and thrived”, Jackson says.

Octopus Energy, with more than 10,000 employees, has people “with HR skills” but no HR department. Its operations teams are run as “small businesses, each with their own customer base”, Jackson explains. “Enabling managers to manage was really important.”

At Octopus Energy the culture underpins the performance, and grows with it. The company uses a tool called Officevibe to measure employee attitudes, but also runs a weekly all-company meeting, called a “family dinner”, hosted by Jackson.

“It’s between half an hour and 45 minutes, and it’s where we drive culture on a big scale,” he says. “It’s a bit chaotic. It’s not overly prepared, but it focuses on the stuff that I and other leaders think are important . . . the chat panel on that is actually where I get my greatest read on how we’re doing culturally.”