Rethinking the Source of Resiliency, Innovation, and

Rethinking the Source
of Resiliency, Innovation,
and Sustainable Growth
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The HOW Report
© 2011 LRN Corporation. All rights reserved.
“We can’t solve problems
by using the same kind
of thinking we used
when we created them.”
Albert Einstein
2
The world has been
restructured and
reshaped. It’s time to
rethink fundamentals.
3
A message from
Dov Seidman
I often have the privilege of speaking with CEOs of
many of the world’s largest and most significant global
companies. They are optimistic and action-oriented by
nature. They are also analytical and reflective. As today’s
business leaders reflect on the state of our economies
and societies, and on the role of their enterprises as we
head into a changing and uncertain future, I detect a
great deal of unease. The concerns they have about the
state of the world are equaled by their concerns about
their own companies and the employees, communities,
and ecosystems that depend on them.
One fundamental area of CEO concern boils down to
this: they are not quite sure how to align a global team
of thousands or hundreds of thousands of employees to
deliver against the increasingly complex and challenging
objectives in front of them. Despite holding all the “reins
of power,” these CEOs increasingly are coming to
believe that the traditional ingredients of success, such
as a supportive board of directors, a strong executive
team, clearly articulated corporate strategies, thoughtful
resource allocations, differentiated product or service
portfolios, elaborate control processes, and highly
refined incentive structures, are no longer sufficient.
They are correct in their conclusion. As we continue to
lurch frequently from one crisis to another, and generally
contend with the dynamics of operating in a globally
interdependent world, creating resiliency and forging a
path of sustainable growth requires business leaders
to fundamentally rethink the very nature of how their
organizations operate and how their people conduct
business. The “New Normal” doesn’t look like anything
we’ve seen before, and the governance structures,
organization models, corporate cultures, and leadership
styles that proved successful in the past need to adapt
to our changed circumstances. That being said, since
most executives remain comfortable managing only
what they can measure, it has become important to
develop a new framework for analyzing an independently
confirmable method for measuring how a company does
business—“HOW Metrics,” if you will.
We believe that we achieved both of these with LRN’s
Governance, Culture, and Leadership Framework and
its corresponding Governance, Culture, and Leadership
Assessment (GCLA). As you will see, the results of our
national study of over 5,000 employees working in the
U.S. for both local and global organizations of various
sizes have significant implications for CEOs and other
business leaders. Of particular importance is the role of
a company’s purpose and core values as it harmonizes
them with leadership and governance systems to help
define its unique corporate culture. In short, culture as a
conscious, deliberate, long-term strategy can be the key
to sustainable differentiation and success for companies
in the 21st century. Companies and leaders who pioneer
and forge ahead on a genuine journey of governance,
culture, and leadership are the ones who will be around
in the 22nd century. At the very least, it is our sincere
hope that the National GCLA will help create a deeper
understanding of the challenges and opportunities
before us today, and that it can facilitate a structured
dialogue about how our business leaders can take more
certain and powerful steps on their respective journeys
toward significance.
Dov Seidman,
Founder and CEO, LRN
4
‘How’ is not just
a question.
HOW is the answer.
5
HOW. We’ll hear that word a lot in this
document. Simply stated, HOW is the
belief that what we do is not nearly
as important as how we do it. And in
HOW we can find a better way forward
by changing our governance, culture,
and leadership. But this does not just
happen on its own; it requires a willful
decision to embark on a journey. To
be on a journey means to focus on
the way, not the outcome; on HOW
and not WHAT; and on the road, not
the destination. Journeys are by their
nature curvilinear. They are rarely linear
and easy. They have highs and lows
and require more effort for the climb
than the descent.
In order to get to the destination
of a more sustainable system of
governance, culture, and leadership,
we are going to have to tear down the
things that trap us where we are (the
“how much” functional and hierarchical
mindsets of Blind Obedience and
Informed Acquiescence) and begin to
build toward the HOW mindset of SelfGovernance. To do so, we have to be
willing to move beyond our basic (and
superficial) understanding of what we
think we know (B) and accept some
uncertainty and confusion (C) that will
accompany us as we wrestle to gain
a deeper understanding of what it will
take to achieve significance and longterm success in the “New Reality” of
the 21st century (A). See diagram.
The Journey to Self-Governance
A
SelfGovernance
Achievement
B
Informed
Acquiescence
Blind
Obedience
C
Progress
Yes, HOW can be measured.
We know because we
measured it. That’s what
HOW Metrics is all about.
SM
In the end, by instilling a clear, broadly
understood set of values, and building
a more productive internal culture
that informs and shapes how our
organizations are governed and led,
we’ll set the foundation for sustainable
business success. But is this really
true? Can HOW really deliver on that
promise, in terms of the hard currency
of business results? That’s the thing the
HOW MetricsSM seeks to measure. And
the National Governance, Culture, and
Leadership Assessment (GCLA) is the
measurement tool. This report presents
the findings of that measurement.
6
Finding a better
way forward.
7
Three common misperceptions
about culture: It’s naturally forming
and can’t be purposefully shaped.
It’s a soft currency and not directly
related to tangible results. It can’t
be measured any more than
happiness or well-being.
Today’s “New Reality” is marked by
hyperconnectivity, hypertransparency,
and ever-deepening interdependencies.
As such, today’s progressive leaders
recognize that traditional approaches
to business are no longer sufficient.
Hierarchical command and control
styles of leadership are giving way
to flatter and more collaborative
leadership frameworks. Rules-based
management systems are evolving
into values-based corporate practices.
Short-term mindsets are being
displaced by long-term considerations.
And there is increased focus on how to
evolve to more values- and principlesbased governance, culture, and
leadership systems that put humanity
at the center of how a company
operates and relates to stakeholders.
and reinforce governance, culture,
and leadership as a source of lasting
competitive advantage. Understanding
culture better is often a first step in a
company’s journey.
Through nearly twenty years of working
with more than 700 organizations,
LRN has studied and implemented
new ways for business leaders to
look beyond their core products,
technologies, and business processes
and helped them embark on their own
individual and organizational journeys,
seeking new ways to strengthen
Simply put, culture is the sum total of
the behaviors of the individuals who
compose an organization. And it’s
these very behaviors—how decisions
are made, how people are treated, how
things really work—that drive important
business outcomes.
8
Every organization fits
into a governance, culture,
and leadership archetype.
What’s yours?
Governance. Culture. Leadership. At
the core of this National GCLA is LRN’s
belief that these seemingly intangible
notions can be made tangible through
the direct observation of actual
behavior in an organization. In order to
analyze, assess, and affect governance,
culture, and leadership, LRN uses a
common framework and vernacular
that has proven effective over the years
with numerous client companies and
organizations. The National GCLA
is predicated on a market-tested
framework we call The Governance,
Culture, and Leadership Framework.
The framework is composed of two
key axes: the three Archetypes of
Governance, Culture, and Leadership,
and the 22 Dimensions of Culture.
The horizontal axis helps us to
generally characterize organizations
as being dominated by one of three
distinct archetypes of Governance,
Culture, and Leadership. The vertical
axis delineates the 22 Dimensions
that most significantly shape and
influence organizational and individual
behaviors within each archetype.
(see opposite page)
The framework itself shows the
complex interaction of governance,
culture, and leadership, and how
they come together to produce each
cultural archetype. The National GCLA
indicates that behaviors associated
with Blind Obedience, Informed
Acquiescence, and Self-Governance
can all be present in any one company.
