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Reducing Cultural Entropy

In order to reduce the cultural entropy of your organisation, you will first have to measure it by carrying out a Cultural Values Assessment.

There are four main benefits of reducing cultural entropy:

  • Increased potential for attracting talented people
  • Increased employee engagement
  • Reduced employee turnover
  • Improved performance

Attracting talented people: In the Western world, the war for talent caused by the retirement of the baby boom generation—people who were at school during the 1950’s—is having a significant impact on the availability of experienced, and talented people.

This means that competition for talented people in the age range 40 to 50 years old is increasing significantly. You will need to pull out all the stops if you are going to retain and attract these people. Your organisation’s culture is one of the key factors in this regard. 

For these reasons, being one of the best companies to work for is no longer a feel good aspiration; it is absolute necessity if you want to hire the best people.

In 2008, I researched the growth in share price of the top twenty publicly traded companies as identified by Forbes Magazine’s annual survey of “Best Companies to Work For.” I found that the share price for these companies had had an average annualized growth rate of over 16.7 percent over the previous 10 years, compared to approximately 2.8 percent for the S&P 500.1 This shows unequivocally that caring about the experience that employees have of an organisation is good for business.

[S&P 500 is a weighted index of 500 large capitalization companies actively traded in the United States.]

Increased employee engagement: An engaged employee is someone who is fully involved and enthusiastic about his or her work, and thus will act in a way that furthers their organisation’s interests.

Engagement represents an emotional and intellectual commitment to the future success of an organisation. Engagement goes beyond happiness and satisfaction because it focuses on behaviours that produce positive results. Engaged employees feel a personal sense of fulfilment and a sense of ownership towards the organisation.

In research carried out with Hewitt Associates, involving 900 organisations across 8 markets, engagement scores were compared to cultural entropy scores. These two variables were found to be highly correlated. As you might expect, low entropy leads to high levels of engagement, and high entropy results in low levels of engagement. Furthermore, the research showed that these two variables have a proven relationship with financial performance, and revenue generation. Low entropy and high engagement improve both of these variables.

Hewitt have found that the top engagement driver of talented people is “job fulfilment and challenge.” High performance cultures create a stimulating and inspiring work environment and build systems and processes that support top talent in their drive for success.

Reduced employee turnover: In the Methodist Hospital in Houston, Texas, a continuing focus on values and culture between 2002 and 2004 caused a decline in cultural entropy resulting in a drop in employee turnover from 24 percent in 2002, to 15 percent in 2004, a 38 percent decline. Vacancy rates went from 6.7 percent to 3.1 percent during the same period. By 2004, patient and employee/physician satisfaction levels were the highest in the organisation’s history. The overall cultural entropy in the hospital towards the end of this intervention was below 10 percent.

Hewitt Associates have found that becoming a “best employer” not only creates high levels of engagement but also significantly reduces employee turnover. Best employers have 40 percent lower turnover in Asia; 45 percent in Australia; 54 percent in Canada; 30 percent in Europe; and 50 percent in the United States. Best employers have larger potential talent pools: they get twice as many applications per employee as other organisations; and they outperform other organisations in both productivity and performance: they are 78 percent more productive and 40 percent more profitable that those with lower engagement.

Increased performance: In the USA, in 2005, Magnum Community Hospital was on the brink of closure. With losses of half a million dollars, the situation had reached crisis proportions. Blackhawk Healthcare stepped in and acquired Magnum at that time.

The difficulties continued resulting in three changes of CEOs in two years. A cultural values assessment was carried out in 2007. The results showed entropy levels of around 56 percent. A values initiative was immediately put in place, and by 2009 the level of entropy had dropped to 14 percent. Magnum, by this time renamed as Quartz Mountain Medical Center, was on a sound financial footing, had added two new clinics, and employee satisfaction had significantly improved.

Unilever Brazil started working on their values as part of a company-wide transformation effort in 2007. Between March 2008 and December 2009, the level of entropy among the top leadership group dropped from 30 to 8 percent. Among the extended leadership team it dropped from 31 to 12 percent, and among the total management team it dropped from 37 to 19 percent. At the same time the company saw a steady rise in revenues and share price. Even though these are early days in the transformation effort, the initial results are encouraging.

Practical Ways of Reducing Cultural Entropy

There are three ways to reduce cultural entropy:

  • Reduce the personal entropy of the current leaders.
  • Reduce the “institutionalised” entropic legacy of past leaders.
  • Manage the culture of the organisation by focusing on causal indicators.

Reducing the personal entropy of current leaders: Cultural entropy is a function of the personal entropy of the current leaders of an organisation and the institutionalised legacy of the personal entropy of past leaders.

The cultural entropy caused by current leaders usually shows up as excessive control and caution, blame and internal competition, confusion, and long hours. Personal entropy can become institutionalised in an organisation through the introduction of bureaucratic systems and processes requiring hierarchical decision-making or rigid silo-driven structures.

The cultural entropy caused by current leaders is a direct reflection of their personal entropy. It is the amount of fear-driven energy that a leader expresses in his or her day-to-day interactions with people in the organisation. Personal entropy can be regarded as a measure of the “degree of disorder” in an individual due to the presence of limiting values/behaviours. The principal causes of personal entropy are subconscious fears. One of the best ways of helping leaders reduce their personal entropy is providing feedback by carrying out a Leadership Values Assessment or a Leadership Development Report.

Reducing the entropic legacy of past leaders: The way to reduce the entropic legacy of past leaders is to focus directly on the potentially limiting values that are linked to bureaucracy, hierarchy, and silos. Usually, but not always, these issues represent the institutionalised legacy of past leaders. Organisations deal with these issues by: de-layering, restructuring, and de-bureaucratization. This is sometimes called structural entropy because it has become institutionalised in the systems. The best way of reducing structural entropy is to engage the organisation in a process of Whole System Change.

Manage the culture of your organisation: Measurement matters. Whatever you measure, and then use as a key performance indicator, tends to improve. This is why it is important to measure the culture of your organisation on an ongoing basis. Whatever you measure, you can manage.

There is much more to managing the culture of an organisation than reducing cultural entropy. However, managing the cultural entropy is more than 75 percent of the job. Why; because low cultural entropy is highly correlated with employee engagement and strong financial performance.

Cultural entropy is comprised of three elements:

  • Factors that slow the organisation down and prevent rapid decision-making.
  • Factors that cause friction between employees.
  • Factors that prevent employees from working effectively.

Factors that slow the organisation down include: bureaucracy, hierarchy, confusion, and rigidity (Level 3 potentially limiting values). 

Factors that cause friction include: internal competition, blame, manipulation, rivalry, and intimidation (Level 2 potentially limiting values).

Factors that prevent employees from working effectively include: control, caution, micro-management, short-term focus, job-insecurity, risk-aversion, and territorialism (Level 1 potentially limiting values).

All these factors zap the amount of energy that is available to an organisation for doing value-added work.

 

 

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