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Culture change is a big topic—and a big consulting business. When I Googled “culture change consulting business,” three of top five (non-sponsored) responses were Bain, BCG, and McKinsey (in that order). Because changing culture is a prominent issue for executives—and often a very frustrating one—I decided to tackle it in this Playing to Win/Practitioner Insights (PTW/PI) called Culture Change Strategy: Three Rules for Making Change Happen. And as always, you can find all the previous PTW/PI here. The culture change consulting pitches It was fun to take a quick look at the culture change pitches of Bain, BCG, and McKinsey. Bain’s was aspirational: “Culture is behavior at scale. Companies that create a winning culture are five times more likely to be top performers . . . Get it right and you not only boost total shareholder return and EBIT growth by up to 500%, and revenue by a factor of 10, but create an advantage that’s hard for competitors to copy.” Subscribe to Roger Martin's newsletter Want to read more from Roger Martin? See his Substack at rogerlmartin.substack.com. Sign Up BCG’s was interesting. It provided three success stories, the two examples for which the singular success metric was cost reduction/cost savings ($500M and $283M, respectively)—clearly BCG’s focus is culture change for cost cutting. (The third case was weird, celebrating a “147% rise in cost earnings per share.” You would think that a $10 billion professional service firm would at least spellcheck the large-font bolded highlights on the landing page. But maybe there is a new non-GAAP measure called “cost earnings per share.”) Subscribe to the Daily newsletter.Fast Company's trending stories delivered to you every day Privacy Policy | Fast Company Newsletters In any event, its take on “desired culture” is: “We help create a high-performance culture . . . by articulating the unique set of cultural traits that support business strategy, activating them through leader and organization-wide practices, and embedding the culture and change in organization structures, processes, and policies.” McKinsey’s culture and change blurb actually says very little about culture. Of the four elements of “Our Approach,” only of the four even mentions culture: “Capability-driven: We build the skills of your people and the capabilities and culture of your organization to improve organizational health and performance.” Wholesale versus retail There is lots of stuff there, and I am sure there are valuable nuggets in the approaches. But there is lots of focus on structures, policies, and processes. These are all in a category that I call wholesale—things that can be done from a distance, centrally. It isn’t an unusual impulse. Governments love wholesale. For example, a while ago the federal government became concerned about the economic struggles of single women with young children and came up with Aid to Families with Dependent Children (AFDC), a federal assistance program that provided cash benefits to single mothers with children. That is wholesale. Giving money to local groups to provide customized help family-by-family is retail. Governments don’t like retail because they have got to find lots of local groups and vet them and monitor them, etc. Ugh. That is a lot of work. Companies are similar. They want to change culture by reorganizing to push responsibility downward—to create a culture of initiative. Or change the stage-gate process for R&D projects—to create a culture of innovation. Or change compensation rules—to create a culture of accomplishment. Steering mechanisms Wholesale solutions inevitably sound cooler and connote commitment to culture change. But the secret to culture change is retail. To explain, l will dive into steering mechanisms, a term I coined (at least with respect to business organizations) in my very first Harvard Business Review article back in 1993, called Changing the Mind of the Corporation. Decades later, I wrote about it again in Chapter Six of my 2022 book A New Way to Think. Both pieces discussed the underlying systems that cause companies to operate the way they do—and not some other way. It is not unlike the (literal) steering mechanism in newer model cars that won’t let you switch lanes without first signaling. You may want to change lanes, but the steering mechanism says: No! My work on steering mechanisms adopted and adapted the work of Diana Smith—with whom I worked for several years in the mid-nineties. She is one of the group of most prominent students/followers of the late Chris Argyris, along with Amy Edmondson, Peter Senge, and David Cooperrider and me. I was attracted to her work because of my interest in the concept of steering mechanisms, shown below. Three elements work as system of three interacting mechanisms. At one end are the formal mechanisms. These are the structures, systems, processes designed to meet goals—like the ones talked about above. Cultural mechanisms are the mental guidebooks that drive collective interpretations/actions. That is, the cultural guidebooks tell you how to interpret the world around you and what actions are appropriate in that world. For example, if Kevin dresses down a subordinate in an abusive and demeaning way in a meeting and the interpretation, based on repeated incidences of this sort of behavior, is that because Kevin is an important star performer, he can abuse any subordinate and get away with it, the mental guidebook will become: “Abusive behavior is fine if you are a star. If you work for one; expect it. And if you can just get to be a star, you can do it too.” In a strong culture (not a good culture, a strong culture), everybody watching such an interaction has the same interpretation. In a weak culture, the interpretations are all over the map—i.e. there is no guidebook. The key is to recognize that culture is derivative of a mediating domain, interpersonal mechanisms, which are the patterns that form as members define and solve problems together. Formal mechanisms don’t directly influence cultural mechanisms. advertisement It is during interpersonal interactions that