For example, an employee may believe
that her company is aligned around a
clear mission and purpose (reflecting
Self-Governance), but she nonetheless
may experience fear and coercion
when dealing with her manager
(reflecting Blind Obedience).
Archetypes of Governance, Culture, and Leadership:
1 Blind Obedience. Organizations
characterized by command and
control, top-down leadership,
and coercion. Blind Obedience
organizations rely on rules and policing,
are transactional, and focus on shortterm objectives—there is little focus on
building enduring relationships in the
workplace, the marketplace, or society.
2 Informed Acquiescence.
Organizations that reflect 20th century
good management practices like
hierarchy, structure, and control
processes. Employees follow the rules,
policies, and procedures established
by what they believe to be a skilled
management team. Managers rely
on performance-based rewards and
punishments to motivate people.
Long-term goals are important but
often give way to considerations of
short-term success.
3 Self-Governance. Organizations
that are primarily values-based. The
organization’s purpose and values
inform decision-making and guide
all employee and company behavior.
In short, people act on the basis of
a set of core principles and values
that inspire everyone to align around
a company’s mission, purpose, and
definition of significance. Employees at
all levels strive to be leaders, and the
company is focused on its long-term
legacy and endurance.
9
The Governance, Culture,
and Leadership Framework
HOW WE PURSUE
HOW WE
RECOGNIZE
HOW WE RELATE
HOW WE BEHAVE
HOW
WE
KNOW
DIMENSIONS OF CULTURE
ANARCHY
BLIND OBEDIENCE
INFORMED ACQUIESCENCE SELF-GOVERNANCE
Use of Information
Hoarding
Need-to-Know Basis
Transparent
Organizational Structure
Silos & Fiefdoms
Division of Expertise &
Functions
Integration with High Trust
Source of Behavior
Autocratic Leadership
Rules Based
Values & Principles Based
Reason for Behavior
Coercive
Motivated by Individual
Self-Interest
Inspired for Greater Good
Responsibility for
Own & Others’ Behavior
Central Policing Authority
Individual Organizational Units
Universal Vigilance
Source of Authority
(Who Gets to Decide)
Power Figure—Arbitrary
Power Figure—
Consistent with Rules
Individual—Values Based
Magnitude of Authority
Authority without Recourse
Top-Down Decision Making
Empowerment & Individual
Accountability
Source of Regulation
Externally Imposed
Voluntarily Adhered
to Internal & External
Act on Shared Beliefs
Roles & Types of Skills
Follower & Worker
Manager
Leader
Personnel Development
Rote Learning
Training
Education
Level of Trust
Heavy Inspection
& Limited Delegation
Checks & Balances, Contracts
High Trust & Verify
Rules vs. Values
Minimal Adherence—
Loopholes
Compliance with Requirements
Guided by What is Right to Do
Nature of Relationships
(Employees)
Suspicion & Penalty Based
Honorable Work—
Pay & Reward
Social Contract—
Committed to Growth
Nature of Relationships
(Customers)
Suspicion &
Close Monitoring
Price it Fairly & Get Paid in
Return
Add Value Beyond
Expectation
Nature of Relationships
(Supplier/Third Party)
Arm’s Length—Transactional
Contractual, Fair, Impartial
with Continuity
Mutual Collaboration—
Make Each Other Better
Rewards & Recognition
Conformity &/or Obedience
Rewards for Personal
& Organizational Success
Satisfaction In Achieving
Mission & Significance
Penalties & Discipline
Supervisor Determined—
Fear
Established Structures
& Procedures
Guilt from Self—Peer Pressure
& Sanctions
Time Orientation
Short-Term
Short-Term & Long-Term Goals
Driven by Legacy
& Endurance for the Enterprise
Mission & Purpose
for Existence
Survival—Coerced to
Participate
Success-Oriented—
Reward for Achievement
Mission, Promise &
Significance
Determination & Definition
of Significance
Significance not a Concern,
Human Doing
Journey of Success
Journey of Significance
Attention to Regulatory
& Legal Requirements
Emphasis on Enforcement
Controlled by Rewards
& Penalties
Proactive & Preventive
Attention to Market
& Public Dynamics
Superficial Attention—
Game the System
Highly Responsive &
Reactionary
Lead & Transcend the Markets
10
A compelling case
for Self-Governance.
11
In this, the first ever HOW Report:
Rethinking the Source of
Resiliency, Innovation, and
Sustainable Growth, LRN found
strong and compelling evidence
that inspiring employees to
self-govern through inspirational
leadership and shared values
can drive sustainable business
performance and success.
What this study reveals
about self-governing
organizations in relation
to the other archetypes
of Blind Obedience and
Informed Acquiescence.
When the responses of survey
participants in self-governing
organizations were compared to those
in organizations marked by Blind
This National Governance, Culture,
and Leadership Assessment (GCLA)
of over 5,000 U.S. employees from
large U.S. and global companies
verifies that governance, culture, and
leadership not only help organizations
manage critical downside risks by
discouraging unwanted behaviors,
they also inspire innovation, deliver
superior customer service, attract and
retain talent, and, ultimately, achieve
superior financial performance.
Obedience or Informed Acquiescence,
the following insights about SelfGovernance were gleaned based on
respondent perceptions/observations:
1 Self-Governance delivers five times
the level of innovation than does Blind
Obedience and almost 1.5 times more
than Informed Acquiescence.
3 Self-governing organizations experience
three times more employee loyalty than Blind
Obedience organizations and 1.5 times more
than Informed Acquiescence organizations.
2 Self-Governance and Informed
Acquiescence organizations suffer half
the incidents of misconduct as do Blind
Obedience organizations.
4 Self-governing organizations provide nine
times more customer satisfaction than Blind
Obedience organizations and two times more
than Informed Acquiescence organizations.
5 Self-governing organizations deliver
significantly higher levels of financial
performance.
These insights, taken together,
have significant implications for how
an organization should harmonize
governance, culture, and leadership to
generate more efficient and effective
operations. Trust, values, long-term
orientation, the pursuit of significance,
and the ability to inspire are key
dimensions that are most prominent in
self-governing organizations.
In contrast, the more a business
attempts to direct employee conduct
through a Blind Obedience system
of imposed rules and directives or
to motivate its employees through a
system of Informed Acquiescence
based on rewards and punishments,
the worse it fares on these critical
business indicators.
than the overwhelming majority of
their co-workers. Clearly there is a
disconnect here.
Despite all this, Self-Governance is rare
in today’s corporate America. According
to National GCLA findings, only 3% of
respondents reported they work for
organizations that have a governance,
culture, and leadership system
characterized by Self-Governance.
Another interesting finding: Those most
responsible for implementing culturespecific initiatives—C-suite executives
and human resource professionals—
are much more likely to observe that
their organizations are self-governing
These findings offer a powerful
argument that governance, culture,
and leadership, and the resultant
behavior they foster, matter in very
real and tangible ways. More
specifically, the National GCLA
indicates that the path to sustainable
performance, long-term business
success, and an enduring legacy of
significance lies in fostering a valuesbased, self-governing organization.
12
Business as usual?
The “New Reality”
has other plans.
As CEOs and business leaders
work to forge a sustainable path for
companies in the wake of the financial
crisis, they are finding a “New Reality”
that doesn’t accommodate businessas-usual mindsets. Disruption and
volatility seem to be permanent parts
of the landscape, wreaking havoc on
business plans and strategies and
spurring business leaders to rethink the
nature of how their companies relate
to the marketplace and the world.
