When Cultures Get Sick
Measles, a disease once thought to be completely eradicated, is making a comeback. The flu vaccine was only 23% effective this year as long-identified strains continue to mutate. Hospitals breed superbugs and must continuously adapt to stop the spread of potentially fatal infections. Just as healthy people can be felled overnight by a new disease or drug-resistant bacteria, companies can sicken and even collapse if their culture is allowed to get seriously unhealthy.
Consider the historic demise of technology giant Nortel Networks. At its peak, the century-old enterprise was the largest company in Canada with sales of $30 billion and 100,000 employees worldwide. An innovative powerhouse that invented the digital switching capability of telephone networks, the company had a long history of creating new products, and, indeed, new markets. It had developed a leadership system that valued and rewarded both risk taking and value creation.
And then it caught something, and fairly suddenly the culture began to show symptoms of serious illness. In January of 2009, Nortel Networks declared bankruptcy, liquidating its assets and touching off a prolonged battle over the scraps of an institution gone to ruin.
A new study found that a culture of arrogance contributed to Nortel’s demise. In March 2014, a University of Ottawa team of professors released a detailed analysis of Nortel’s failure based on three years of research and interviews with former employees, executives and customers.
The study concluded that Nortel lacked the internal “resilience” to cope with a changing external marketplace. The authors noted that that Nortel’s growing dominance in its markets in the 1990s “led to a culture of arrogance and even hubris combined with lax financial discipline. Nortel’s rigid culture played a defining role in the company’s inability to react to industry changes.”
The findings are of no great surprise to me. I had seen this play out first hand in my 17 years with the company, especially in my last role as vice president of Organization Development.
I worked continuously, relentlessly, to try to improve the company. I was well rewarded and appreciated, receiving promotions, bonuses and awards. But I was also frustrated, worried that the fear-based culture would eventually doom the company. I tried to affect culture and leadership, the foundations needed to build large-scale successful organizations in the Knowledge Age. I often succeeded, but only locally, with individual leaders and business groups, never enabling enough change at the company-wide level and never gaining access to the most senior governing body, the Board of Directors.
On Leadership and Culture
In 2014, I gathered my personal experiences and observations into a business memoir, No Fear: Tales of a Change Agent, or, Why I Couldn’t Fix Nortel Networks! This is not a tell-all blame book. It comes from the point of view of a leader of the Organization Development function and is an honest examination of what I could and could not do.
Misguided and flawed leadership processes poisoned the culture, causing a sickening spiral. Simply put, I believe that a misguided leadership system is the single most important factor that led to the demise of Nortel. Looking though a traditional business lens suggests other causes: debt, failed acquisitions, eroding customer satisfaction, collapse of certain markets from the dot-com bubble bursting, etc. But all businesses encounter challenges. How a particular company reacts to them — beyond words — determines which ones not only survive, but thrive.
What was it about Nortel’s leadership system — the sum of the processes that hires, promotes, recognizes and rewards individuals throughout the management ranks — that resulted in such a succession of leaders who were unable to surmount these challenges?
The answer lies in the discussion about culture — the beliefs and behaviors that determine how a company’s employees interact and make decisions. As seen from an Organization Development perspective, Nortel’s culture was sick. OD can be defined as the process that assures that an organization develops or acquires the capabilities and resources it needs to fulfill its mission.
A healthy culture, with an adaptive leadership system, embraces the concept of change and enables the company to retool when distractions shade the mission. A flawed leadership system loses sight of the mission, and instead focuses on short-term financial results, often quarter by quarter. Such a system begins to spiral as individuals manipulate it for personal gain, even if at the expense of the mission.
As Nortel’s leadership system sickened, symptoms included leaders who cycled too quickly through their roles, a Board that went into hibernation, an acceptance of integrity issues as long as financial results improved, lack of attention on continuous learning, a lack of valuing diversity, a condescending view of corporate staff and a new set of dominant leadership principles that valued following orders over encouraging dialogue. Ignoring these symptoms proved fatal.
No, the death of Nortel Networks was not inevitable. Some solutions seemed evident. For example, the OD network developed a leadership promotion process, with full (stated) buy-in from senior executives. Relying on competency model techniques that utilized behavioral event interviews of the most successful general managers, we articulated the capabilities most needed to replicate those successes.
We piloted our tools and processes with General Managers and several executives. One of our top female executives achieved a sort of triple-crown: best business results, customer satisfaction and employee satisfaction in her division. We then administered 360 degree feedback across that entire division, with specific leadership development interventions to spur creativity and innovation. The executive team of that division spent much of their valuable face-to-face time dialoging directly on leadership and change issues, not just daily business concerns.
Out of the success in this division, we developed an approach to go company-wide, with a detailed implementation process that, yes, included assessment when considering promotions, but with an eye towards development after appointment. Unfortunately, almost immediately, both line and HR executives started appealing for exceptions to the new process, always citing “my business needs this person — now.” Some of the execs confided in me that they were worried they might not “pass” an assessment. As those exceptions were approved, the entire effort collapsed into irrelevance.
There are many other symptoms that could have been treated if the culture truly adapted to refocus on the mission and not just the financial results. One of the keys to success would be acceptance of continuous learning at all levels of the organization, avoiding the trap that springs when the most senior execs assume all the problems are below their level.
The most important lesson of this tragic collapse though, is that you can get sick when you least expect it, even when all indications are that continued success is all but guaranteed.
How about you, have you experienced a culture collapse? What were the symptoms and was a turnaround attempted? I am curious to hear of your experience and welcome your thoughts below.