Developing a Company Culture that Works:  “OR” vs. “AND”
Presented September 2003 – HR.com’s “Power of People” Conference
Written by David Lapin (CEO)

Companies with resilient cultures grew in value, between 1926 and 1999, sixteen times more than the market average and six times more than comparison companies of similar sizes in similar industries.¹

Resilience is the quality of being able to respond with speed and effectiveness to (sometimes radical) change and to survive, and even grow, through turbulent times and challenging economic conditions. Resilient organizations build cultures that both:

1. Deliver continuous innovation and
2. Inspire trust.

A company that is not continuously innovative in the way it operates, in the way it manages its people, in the way it reduces its costs, in the products it makes, and in the markets it creates, cannot consistently create wealth.  As Gary Hamel says, "there is no way to create new wealth without new ideas."²

These two qualities, however, innovation and trust, are paradoxical.  Trust is born out of predictable continuity, whereas innovation breeds unpredictable discontinuity!  The paradox of trust and innovation is the reason why resilient companies are so rare.  Organizational cultures unable to thrive in this space of paradox generally undermine either their companies' short-term objectives or their long-term strategies.

Resilient companies have cultures capable of holding "two opposed ideas in the mind at the same time and still retain the ability to function."³  This is the challenge for the architects of "Cultures that Work."

People's difficulties in holding two opposing ideas in their minds at the same time stem from their assumptions that life's dilemmas always imply an "either - or" choice.  While this is sometimes the case, genius lies in the ability not to compromise between two alternatives, but to create a third alternative that embraces both of the original two.

For example, if two people are speaking at the same time, it is usually necessary to make a choice to listen to either one or the other.  However, in music, harmony is created not from one melody or from a compromise between two melodies, but rather from the ingenious synthesis of the two melodies into one new harmonic entity.  As in music--in cultural architecture, too--we need to seek a new cultural entity that harmonizes the forces of change with the forces of stability, an environment of flexibility and creativity synthesized with one of substance and trust.  It is imperative for leadership to escape the entrapment of what Collins calls the "Tyranny of the OR" and embrace his "Genius of the AND."

Managing the cultural paradox, however, goes far beyond just innovation versus trust.  We need to identify all the elements of business practice that are, like the timeless and trusted predictability of the solar orbit, "never-changing" and those, which like the daily, different appearances of the lunar phases,⁴ are "ever-changing."  Then, like the ancient Mosaic calendar that synthesizes the solar and the lunar calendars into one aligned system, an organizational culture must be forged with the capacity to serve the organization's ever-changing needs while remaining steadfast to its never-changing beliefs.  Cultures should help organizations to frequently "change their leaves but never their roots."

When organizations allow their cultures to hold two opposing ideas at the same time, then they will be able to:

But how do you create a culture that promotes both change AND stability?  How do you align never-changing principles with ever-changing strategies?

It is often difficult for management to become aware of the extent of fear in their organizations. This is because fear itself hides from management the very knowledge of that fear.  Not only do leaders need to know when fear is paralyzing their organization, they need to identify the areas where that fear is greatest and the reasons for it.  After establishing a culture that eliminates fear, communication will flow more effectively in both directions.

Innovation, Discipline, & Control
Innovation needs freedom.  Trust needs discipline--a further "either - or" paradox.  The dot-com era was a prime example of an industry boundary-less in its innovation and intoxicated with its freedom.  It liberated itself from corporate bureaucracy, principles of sound governance, accountability to shareholders, and responsibility to customers.  It spawned brilliant ideas, but most of it collapsed on the junk heap of corporate failures.  It was an industry of innovation but not one that could be trusted.  Bound to the "Tyranny of OR," corporate America has responded to this and other failures of trust with more stringent and cumbersome measures of governance and control than ever before.  Rightly, corporate America and the government are determined to restore trust in American business.  Trust may indeed be restored, but at the cost of much of the brilliant innovation that drove the longest boom in American economic history.

There is a harmonic solution to the tyrannical "either freedom and innovation, OR governance and control:"  Discipline powered by the integrity of a company's people and the values of its leadership, rather than imposed by external rules of compliance, will achieve higher levels of trust without dampening the exuberance that breeds innovation and growth.  The self-discipline of corporate character, rather than the controls of corporate governance, creates a culture of "both innovation AND trust."