Even flawlessly executed conventional
management models—with clear
structures, well-crafted incentive
systems, and a thoughtful framework of
rules, policies, and control processes—
are not producing the results we have
come to expect from them.
13
“The current crisis should actually sound the alarm for us to
fundamentally rethink the development of our morals, our
ethical norms, and the regulatory mechanisms that underpin
our economy, politics, and global interconnectedness.”
Klaus Schwab, World Economic Forum Founder and Executive Chairman
Companies are asking more of their
leaders, and leaders more of their
employees, than ever before. We
want employees to respectfully relate
to colleagues from around the world
who come from different cultures
and speak different languages. We
want employees to go beyond merely
serving customers to cultivating unique,
delightful, and genuine experiences.
We ask employees to represent their
company honorably and nurture
its brand, not only when they’re on
the job, but whenever they express
themselves on social networking sites,
in tweets, blog posts, and emails.
We live in a world where the third
largest population, after India and
China, is Facebook. Yes, things are
different now. Very different.
The governance models and
mechanisms that enabled
organizations to manage risks and
compete effectively in the 20th century
can no longer meet the challenges of
this new, and we think very exciting,
world. Organizations simply can’t write
enough guidelines to imagine every
business exigency or control every
behavior in the vast spectrum of global
human conduct. CEOs and business
leaders who remain committed to the
conventional wisdom of 20th century
business do so at their own peril.
“Great companies have very strong and great cultures.
A huge part of a leadership role is to drive the culture
of the company and to reinforce it.”
John Chambers, CISCO CEO
The results of this National GCLA
study point us toward one fundamental
conclusion: Companies need to get
deliberate and intentional about their
cultures. They need to focus on how
things really work in their business
operations if they are to compete
and succeed in today’s business
environment. In other words, they need
to get serious about how managers
really treat their staffs, how employees
really interact with customers and
suppliers, and how individuals are really
rewarded and promoted.
“I came to see, in my time at IBM, that culture
isn’t one aspect of the game; it is the game.”
Lou Gerstner, Former CEO, IBM
In the 20th century, human behavior,
as it comes together as a culture in
companies, was thought to be too
soft and too intangible to be of any
real value in the business world. But in
the 21st century, we see that culture
is the hard currency of business. And
this study shows that the cultures that
are best positioned for success and
significance in this century are selfgoverning cultures; cultures that
govern and lead through a set of
enduring values and that extend
trust to inspire employees to take
appropriate risks, innovate, and govern
their own conduct. This study shows
that it is indeed time to get deliberate
and intentional about culture.
14
Culture—the Human
Operating System.
15
Culture is an organization’s DNA. It is
what gives an organization its unique
qualities, strengths and weaknesses,
distinctive icons, lore and way of
communicating. Culture is how things
really work; how decisions are really
made; how your customers, suppliers,
and communities are really engaged;
and how and why people really
connect every day.
A self-governing culture drives
those values most critical for
business success.
What underlie culture are a purpose
and a set of core values—whether
purpose and values are explicit or
implicit, whether they are discussed
every day or only on “ethics” day,
whether they are part of every
company process or buried in outof-date and hard-to-find codes of
conduct. Leading companies are
rededicating themselves to their
fundamental purpose, core values,
and culture because they realize that
culture can be the engine that drives a
company forward—or it can be a huge
brake on progress.
A strong, purposeful, valuesbased culture can perform “double
duty.” Culture can help manage
an organization’s downside risk by
discouraging unwanted behaviors.
Culture can also inspire desirable
behaviors that can lead to sustainable
competitive advantages. In other
words, organizations can deliver
superior business results through
principled performance and outbehaving the competition.
“Our whole belief is that if we get the culture right,
then most of the other stuff, like delivering great
customer service or building a long-term enduring
brand, will just happen naturally on its own.”
Tony Hsieh, Zappos CEO
As progressive organizations refocus
their efforts on sustainable values
as a framework for conducting
business, there is growing interest in
understanding how best to measure
and activate culture. Specifically,
leaders of these organizations are
striving to become more disciplined
and rigorous in assessing the
collective behaviors that constitute the
governance, culture, and leadership of
their organizations and in how best to
harmonize and harness those systems
to influence behavior to achieve a
sustainable competitive advantage.
As this study shows, there is enormous
opportunity to move beyond traditional
operating systems and establish a
new “Human Operating System”; a
system rooted in values that pursues
a higher purpose and significance and
not just near-term success. To bring
this system to life, leaders must move
beyond merely rearticulating their
corporate values. They must do the
hard work of translating these values
into new business practices, leadership
styles, and real individual behaviors.
Through our years of working with over
700 organizations, including boards
and executive teams at many of the
most thoughtful and innovative global
companies, LRN has determined that
culture is observable and measurable.
And once culture is understood,
organizations have the ability to directly
influence it to help them reshape how
they govern and lead, not to mention
achieve both their short-term objectives
and long-term significance.
16
Governance, Culture,
and Leadership—
Hard Currency for the
21st Century.
The National GCLA findings provide the
equivalent of an “MRI” on the current
state of governance, culture, and
leadership in corporate America and its
implications for surviving and thriving in
today’s competitive marketplace. The
National GCLA assesses governance,
culture, and leadership at the behavioral
level, asking pointed questions of
employees about the conduct of
management and peers at their
organization. The survey consists of a
comprehensive set of questions that
provides insight into each of the 22
Dimensions of Culture.
Specifically, there were five major
findings that rose to the top:
17
1 Self-Governance is rare in corporate America. And
those most responsible for implementing culturespecific initiatives—C-suite executives and human
resource professionals—are much more likely to
observe that their organizations are self-governing
than the overwhelming majority of their co-workers.
2 There are tangible elements of culture that can
be measured and acted upon to create a distinct
competitive advantage in the 21st century marketplace.
3 Organizations that exhibit self-governing behavior
experience significantly fewer risks associated with
employee misconduct.
4 Organizations that exhibit self-governing behavior
are significantly more likely to see higher levels
of innovation, employee loyalty, and greater
customer satisfaction.
5 When viewed systemically, the four primary outcomes
of a self-governing organization—less employee
misconduct, greater innovation, employee loyalty, and
customer satisfaction—work synergistically to deliver
superior financial performance.
Taken as a whole, the National GCLA
findings suggest that organizations
should not view culture as merely an
enabler of strategy. Rather, culture
is a strategy in and of itself, and
business leaders can be intentional
and deliberate about evolving and
strengthening it.
18
Finding #1
Self-Governance is rare in corporate America.
And those most responsible for implementing culture-specific initiatives—
C-suite executives and human resource professionals—are much more
likely to observe that their organizations are self-governing than the
overwhelming majority of their co-workers.
According to National GCLA findings,
only 3% of respondents reported
they work for organizations that
have a governance, culture, and
leadership system characterized by
Self-Governance.
the recurrence of crises caused by
the inherent limitations of traditional
governance structures, misaligned
incentives, and corporate malfeasance.
Therefore, Self-Governance is rarely the
dominant style defining an organization.
While most organizations exhibit some
degree of Self-Governance, the findings
show that it’s often undermined by
Much of this is due to the belief of
many organizations that incremental
improvements to their current
structures—rules, policies, incentive
programs, and management
practices—will eliminate opportunities
for bad behavior and motivate good
behavior. Rather than moving toward
Self-Governance, these organizations
are, in fact, merely getting better at
Informed Acquiescence.
