Resistance to cultural change can be catastrophic. When executives make statements like “That’s not the way we do it here,” “We tried that in the past and it didn’t work, why would it work now?,” and “Our employees won’t get on board,” they are setting the company up for failure. These shortsighted pronouncements will develop into an internal inertia that brings any hope for change to a screeching halt.
Sometimes leadership hesitates to embrace a new way of business, and sometimes individuals and teams fail to wholeheartedly adopt an organizational culture change. Effective change requires everyone to embrace uncertainty and maintain a positive outlook about the coming changes. Our research found that 43 percent of EX executives cite employees’ resistance to cultural transformation as the biggest obstacle to improving both employee and customer experiences, whereas 31 percent of CX execs said the same.
To change a business’s culture, you need a set of processes—social operating mechanisms—that will change the beliefs and behavior of people in ways that are directly linked to bottom-line results.—RAM CHARAN
For an Experience Mindset to flourish, your stakeholders must believe in what the company is doing. Everyone has to rally around common goals. There will always be stragglers, but if the majority of your organization isn’t on board, you have a serious culture problem to solve. Excitement should always be brewing over what might be accomplished today and the possibilities that lie ahead. When the culture has lost its way and needs to get back on track, an active effort must be made to change the culture through a companywide initiative.
Start with the Culture
In 1993, after passing on the top job three times, RJR Nabisco CEO Lou Gerstner Jr. agreed to take the helm at a floundering IBM. Despite being the world’s largest computer manufacturer and one of the country’s leading companies, with three hundred thousand employees and $60 billion in sales, “Big Blue” was reeling from losses of $5 billion the previous year. Its stock price had dropped from $43 in 1987 to $13 in the 1990s. The company was on the verge of collapse.
Gerstner was an industry outsider, a CEO who had no knowledge of computers whatsoever, making him an unlikely choice, especially from the perspective of IBM’s employees (many of whom were “lifers”). Gerstner knew he needed to establish trust to make an impact, not only with his leadership team but with IBM’s employees and customers. To that end, he spent time early in his tenure with both sets of stakeholders to better understand what they felt had caused IBM’s predicament.
What Gerstner found was an organization filled with people who were committed to IBM, who had built industryleading products for decades but had grown averse to taking risks. They were focused on internal competition, processes, and fiefdoms instead of customers, collaboration, and external competitors. Meanwhile, IBM’s customers felt the company was no longer meeting their needs but simply sticking to the status quo, forc ing them to consider alternative solutions.
While it wasn’t his intention to tackle culture at first, after conversations with lifer employees, Gerstner realized he needed to begin his turnaround strategy there: “You can quickly figure out, sometimes within hours of being in a place, what the culture encourages and discourages, rewards and punishes. Is it a culture that rewards individual achievement or team play? Does it value risk taking or consensus building?” In Gerstner’s opinion, “culture isn’t just one aspect of the game—it is the game.” If he hadn’t started with its troubled culture, IBM’s fortunes might have taken a very different turn.
IBM had been a producted organization since its founding in 1911, an approach that had proven highly successful. While it was still a product leader in a number of categories in the early 1990s, there was a deeply embedded bureaucracy and resistance to change that kept it from innovating further, putting the company’s future in jeopardy. “This codification, this rigor mortis that sets in around values and behaviors, is a problem unique to—and often devastating for—successful enterprises,” Gerstner wrote.
If Gerstner was going to be successful, he needed to rally employees around the guiding principles established by the founders eighty years prior, such as having respect for others, providing great customer service, being known for excellence, and managers leading effectively. Previous leaders had paid lip service to the importance of teamwork, Gerstner explained, but “everyone’s pay was based on individual unit performance.” By tying employee compensation to the performance of the whole company rather than to an employee’s particular division, he aligned everyone’s incentives. But that wasn’t enough. “People don’t do what you expect but what you inspect,” Gerstner wrote. This realization led him to change the company’s performance metrics to force teams to break down silos and collaborate across fiefdoms. When he arrived, the company evaluated performance based on product quality and category market share. By shift ing the emphasis to collaboration and customer satisfaction, employees would be incentivized to stop isolating themselves.
Likewise, the company proclaimed its devotion to customers above all, but “no one in the field could make a pricing decision without a signoff from the finance staff.” In short, talk is cheap. Gerstner understood that the culture would always reflect the actual incentives. “If you want to outexecute your competitors,” Gerstner wrote, “you must communicate clear strategies and values, reinforce those values in everything the company does, and allow people the freedom to act, trusting they will execute consistent with the values.”
IBM’s employees had lost sight of the fact that their real competition lay outside IBM, not across the hall. While this may seem obvious, many companies are guilty of creating and celebrating internal competition in this way. Establishing a new operating mindset required employees and the Csuite to unify around overall company goals.
Nodding your head as your manager tells you what to do is one thing. Committing to how you are going to support what is being asked of you is another. Under Gerstner, every employee was required to make three personal business commitments to fulfill company goals. Then, they were genuinely held account able for those actions. Performance against these commitments was tied directly to recognition and compensation. This new ap proach created not only an understanding of what was expected of each employee but also garnered greater engagement. Em ployees felt they had a say in how their performance was being measured and a real shot at meeting expectations.
While more common today, it was unusual in the early 1900s for a company to be vocal about diversity and equality. However, IBM’s founding chairman, Thomas Watson Sr. was. IBM had enacted an unequaled list of progressive workplace programs and policies, from hiring people with disabilities, starting in 1914, to the arrival of professional women and equal pay for equal work in 1935.
When IBM wanted to build manufacturing facilities in North Carolina and Kentucky in 1953, the states were still segregated. Thomas Watson Jr., who was IBM’s president at the time, wrote a letter to his managers, stating, “It is the policy of this organization to hire people who have the personality, talent and back ground necessary to fill a given job, regardless of race, color or creed.”
Understanding the importance of reconnecting with the company’s founding values, Gerstner took a close look at his senior executive team. He decided it didn’t reflect the diversity of the market for talent or of IBM’s customers and employees. To rectify the imbalance, Gerstner launched eight diversity task forces made up of middle and senior level executives to address the unique concerns of their respective constituencies. “We made diversity a market-based issue It’s about understanding our markets, which are diverse and multicultural.”
Even as IBM began to fix these and other internal chal lenges, Gerstner wanted to tackle customer issues that had cropped up as a result of the company’s past, siloed focus. One of IBM’s founding principles, conceived by Thomas Watson Sr., had been to “deliver superior customer service.” To emphasize this point to the public, they placed fullpage ads in U.S. news papers that, as Thomas Watson Jr. described, said, “IBM Means Service.” Watson Jr. further explained, “Hopefully cuttingedge equipment, hopefully all sorts of pioneering efforts, hopefully Nobel Prizes. But the service is something that most companies forget.”
As IBM grew larger over the years, this principle had be come harder to follow, and execution had been inconsistent at best. The company was no longer anticipating what custom ers might need from it in the future. It was too fixated on what customers were currently doing. Gerstner anticipated that the cultural changes happening inside of the company would result in IBM becoming more responsive to what was happening outside the company, including getting closer to the needs of its customers.
“Management doesn’t change culture,” Gerstner wrote. “Management invites the workforce itself to change the culture.” Greater alignment between employees had to start at the top with how the business was run. At the end of Gerstner’s reign as IBM’s chairman and CEO, the company employed 65,000 more people and had turned a huge profit, making up for more than the $13 billion in losses notched up in the two years prior to his arrival.
Excerpted from The Experience Mindset: Changing the Way You Think About Growth by Tiffani Bova, in agreement with Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © Tiffani Bova, 2023.