collective interpretations—like the one with Kevin—take shape. The first time you see that sort of abusive behavior in your company, you might not know what to make of it, though you might well get some help from someone who will take you aside and say: Don’t get in that position with Kevin or that will happen to you! In this way, the interpersonal domain is the linchpin. Formal can influence interpersonal. For example, if a company has completely separate marketing and sales organizations, it may promote tensions between the two functions and lots of testy meetings between marketing and sales people. Repetition of bad meetings will likely cause marketing people to warn new sales people to watch out for marketing—they always come up with unsaleable marketing ideas. When that becomes the common interpretation, the next meeting will go worse still, which just reinforces the interpretation, and so on. Eventually often a formal fix will be attempted to “transform culture,” for example to put marketing and sales under a single EVP of marketing and sales. But that won’t change culture because the source of the problem was in the interpersonal domain and the guidebooks are still in the heads of the marketing folks and the sales folks. Implications for culture change There are two common approaches to culture change. The first is to attempt to go at it directly by declaring that culture must change to a desired new state. It doesn’t work and never has—or ever will. The second is to change formal mechanisms—reorganize, streamline processes, change incentives, etc. That doesn’t work either. But the failures don’t stop people from trying. Notice that these methods are entirely wholesale—broadcast a video; do a restructuring, etc. Wholesale isn’t the answer. Culture change happens at the retail level—which means working at the interpersonal level. Changing the way people in the company interact with each other in the interpersonal domain is what changes culture. When it comes to culture change you need to be the change you want to see (a quote that is misattributed to Gandhi). Leaders of large companies often ask me, in response, how can I possibly make that happen in my large company? Won’t it take forever? I tell them that Kremlin watching doesn’t only happen in Moscow. In companies, managers throughout watch leadership behavior like hawks. As a leader, if you behave in interpersonal interactions the way you would like managers throughout the organization to act, mirroring will happen faster than you think. I have seen it in giant companies like P&G. AG Lafley wanted to make the culture more consumer-focused, so in every meeting with any member of his executive team in which they were asking for his approval on a project or initiative, he would always ask: On what consumer insights is this recommendation based? And AG would spend lots of his time doing in-home visits with consumers to better understand their needs. Managers throughout the organization naturally followed suit because of his behavior. In the strategy process, he always both gave direction on what he was looking for his direct reports to produce but also offered to help them in whatever way they would find helpful. That created a culture of collaboration in strategy. I have done it myself in a much, much smaller organization, the Rotman School of Management. The culture was far too professor centric. The tenure stream professors were the proverbial Brahmin caste. But the student experience depended on everyone to deliver, and I wanted our culture to reflect that. So, I always stopped to talk to the front desk receptionist on the way to my office and to the cleaning staff when they came to clean my office (because I was there working late when they made their evening rounds), and to the IT staff, and to the lecturers, etc. Professors watched and most of them (not all!) shifted their behavior in a positive direction. And I have helped it happen in companies in between, as with a $10 billion luxury apparel company that sold mainly through clothing retailers. The incoming CEO was terribly disappointed in the in-store execution of the brand and the inattention the organization had to it. To him, it was a culture of fire & forget — and hope. I convinced him that rather than attempting to change that culture through fiat, to do a series of impromptu retailer visits during which he would problem-solve with the store personnel to come up with ways his company and the retailer could work together to create a great in-store shopper experience with his brands. And I convinced him to invite his senior team members to come—not order them; invite them. Some joined him on the first trip, during which he modeled the kind of problem-solving, partnership culture that he wanted to nurture. He didn’t berate the retailer personnel. He talked to them constructively about partnership. Word got around and more executives joined him on future trips until the corporate jet was packed. Retail execution improved dramatically as the culture changed from fire & forget to partner-for-success. Practitioner insights Culture change is hard. The formal, interpersonal and cultural steering mechanisms that build up over time are there to keep you going in the exact same direction. There are three rules for successful culture change. The first is to think retail not wholesale. There are no master strokes from the faraway top of the company that magically bring about culture change. The second is to focus on the interpersonal domain. It is the mediating domain and the only domain that can directly impact and change culture. The third is to change culture, you need to change your own leadership behavior. There is no alternative. Do as I say, not as I do works as well in companies as it works with children — i.e. not at all! Every interpersonal interaction for a leader is a two-edged sword. If you do it badly, your leadership behavior reinforces the culture you want to change. But if you do it well, it starts the formation of new interpretations consistent with the culture you want to see — and that is gold! 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