Archetypes of Governance,
Culture, and Leadership
n=5,122
3%Self-Governance
54%Informed Acquiescence
43%Blind Obedience
The good news:
Companies who do
implement Self-Governance
have an opportunity
to seize a considerable
market advantage.
Building a culture of Self-Governance
requires organizations to challenge
conventional wisdom. Rather than
instituting more rules and policies,
Self-Governance requires eliminating
excessive rules and policies, extending
trust to employees, and inspiring
people to live corporate values and
achieve a higher purpose. In other
words, organizations must move
from rules-based systems that direct
behavior to values-based systems that
guide and inspire behavior.
“If you create an environment where people truly participate,
you don’t need control. …The more people devote themselves
to your cause on a voluntary basis, a willing basis, the fewer
hierarchies and control mechanisms you need.”
Herb Kelleher, Co-founder and Former CEO, Southwest Airlines
19
Think your organization is
self-governing? You might
want to think again.
Moving from Blind Obedience or
Informed Acquiescence to SelfGovernance represents a step change
in behavior, and these data reflect how
difficult it is for companies to embed
their values in the broader fabric of
the organization. On the other hand,
the fact that such a small minority of
organizations have achieved SelfGovernance represents an opportunity
for today’s leaders looking to establish
a sustainable competitive edge.
The National GCLA reveals that
members of the C-suite—the
CEO, COO, CFO, and other senior
executives—have a vastly different
view of their culture than do the
employees they manage. The very
people who define the vision for
the company, establish the strategic
priorities, and set the “tone at the top”
are far more likely to observe that their
organization exhibits self-governing
behaviors.
Observation of Self-Governance
by Job Title
n=5,122
average 3%
24% CEO/President/C-Suite
6%Vice President/General Manager
5%Department Head/Division Manager
4%Supervisor/Office Manager
3%Professional Administration
2%Non-Managerial Office
2%Tradesman/Technical Specialist
2%Other Skilled Manual Labor
4%Other Job Title
As the results clearly show, corporate
leaders are eight times more likely than
the average employee to believe that
their organization is self-governing. In
fact, the less senior one’s position in
the organization, the less likely one is
to observe Self-Governance within his/
her organization.
20
Corporate leaders are also far more
likely to observe that their governance,
culture, and leadership inspire behavior
at their organizations. Of the senior-
CEO/Pres/
C-Suite
Average
27%
Motivation
Coercion
46%
Corporate leaders are also more
likely to observe that the rewards
system at their organizations
recognizes behaviors that support the
7%
7%
n=5,122
Inspiration
84%
CEO/Pres/
C-Suite
Average
Inspiration –
Employee Average vs.
CEO/President/C-Suite
27%
4%
12%
most executives surveyed, 27%
state that their organization inspires
employees, compared to just 4% of the
overall employee population.
39%
2%
86%
59%
These stark findings suggest that a
substantial disconnect exists between
senior executive perceptions of their
governance, culture, and leadership
and the reality that employees
experience and observe on a daily
basis. To achieve ambitious strategies
and goals, senior executives need
to connect more closely with their
employees and inspire them to achieve
their potential.
organization’s values, as opposed
to merely rewarding short-term,
“get-it-done-at-all-costs” performance.
Of the senior-most executives
surveyed, 39% state their governance,
culture, and leadership reward valuesbased behavior, compared to just 7%
of the overall employee population.
Rewards –
Employee Average vs.
CEO/President/C-Suite
n=5,122
Rewards Values-Based Behavior
Moderately Rewards Values-Based Behavior
Rewards Performance
Surprisingly, Human Resource
professionals, those charged with
direct oversight of people-related
initiatives, including compensation,
employee benefits, training, and
leadership development, are also
misaligned with the overall population.
According to the National GCLA, HR
professionals are twice as likely as the
average employee to state that they
work in a self-governing organization.
HR professionals are also nearly twice
as likely to believe there is a high
degree of trust within their organization
and three times as likely to believe their
organization is values-based.
21
Observation of Self-Governance
by Function
n=5,122
average 3%
Average
HR
20%
High Trust
79%
HR
15%
45%
52%
50%
Medium Trust
Low Trust
64%
Average
5%
Trust –
Employee Average vs.
Human Resource Professional n=5,122
16%
9%
12%
6% Human Resources
6% General Management
5% Consultant
5% Operations/Project Management
4% Research & Development
4% Health Care Provider
4% Production
4% Sales
4% Information Technology
3% Administration
2% Education & Training
2% Engineering
2% Finance/Accounting
2% Customer Service
3% Other
33%
Values –
Employee Average vs.
Human Resource Professional
Values-Based
Moderately Values-Based
Rules-Based
n=5,122
22
Finding #2
There are tangible elements of culture
that can be measured and acted upon to
create a distinct competitive advantage
in the 21st century marketplace.
Analysis of the National GCLA data
at the individual question level reveals
that certain behaviors tend to group
together. These groupings allow us to
establish indices of key governance,
culture, and leadership drivers that
together help to determine whether
organizations’ operating systems are
principally rooted in Blind Obedience,
Informed Acquiescence, or SelfGovernance. Collectively these indices
provide a unique perspective on
the state of governance, culture,
and leadership in companies.
They also indicate that companies
have extraordinary opportunities to
differentiate themselves in these areas,
if they get deliberate and intentional
about their cultures.
Here are the results of our key indices related to:
trust, values, time horizon, inspiration, significance,
collaboration, and information.
The Trust Index
Trust is the foundation from which
virtually every behavior stems. Trust
is a necessary prerequisite for true
innovation to flourish. High levels of
trust allow employees to take the risks
necessary to innovate around a new
product or service, or recommend
changes to an old, ineffective
process. As a result, a high trust level
is an essential characteristic of an
organization wishing to establish a
sustainable competitive advantage.
Yet as you can see, the National GCLA
reveals that only 9% of employees
believe they work for a high-trust
organization where there is little or
no fear or coercion.
practices that enable employees to
exercise initiative are effective ways
to create efficiencies benefitting the
organization. On the other hand,
rules and policies, the hallmarks of
traditional bureaucracies, are inherently
cumbersome, stifling, and limited in
High-trust environments also provide
their effectiveness. By reducing the
employees with enough safety, security, number of rules and guidelines—such
and confidence to speak up without the as placing no limits on employee
fear of retaliation when they observe
vacation days—organizations signal
inappropriate behavior. In the end,
to employees that they are trusted to
extending trust and embracing business make values-based decisions.
Trust Index
n=5,122
9%High
12% Medium
79% Low
The extent to which an organization demonstrates
and fosters trust throughout the company.
23
HOW Metrics Insight Only 37% of respondents will question
SM
decisions when they contradict company values.
The Values Index
In today’s “New Reality,” progressive
leaders are looking for ways to
accelerate the transition from rules-
based systems to values-based
systems that enable employee
creativity, innovation, and longterm engagement. Yet, most
organizations have not embarked
Values Index
on this transformation, as evidenced
by the fact that 95% of the National
GCLA respondents state they work for
organizations that are not operating
with a high values-based culture.
n=5,122
5%High
45% Medium
50% Low
The extent to which an organization uses values-based
systems to guide behaviors and decisions versus rulesbased systems to control behaviors and decisions.
The Horizon Index
Self-governing organizations do not
allow short-term considerations, such
as quarterly earnings reports or share
price fluctuations, to trump their longterm objectives.
