The importance of culture in high performing organisations

Culture of an organisation is traditionally defined as “the way we do things around here”

Whether or not an organisation intentionally acts to define and create a culture for their organisation, a culture will soon enough crystallise, which may help – or hinder the organisation.

A leader is responsible for setting the culture in an organisation since it is set from the top down, and more junior employees will generally follow their leader’s example. Leaders define what is acceptable in an organisation and what is not. Does an organisation stipulate a certain dress code, do they clock watch or not, are there out of work events that try to foster teamwork or does everyone just do their work and go home.

During my career I’ve worked for several different organisations in which different cultures exist. Most recently, during the past 6 years or so, I’ve heavily been exposed to the Innscor Africa culture. Innscor is a successful conglomerate in Zimbabwe with interests spanning light manufacturing of well-known food brands, grain milling, agriculture, and several unbundled businesses now listed as separate listed entities, including mining (Padenga), fast food restaurants (Simbisa) and FMCG distribution (Axia).

The model of Innscor is comparable on a much smaller scale to that of Berkshire Hathaway, in which each business is a decentralized standalone associate, subsidiary or joint venture, with control over their own decision making, balance sheets and cash flow, but where capital allocation decisions and partner selection/incentivisation is carried out by the leaders at the top. Each business is run by a CEO who is generally a shareholder in the business, and is influential in creating the culture of their business.

Some years back, I did an executive programme created and run by Jeremy Brooke, a founding member of Innscor and well known for turning around the fortunes of National Foods, Zimbabwe’s flagship milling company in the early 2000’s. In the course, Brooke distilled all his learnings from running Innscor businesses into several modules, with culture being one of them. A few snippets of his teachings on culture include:

1. Every organisation is compelled to articulate and publish its culture since this informs an organisations values;
2. A core value should never be published that is not lived up to, since this goes against the very essence of integrity. Values should be simple, understandable and achievable.
3. Staff are expected to behave within the cultural parameters of the organisation. A statement should never be made which contradicts the actual way things are done. E.g. a statement may say “customer is king”. But if the organisation treats customers poorly then this is a contradiction and cannot be tolerated.

Many companies have their standard vision, mission statement and core values. However, most of the time these statements are made up of fancy words, that are made up by corporate executives rather than founders, at strategy retreats, and often not bought into and lived up to by employees in the organisation.

Founder led businesses often have well defined cultures, since they are created by the original founder whose blood, sweat, money and tears has gone into the business and they have often personally hired people who conform to the leader’s way of doing things. For example, Facebook has published its core values as follows: be bold; focus on impact; move fast; be open; and build social value. They are then developed further, and I particularly like what “move fast” means to facebook. Move fast means acting with urgency and not waiting until next week to do something you could do today.

Mantras as signposts to guide decision making

Well run companies, and leaders, often have mantras that guide day to day decision making. These mantras should be well published and ingrained for employees and management so that everyone in the organisation sees things through the same tinted lenses, and these mantras help to inform how to act.

Some of these mantras I came across during my exposure to Innscor and whilst doing the course include:

• You only have one chance
• Use it or lose it
• Every business is a good business
• Win-win relationships
• Who moved my cheese? (from Spencer Johnson’s classic)
• The trend is your friend
• Invest in your life for your greatest good
• Your word and honour have one chance
• Take risk but don’t gamble
• Multiplication of energy leads to extraordinary results from ordinary people
• If it’s not in writing it doesn’t exist
• What you measure is what you get
• Speeding fines not parking tickets (i.e. make mistakes of commission, not mistakes of omission)

Getting culture right in PE backed businesses

When trying to turn a business around, the hardest thing to get right is culture. You are inheriting a mix of personalities, traits and behaviours that have been influenced by leadership over the years. The most important job of a turnaround is finding the right person to lead the business as CEO, if they are not in place already. Then a strong CFO needs to be found to support the CEO implement strategy, and both leaders can now start to build their teams for success.

In 2019, our group purchased a controlling interest in the biggest clothing retailer in Zimbabwe called Edgars. Upon acquisition, the whole senior team of about 20 travelled to Harare for a meeting with our team. We presented to the team on implementing cultural change to try to get buy-in from the team on our vision for the company and how the culture needed to change, to move with the times.

Edgars had once been a powerful company, having listed in 1948, it was at one point the darling of the stock exchange. However, as the country went through severe economic crises, the country evolved, with the informal sector gradually taking a much greater share of the economy, whilst Edgars, being a formal sector retailer, got increasingly left behind, and unable to compete with the informal sales channels. They needed to “find new cheese” to draw on Spencer Johnson’s famous allegory “Who Moved my Cheese”. Over the years since the acquisition, although progress had been made, there was a clash of cultures between shareholders and management and over time new management was brought in to steer the company in the desired direction.

I hear from recruiters that a lot of UK companies are “waiting for interest rates to come down and for elections to pass” before making decisions. My thoughts on this, is that the proactive firms won’t wait to do things that are out of their locus of control, but rather take decisions they can influence the outcomes of. The companies that survive will be the ones that continually “go and find new cheese” despite the conditions. The companies that act passively waiting for events to happen will be the ones that sooner or later find themselves on the periphery, or have the distressed funds go after them, who will then influence the direction of the company.

Archive of Philosophies

Sometimes you come across people in life who have extreme clarity in their thinking. When something comes up, they know exactly how to act, or when asked a question, they respond with well thought out answers that don’t contradict what they have said on previous occasions. The reason for this according to Brooke, is these people have worked hard to clear their thought processes to become completely clear and honest in how they think and act.

During the course, we were taught to cultivate a philosophy, or a logic, on almost all aspects of life, both personal and business. On personal, these may be religion, education for children, where to live, what jobs to do, exercise, down to exercise and alcohol consumption. For a business, these might include gearing ratios, working capital ratios, and what value an owner will they sell the business for. A well thought out philosophy is like an algorithm, so that when a circumstance comes up in life, we know exactly how to act without getting confused, and so we don’t change our position all the time. When something happens – we just think, oh it’s one of those situations – retrieve philosophy number 53 from the archive. It makes it very clear as to what we say yes or no to.

Once philosophies are well developed, people become incredibly efficient and effective in their decision making. I think of Charlie Munger, who is well known for this philosophies/logics, and Warren Buffett, who have cultivated such clear philosophies over their +50 year investing history that when presented with an investment opportunity, will make a decision about whether they like the business or not in 5 minutes.

Leadership Secrets

In recognising that leaders set the culture of an organization, the way that leaders think and behave is critical to the success of the organization. Whether the organisation is nimble and agile, or slow and bureaucratic is determined by the leadership. I have worked with both types of companies as portfolio companies of private equity firms. The key factor that differentiates these companies is accountability. You usually find that leaders in small entrepreneurial companies are happy to take on accountability for decisions, and they move quickly, whereas in large bureaucratic organisations, no-one wants the accountability for decisions and so decision making is slow. The Innscor culture has developed certain “leadership secrets” to guide the behaviour of leaders in their decision making and the way they act. These have gone a long way in creating the successful organisation it is today.