The Value of Purpose & the Purpose of Values
While strategy and values should never be confused, they should also not be hermetically sealed from one another.  Strategy should have a dimension of moral value, and an organization's values should be strategic.  Strategy's moral dimension comes from its definition of the deep human needs that its products and services will satisfy.  This is the organization's purpose.  Wal-Mart was not just about mass retailing; it was, and is, about bringing the advantages of mass purchasing power to ordinary (even poor) people who live in some of the more remote parts of the land.  Southwest Airlines was not just about competitively priced air travel, it was, and is, about "democratizing the skies," removing exclusivity from air travel, and making it available to the ordinary person, even the poor person.  These two companies (and all of the resilient companies on Collins' list) are not just about returns on investment. Their returns on investment are the rewards and the measure of successfully fulfilling a purpose that has a higher moral calling.

Companies with purpose have impacted our society profoundly, not by their social responsibility programs, but by the cores of their business activities.  Resilient companies are resilient because they never fail to address the needs of vast markets.⁵  Helping people to address their legitimate needs is the highest form of ethical activity.  It is "loving your neighbor as yourself" translated into action.  The deeper the need is that a company satisfies and the greater the scale with which it addresses those needs, the more resilient it will be.

Working for such a higher purpose engages so much more of employees' minds and passions, so much more of their thinking is directed at the improvement of the contributions they make. In this way, resilient companies, which both spur innovation and inspire trust, address the deep human needs not only of their customers, but also of their employees.  Such companies "spur high-margin growth and thereby increase their value, great organizations need only focus inward to find the wealth of unrealized capacity that resides in every single employee."⁶ People engage fully in their work when they see their work as a vehicle, not only for their material quests but for their spiritual quests too.  For people to become fully committed, their work should expand beyond the basic trade-off of skills for income.  In their search for meaning, people need to see their work as an opportunity to use their unique talents to make a contribution to others that is valuable.  The contribution they seek to make, however, is not to the coffers of shareholders, nor to satisfying the excessive indulgences of their customers! They are most satisfied when they believe that their work makes a difference to people in a much deeper way, in a way that has an almost spiritual dimension and some moral value.

The danger is that employees (and others) come to see an organization's higher moral purpose as a veneer designed to hook people into the "false" belief that the organization is more than a producer of profit for shareholders.  This breeds mistrust of leadership integrity and damages morale, productivity, and innovation far more than if there would have been no suggestion of moral purpose at the outset.

Even some of the companies who collapsed amidst scandals of ethical failures had "values." Enron had values, as did WorldCom and Anderson.  Maintaining the integrity of a higher purpose requires that the organization live internally to a higher standard of values and ethics than a company that claims to have no such moral purpose or dimension to its business.  A corporate character that can command adherence to high ethical standards without adding bureaucratic layers of compliance and governance regulations needs more than "values;" it needs a system of values.

A system of values differs from a set of values in that a set of values places no weighting on the values.  It does not deal with the inevitable and tough dilemmas that arise from conflicting values.  It does not address the consequence of acting outside the values or, even worse, of undermining the values.  Organizations rarely examine themselves to ascertain the degree to which they have the will and the strength to truly live by their values.  They rarely estimate the cost in effort and money that will be required to honestly implement their values.  These are factors that distinguish a set of "motherhood" values from a serious system of values, unique to a particular organization and designed to serve its strategic objectives and catalyze its growth.  A system that has been tested both for its own robustness and for the organization's capacity to uphold it.  A system that speaks clearly, not only to what the company's values are, but to how the company manages conflicts and dilemmas within its value system and how it deals with the rise of differing value systems in different parts of an organization.  It is these qualities of a value system that distinguish the resilient companies who inspire trust as they grow from those who grow in unpredictable spurts, often followed by periods of profound disappointment for the financial markets and the employees.

A value system that is tailored to the strategic needs of an organization gains the support of operational managers too.  When consistently implemented, it creates a culture that is both exciting and fair, one that is both challenging and nourishing, one that respects risk but rewards accountability.  One that celebrates not only the glamour of product and market innovation but also process innovation.  A culture whose strategy embraces moral purpose and whose values have strategic focus is a culture that successfully embraces "the Genius of the AND."  It is a culture that is stable in its permanence and dynamic in its growth.  It is a culture capable of building a resilient organization. It is a culture that "works."