The National GCLA indicates that there
is a sizable disconnect between the
aspirations of today’s business leaders
in pursuing long-term goals and the
actual behaviors employees see on a
daily basis. Only 12% of respondents
maintain that they work for companies
Horizon Index
where decisions are made based on
long-term considerations. Nearly 60%
said that short-term mindsets prevail.
n=5,122
12% High
28% Medium
60% Low
The extent to which an organization stresses long-term,
rather than only short-term, goals.
“[Reacting to short-term pressure] is selling your soul because it loosens
up your long-term inspiration and the discipline of your organization.”
Paul Bulcke, CEO, Nestlé
24
The Inspiration Index
To achieve a sustainable competitive
advantage today, fear and coercion as
stimuli for behavior need to be replaced
by inspiration—inspiration that comes
from within an individual pursuing a
higher long-term purpose. Over the
long-term, an inspired workforce
will out-behave and out-achieve
workforces that are solely coerced by
authority or motivated by managerially
Inspiration Index
imposed carrots and sticks. Yet almost
nine out of ten respondents work for
organizations that rely on rewards, fear,
and coercion as the means to influence
desired behaviors, while only 4% work
for organizations that inspire them.
n=5,122
4%High
12% Medium
84% Low
The extent to which inspiration, rather than reward
and coercion, is used as stimulus in an organization.
The Significance Index
While most leaders aspire to pursue
significance—to make a real difference
in the world—our data reveal that the
vast majority of organizations continue
to focus almost entirely on short-term,
situational success. Nearly 70% of
respondents work for organizations
fixated on traditional methods of
success rather than on long-term,
higher-level significance.
To achieve a sustainable competitive
advantage, progressive leaders need to
rethink their conventional definitions of
Significance Index
what “success” means, communicate a
more inspiring vision that incorporates
long-term values and considerations of
significance, and focus on the everyday
behaviors of their organizations to
ensure they are aligned with that vision.
n=5,122
32% High
34% Medium
34% Low
The extent to which employees aspire to and pursue
making a positive impact on the world versus only
focusing on short-term success.
25
Share, collaborate,
accelerate.
In today’s hyperconnected and
hypertransparent world, the
technology exists for the right
people at an organization to receive
the right information at the right
time to make the best decisions.
Unfortunately, National GCLA data
show that traditional governance and
organizational structures often impede
Information Index
the sharing of information, resulting
in poor decision-making, increased
bureaucratic inertia, and higher
operational risk.
n=5,122
10% High
18% Medium
72% Low
The extent to which the organization’s leaders and
employees share information authentically and truthfully.
Collaboration Index
n=5,122
10% High
6%Medium
84% Low
The extent to which the organizational structure of
the company fosters effective coordination between
departments and groups.
Over 90% of respondents work for
organizations that do not create an
atmosphere offering sufficient levels
of information sharing. Additionally,
90% work for organizations that don’t
effectively foster coordination between
departments and groups. Evidence
from our work with hundreds of
organizations over the years suggests
that today’s organizational silos and
structures continue to impede the free
flow of information, and reduce sharing
and collaboration.
HOW Metrics Insight Over one-quarter (28%) of respondents
SM
stated that people hoard information in their companies.
26
Finding #3
Organizations that exhibit self-governing
behavior experience significantly fewer risks
associated with employee misconduct.
In an increasingly complex and
uncertain world, companies
understandably put a high priority on
identifying, managing, and mitigating a
wide spectrum of financial, operational,
compliance-related, and reputational
risks. Many of these risks can either be
reduced or intensified as a result of the
behavior of company employees—from
the shop floor to middle management
to the C-suites.
high-fear, blindly obedient companies
are almost twice as likely to observe
employee misconduct compared to
employees working at self-governing
organizations.
The National GCLA results reveal
that individuals working at low-trust,
Observing Misconduct
n=5,122
Q: I have observed employee misconduct and/or
unethical behavior in the past 12 months:
Percentage who responded “Strongly Agree” and “Agree.”
25% Self-Governance
24% Informed Acquiescence
46% Blind Obedience
The corporate scandals of the last
two decades highlight that one critical
factor ameliorating the risk of employee
misconduct is the willingness of
employees to come forward with bad
news. Far too often, their unwillingness
to speak up is driven by fear of
management retaliation. The National
GCLA reveals that 94% of respondents
work for organizations that do not
Speaking Up Index
make them feel completely comfortable
in speaking up (e.g., when they see
misconduct), challenging the status quo,
or voicing alternative opinions or views.
n=5,122
6%High
15% Medium
79% Low
The extent to which employees feel invited to voice
their opinions or to report improper behavior.
HOW Metrics Insight Over one-third (37%) of respondents
SM
stated that people in their company hesitate to speak up in team
meetings out of a sense of fear for how their managers will react.
27
Fear is a learned behavior. In a
corporate environment, employees
learn to fear managers and colleagues
through direct observation of
repeated behaviors. The right kind of
governance, culture, and leadership
can reduce fear and increase trust. And
trusted, valued employees who feel a
connection to the organization are more
likely to speak up and less likely to act
in ways that harm the organization.
Fear of retaliation is one of the primary
deterrents to employees coming
forward with bad news, including
fear of reporting unethical behavior or
employee misconduct. Although fear
of retaliation is a perennial concern of
chief ethics and compliance officers,
it is increasingly an issue for CEOs
and other business leaders concerned
about managing enterprise-wide
risks. The National GCLA shows that
Retaliation
employees in self-governing
organizations are three times
more likely to report that there is
no retaliation in their organization
than are employees in blindly
obedient companies, and 1.5
times more likely than employees
in companies characterized by
Informed Acquiescence.
n=5,122
Q: People here are not retaliated against when they report
employee misconduct or unethical behavior:
Percentage who responded “Strongly Agree” and “Agree.”
90% Self-Governance
63% Informed Acquiescence
30% Blind Obedience
Not surprisingly, where there is fear
of retaliation, there will be less
reporting of misconduct. Employees
at self-governing organizations are
nearly four times more likely to
report unethical behavior when
they observe it than are employees
in blindly obedient companies.
Reporting Misconduct
n=5,122
Q: People report unethical behavior when they observe it:
Percentage who responded “Strongly Agree” and “Agree.”
94% Self-Governance
62% Informed Acquiescence
26% Blind Obedience
HOW Metrics Insight Only 1 in 4 employees would apply peer pressure
SM
to colleagues who do not behave in accordance with company values.
28
Finding #4
Organizations that exhibit self-governing
behavior are significantly more likely to see
higher levels of innovation, employee loyalty,
and greater customer satisfaction.
Believe it. Culture can drive
growth and differentiation.
Culture performs a double duty for
organizations. It not only mitigates
unwanted behaviors and reduces
risks, it can also be a sustainable
source of competitive advantage in
the marketplace.
Our National GCLA findings
demonstrate that governance, culture,
and leadership can have a significant
impact on an organization’s ability to
Risk equals innovation.
Trust is the foundation from which
innovation takes root and flourishes.
In high-trust environments, employees
are more willing to experiment and
take risks. In contrast, low trust results
in more cautious employees and less
risk-taking. And without risk, there is
no innovation.
unleash innovation and attract and
retain talent. To the point, the National
GCLA found that when compared to
more traditional governance systems
and their associated cultures, selfgoverning values-based cultures
produce the highest levels of innovation
and employee loyalty, not to mention
higher levels of customer satisfaction
and, ultimately, more financial success.
The National GCLA bears this out.
As discussed previously, the LRN
Trust Index measures how much trust
management extends to employees
and the extent to which employees
trust each other and management.
When we assess the correlation
between the Trust Index and innovation
as a desired business outcome,
we observe that levels of trust and
innovation are highly correlated. As
employees experience more trust in
their company, they are far more likely
to observe more innovation.
29
“Culture drives innovation and whatever else you’re trying
to drive within a company. And that then drives results.”
Steve Sadove, CEO, Saks Incorporated
Innovation
n=5,122
Q: Relative to our competition,
the level of innovation at my company is:
Percentage who responded “Much Above Average” or “Above Average.”
86% High Trust
74% Medium Trust
50% Low Trust
Ideas
n=5,122
Q: Good ideas are readily adopted by my company:
Percentage who responded “Strongly Agree” and “Agree.”
94% Self-Governance
67% Informed Acquiescence
18% Blind Obedience
HOW Metrics Insight Less than half (46%) of respondents
SM
feel free to question established ways of doing things.
Not surprisingly, because selfgoverning cultures extend more trust,
they also experience significantly
more innovation. Our data shows that
employees who work at self-governing
organizations are as much as five times
more likely to observe that good ideas
will get adopted.
30
People power.
In today’s “New Reality,” progressive
leaders realize that the ultimate source
of sustainable competitive advantage
is in how an organization behaves
rather than simply what it produces.
Organizations that successfully
shift from rules-based to valuesbased behaviors and practices will
be rewarded not only with a more
inspired workforce, but also with more
dedicated and loyal employees.
Loyalty
The previously cited Values Index
measures the extent to which conduct
is driven by an enduring set of values
rather than situation-specific rules. The
Values Index shows that values-based
behavior results in deeper employee
loyalty. For example, companies that
are more values-based are significantly
more likely to have employees who
would prefer to remain working at the
company 12 months hence.
n=5,122
Q: If I have my way, I will be working
for my company 12 months from now:
Percentage who responded “Strongly Agree.”
87% High Values
60% Medium Values
27% Low Values
Not only are employees at selfgoverning organizations more loyal,
they are also more willing to recruit
candidates. Employees at selfgoverning organizations are nearly
Staff Referrals
three times more likely to be
willing to refer a friend to their
company than are employees
at blindly obedient companies.
n=5,122
Q: I am willing to recommend my company
to a friend as a place to work:
Percentage who responded “Strongly Agree” or “Agree.”
99% Self-Governance
85% Informed Acquiescence
37% Blind Obedience
31
Customer Satisfaction—
Can’t Get Enough.
All successful companies focus
significant time and attention on
satisfying their customers and
achieving their financial objectives.
The National GCLA indicates that
self-governing organizations have a
significant advantage with respect
to both. Values-based operating
systems engender not only the loyalty
of employees, but of customers as
well. Data from the Values Index
reveal that values-based behaviors
result in almost nine times the level
of observed customer satisfaction.
Commensurately, organizations that
don’t emphasize values-based
behaviors tend to produce negative
perceptions of customer satisfaction—
a clear sign of low corporate selfesteem and weak esprit de corps.
Customer Satisfaction
n=5,122
Q: My company has very satisfied customers:
Percentage who responded “Strongly Agree” or “Agree.”
88% High Values
41% Medium Values
10% Low Values
Moreover, compared to employees at
blindly obedient companies, employees
at self-governing organizations are
twice as likely to believe that their
company has a good reputation among
its customers.
Corporate Reputation
n=5,122
Q: My company has a good reputation among
its customers:
Percentage who responded “Strongly Agree” or “Agree.”
99% Self-Governance
86% Informed Acquiescence
53% Blind Obedience
32
Finding #5
When viewed systemically, the four primary
outcomes of a self-governing organization—
less employee misconduct, greater innovation,
employee loyalty, and customer satisfaction—
work synergistically to deliver superior
financial performance.
HOW Metrics —Performance Outcomes
SM
Note: The strength of correlation between the four key
governance, culture, and leadership outcomes to financial performance
is demonstrated by the size of the shape in the diagram.
Misconduct
Innovation
Financial
Performance
Loyalty
Customer
Satisfaction
33
One final insight from the National
GCLA data is perhaps the most telling
of all. Employees at self-governing
organizations—where there’s less
employee misconduct, greater
innovation, higher levels of employee
loyalty, and superior customer
satisfaction—observe superior
financial performance when compared
to employees at organizations
characterized by Informed
Acquiescence or Blind Obedience.
Financial Performance
n=5,122
Q: How would you gauge your company’s
financial performance relative to its competitors?
Percentage who responded “Much Above Average” or “Above Average.”
92% Self-Governance
77% Informed Acquiescence
52% Blind Obedience
And while the National GCLA data
indicate that improving behavior in
any one of the areas of misconduct,
innovation, employee loyalty, or
customer satisfaction should lead
to improved financial performance,
the most powerful discovery is that
there is strong statistical evidence
that an interdependent, synergistic
relationship exists between and
among these outcome behaviors—so
much so that they act in a reinforcing
and systemic manner to impact
financial performance. Take one
element away—low misconduct,
high innovation, employee loyalty, or
customer satisfaction—and you will
be less likely to achieve the same level
of long-term, sustainable financial
performance. For example, the
U.S. auto industry enjoyed excellent
profitability for quite some time.
However, since it failed to address
innovation, it could not keep pace
with the innovations occurring within
the Japanese auto industry in the
1980s. Another case in point is Enron,
where long-term profitability was
undermined by a lack of commitment
to address misconduct.
Moreover, the correlations seen in the
data indicate that addressing single
aspects of self-governing behaviors
in a linear fashion will not produce
the same synergistic results as when
you address them together and
systemically. If companies approach
Self-Governance as a holistic system—
as a Human Operating System—that
simultaneously yields lower levels
of misconduct and higher levels of
innovation, employee loyalty, and
customer satisfaction, they will have
the greatest opportunity to reap the
true potential and maximum rewards of
Self-Governance.
34
Conclusion:
Sustainable Progress
and Prosperity Now
Depend on HOW.
35
In today’s hyperconnected,
hypertransparent, and globally
interdependent world, leaders need
to rethink conventional approaches
to business. Although the tools and
strategies of the past—new products
and services, lower cost structures—
are important, they can’t provide a
sustainable competitive advantage.
LRN’s National GCLA indicates
that a real opportunity exists for
organizations to refocus on their
HOWs—the specific behaviors that
are the source of an organization’s
unique qualities, strengths, and
weaknesses. Our research indicates
that the right system of governance,
culture, and leadership—one that
emphasizes values-based culture
and inspirational leadership—
can create long-term, sustainable
performance and growth.
Finally, this report underscores that the HOWs of governance, culture,
and leadership can be measured. As such, they can be acted upon
deliberately and systematically. By focusing on the HOW, we can
differentiate ourselves in the “New Reality.” By focusing on the HOW,
we can accelerate progress. By focusing on the HOW, we can forge a
better way forward toward sustainable prosperity.
36
A better way forward:
Some initial steps
“The worse thing would be to do what is probably right for
the long-term benefit of society and being forced out of that
because you don’t get the short-term results.
Paul Polman, CEO, Unilever
Challenge your assumptions
We must rethink our assumptions
about governance, culture, and
leadership and the behavior they foster.
These things are not soft intangibles
that hold little relevance to “real”
performance. Governance, culture,
and leadership are hard, measurable,
and, when used properly, powerful
tools. They manifest themselves in real
behaviors, actions, and relationships
So
that produce real performance. As
such, they can be measured and acted
upon deliberately and intentionally. In
other words, culture can be a business
strategy in and of itself. Authentically
understanding and leveraging
your culture will differentiate your
organization in the marketplace and
drive sustainable growth and impact.
Focus on a higher purpose
Purpose is enduring; purpose connects
our actions to something significant
and beyond ourselves; purpose is what
makes our businesses sustainable. If
we only focus on here-and-now notions
of success as they are delineated in
here-and-now mission statements,
we may meet immediate requirements
as we currently understand them,
but we will fail to see unfolding trends
Take the time to measure and baseline
the governance, culture, and leadership
of your organization. When you do,
you can then become intentional and
deliberate about fostering behaviors
that strengthen you and minimizing
behaviors that weaken you. Don’t sit
by and just let your culture happen.
Declare culture a strategy for growth
and differentiation.
So
and opportunities that will make us
sustainable and productive over the
long haul.
There is a difference between being
in a business solely to generate
wealth and being in a business with
a significant purpose that generates
wealth at the same time.
Clearly communicate and deliberately
imbed a sense of purpose in your
organization. Provide a sense of
“trajectory”…a general sense of
direction that will inform and inspire
the individual actions of your people in
the presence of uncertainty and in the
absence of guidance. If you provide a
clear and compelling purpose, you can
shape your “Human Operating System”
and reap the systemic, synergistic
benefits of innovation, creativity,
adaptation, and entrepreneurialism
that will come from the ground up in
your organization.
37
Commit to
inspirational leadership
So
Inspirational leadership brings a sense
of purpose in an organization to life
because, with inspirational leadership,
the role of leadership is not limited to a
few at the top. Inspirational leadership
is deeply rooted inside every individual
within an organization. As such,
it requires the individual, personal
commitment of those who make up an
organization to change how they think,
how they decide, and how they behave.
It also requires an organizational
commitment to invest energy and
resources toward shaping culture and
elevating behavior. In both cases, we
must be self-reflective and ask hard
questions about our own behaviors, as
individuals and as organizations.
Ask yourself: Are we being good role
models both in the home and in the
workplace? Are we providing a general
sense of direction to our people and
then extending them the trust they
need to get the job done without
excessive (oppressive) supervision?
Are we, as an organization, doing the
right thing—striving to be leaders in our
industry and influencing the behaviors
of others in the marketplace (suppliers,
buyers, and customers alike)?
Embrace transparency
So
There are no more secrets. This is a
21st century reality. If our actions don’t
match our words, we will suffer not
only in terms of reputation, but also in
terms of business. This fact is played
out repeatedly in the media, in the
marketplace, and in communities all
around the world.
Leverage transparency to your
advantage. Focus your energies
more on earning your reputation than
on managing your reputation. Open
yourself up to display your behaviors
as a way to differentiate yourself in
the marketplace. The key is to stay
authentic. Go beyond mere marketing
Don’t stop
So
Once the decision is made to get
deliberate about governance, culture,
and leadership, the volatility and
increased rate of change that we are
currently experiencing on a global
scale may make it tempting to stop
moving forward, to hunker down, and
to hold on to what we think we know
works. But as our recent financial crisis
has demonstrated, the processes,
frameworks, and metrics that served
us well in the past are failing to address
our “New Reality.” Now is the time
for change. And change demands
enduring commitment.
Make the choice to get deliberate
about culture and elevate your
behavior. Recognize that it will be a
journey, a journey marked by many
unknowns as well as many lessons.
But by choosing to be proactive
versus reactive, you will be able
to take real, tangible actions that
you can implement in a purposeful,
consistent, and continuous manner.
The commitment to inspirational
leadership means that you must turn
from an Industrial Age system of rules
designed to control behaviors and
embrace a system of values that
inspires behaviors. Some rules are
necessary, but you’ll be better served
if you arm your people with a system
of values that can be applied to any
situation, rather than imposing a
static system of rules that only applies
to certain situations.
campaigns. Actively align your values
and behaviors with your purpose and
business strategy. Once you do, your
business will not only be differentiated
in a highly competitive world, it will be
sustainable and profitable.
That means implementing analytics,
education programs, and engagement
and communications strategies that
will produce real shifts in behavior
and, in the end, real improvements in
performance.
The key is to commit fully
and to stick with it.
38
How we conducted
our research:
an independent
corroboration
The Boston Research Group, Research
Data Technology, and The Center for
Effective Organizations at the University
of Southern California assisted LRN
in conducting the National GCLA,
bringing rigor and objectivity to the
design of the study and to the analysis.
By understanding the observed
behaviors of management and
employees at organizations, and
analyzing correlations between specific
behaviors and business outcomes, we
were able to determine the following:
Behavior and culture are not only
measurable—they are also strongly
correlated with critical and desirable
business outcomes. As this study
shows, certain types of cultures
are strongly associated with the
outcomes all companies seek, while
other kinds of cultures are equally
highly associated with outcomes all
companies wish to avoid.
39
A message from Warren Cormier,
President, Boston Research Group.
The fact that the National GCLA was completed is
somewhat of a rarity in itself. That is, philosophies such
as HOW can provide provocative views of behavioral
dynamics and corporate performance. Very often,
however, these hypotheses are left as interesting insights,
untested by empirical analysis. LRN’s approach was that
HOW must be confirmed quantitatively and objectively
by independent experts so that corporations adopting its
precepts could be confident in its efficacy.
The National GCLA was conducted under the most
rigid statistical requirements to ensure its accuracy. The
questions, statements, and descriptions used in the
survey instrument were carefully designed by a team of
academics from The Center for Effective Organizations
at the University of Southern California and industry
experts in organizational behavior, workplace dynamics,
behavioral economics, and ethics and compliance. Once
drafted, the survey was tested with respondents to ensure
that the wording was clear and consistently interpreted.
The sampling for the study was extensive. A total of 5,122
full-time employees from all levels and departments—and
most from companies with 2,000 or more employees—
were surveyed. In the first round of interviews, 1,600
respondents completed the survey. Our analytical team
examined the data for accuracy and consistency. We
also examined the data to ensure quality of responses by
excluding surveys that were completed too quickly and/
or showed unusual response patterns. Being satisfied
that the survey instrument was effectively collecting the
desired information, the second phase was launched to
determine if the results could be replicated. In this phase,
the sample size was increased substantially by 3,522.
The data were again checked, verified, and analyzed.
The findings were, in fact, replicated within percentage
points of the first phase. The statistical reliability of a
sample of 5,122 observations is extremely high. At a 95%
confidence level, the maximum sampling error is a mere
+/-1.18 percentage points. But the large sample was
drawn to allow us to segment the data into subgroups
that would contain large enough samples to maintain high
levels of reliability at more granular levels.
Sophisticated multivariate analyses were applied
throughout the study. Factor analysis was employed
to ensure that statements intended to capture similar
attitudes were in fact doing so. Multiple and LOGIT
regression analyses were used to test the hypothesis
that culture drives outcomes. Hierarchical segmentation
analysis was used to approximate the incidence of
the HOW cultural archetypes. And finally, ANOVA was
applied to test hypothesized differences in results by key
demographic subsegments.
The HOW Report describes the findings of our analysis.
Our conclusion is that the fundamental hypotheses put
forth by HOW are confirmed. We believe you will find the
HOW report compelling and thought-provoking.
Warren Cormier,
President, Boston Research Group
40
Appendix
Methodology for
Determining Archetype Assignments
Archetype assignment is based upon the pattern of each
of 5,122 respondents’ answers to a battery of 49 “culture”
markers or indicators.1
The five-point balanced scale used is:
Strongly Agree
Somewhat Agree
Neither Agree nor Disagree
Somewhat Disagree
Strongly Disagree
Very importantly, the respondents are asked to answer
each of the 49 culture markers based upon their personal
impressions of their employment environment, as far as
they can observe it. Some respondents have broader
vantage points of their company than others. Nonetheless,
the behavioral concept of “wisdom of the crowd” is
applied such that even though respondents’ answers
can vary, we know that broad samples provide a reliable
view of a firm’s culture. Of course, a firm’s culture can vary
between business units and even across one employee
to another within a business unit. For that reason, the
data are disaggregated by business unit, demographics
of the respondent, geographical region, etc. The sample
design ensures that we have sufficient observations for
central tendencies (i.e., wisdom of the crowd) to emerge
within each of these sub-populations. This is precisely the
philosophical approach that drives other widely accepted
culture surveys such as the ERC’s NBES.
For each of the 49 culture markers, the scale points were
mapped to an archetype. The mapping was based on the
theoretical construct developed by Dov Seidman in his
book, HOW: Why How We Do Anything Means Everything.
The table below is an example of the mapping:
My Company’s Values and Principles Govern Behavior
Strongly Agree
Maps To
Self-Governance
Somewhat Agree
Maps To
Informed Acquiescence
Neither Agree nor Disagree
Maps To
Informed Acquiescence
Somewhat Disagree
Maps To
Informed Acquiescence
Strongly Disagree
Maps To
Blind Obedience
To assign each respondent to an archetype, a complete
record of each respondent for all 49 culture markers was
created. Each respondent’s archetype assignment was
based on the percentage of the 49 markers that mapped
to each archetype.2 The algorithm to map respondents to
a HOW archetype is:
Percent of Markers Mapping to Self-Governance
76-100%
Maps To
Self-Governance
26-75%
Maps To
Informed Acquiescence
0-25%
Maps To
Blind Obedience
1
These markers are expressed, in some cases as negatives, while others
are expressed as positives. To provide consistency in subsequent analysis,
negative scales were reversed.
2
This method is consistent with the ERC NBES method of assigning
respondents to its four cultural archetypes.
41
This algorithm was created and/or validated in five ways:
1
Theoretical construct—developed by Dov Seidman
in his book, HOW: Why How We Do Anything
Means Everything.
2
Hierarchical segmentation analysis—this analysis
was performed to see how respondents naturally
“grouped” in their response patterns. There was a
clear segmentation along the lines of roughly the
percentages used in the assignment algorithm in the
table.
3
4
5
3
Direct questioning—in the survey, respondents
were given descriptions of the three archetypes of
Governance, Culture, and Leadership and asked
to select the one description that came closest to
describing their work culture. These responses were
then cross-tabulated against the segments created
by the algorithm. Specifically, the algorithm in the
table consistently assigned respondents into the
same archetypes that respondents selected in the
survey as being most aligned with their observations
of their organizational governance,
work culture, and leadership.
Pareto Optimality Analysis —this analysis was
conducted to determine if we altered the percentages
in the algorithm in the table, whether we could
improve the alignment with the groupings emerging
from both the segmentation analysis and direct
questioning. The analysis showed that the algorithm
gave the highest consistency in assignment with the
other methods.
3
Correlations to Business Outcomes—to determine
if a behavioral model such as HOW contains the
“correct” markers, economists look to see if the
model can predict specific desired outcomes or
behaviors. In this case, correlations were calculated
between archetype assignment and expected
business outcomes predicted by HOW at the
theoretical level. These correlations were all highly
significant and could not be improved by altering
the algorithm, thereby reassigning respondents to
different archetypes.
Pareto optimality is a concept in economics with applications in
engineering and social sciences. The term is named after Vilfredo Pareto,
an Italian economist who used the concept in his studies of economic
efficiency and income distribution.
Given an initial allocation of goods among a set of individuals, a change to
a different allocation that makes at least one individual better off without
making any other individual worse off is called a Pareto improvement.
An allocation is defined as “Pareto efficient” or “Pareto optimal” when no
further Pareto improvements can be made.
Definitions for
Indices
LRN Trust Index
The extent to which an organization demonstrates
and fosters trust throughout the company.
LRN Horizon Index
The extent to which an organization stresses long-term,
rather than only short-term, goals.
LRN Collaboration Index
The extent to which the organizational structure of
the company fosters effective coordination between
departments and groups.
LRN Information Index
The extent to which the organization’s leaders and
employees share information authentically and truthfully.
LRN Speaking Up Index
The extent to which employees feel invited to voice
their opinions, or to report improper behavior.
LRN Significance Index
The extent to which employees aspire to and pursue
making a positive impact on the world versus only
focusing on short-term success.
LRN Inspiration Index
The extent to which inspiration, rather than reward
and coercion, is used as stimulus in an organization.
Inspiration is an internally-driven sense of purpose
and desire to achieve significance.
Coercion relates to actions taken in response to
a strict command from a higher authority.
Motivation relates to actions taken in response to
a system of rewards and punishment, with little
commitment to a higher purpose.
LRN Values Index
The extent to which an organization uses values-based
systems to guide behaviors and decisions versus rulesbased systems to control behaviors and decisions.
42
Demographic Information
Respondents by
Company Size
Respondents by
Company
Operations
n=5,122
61% 10,000+
18% 5,000-9,999
18% 2,000-4,999
1%1,000-1,999
1%500-999
1% Less than 499
n=3,336
64% U.S. HQ Multi-National Corp.
23% U.S. HQ & U.S. Operations
13% Non-U.S. HQ MNC
Respondents by
Organization Type
n=5,122
Respondents by
Job Title
n=5,122
81% Corporate
7%Unknown
7%Government
5%Nonprofit
45% Staff
17% Administrator
13% Technical Specialist
14% Supervisor
8% Department Head
2% Vice President/GM
1% C-Level Executive
Respondents by
Years of Service
Respondents by
Education Level
44% 10+ years
23% 5-10 years
16% 3-5 years
12% 1-3 years
5% Less than 1 year
n=5,122
37% Bachelor’s Degree
20% Some College
18% Master’s Degree
10% Associate’s Degree
10% High School
4% Doctorate or PhD
1% No High School
n=5,122
43
Respondents by
Function
Respondents by
Industry
14% Other
14% Operations
10% Information Technology
10% Customer Service—Retail
8%Sales
7%Accounting/Finance
5%Administration
5%Engineering
4% Education & Training
4%R&D
4% General Management
4%Production
4% Health Services Professional
2%Consultant
2%Marketing
2% Human Resources
1%Legal
14% Other
13% Finance
9%Wholesale/Retail
9% Business Services
8%Manufacturing
7%Healthcare
7%IT
5%Telecommunications
4% Defense & Aerospace
4%Leisure
4%Transportation
4%Food/Beverage/Tobacco
4%Education
3%Pharma/Biotech
3%Automotive
2% Consumer Services
n=5,122
n=4,471
Respondents by
Management
Responsibilities
Respondents who manage people n=5,122
Average number of direct reports n=1,886
63% No
37% Yes
41% 1-3
31% 4-9
28% 10-29
Respondents by
Gender
Respondents by
Age
54% Male
46% Female
26% 35-44
25% 45-54
24% 55-64
20% 25-34
3% 65 and older
2%18-24
n=5,122
n=5,122
About The
National GCLA
LRN’s Governance, Culture, and Leadership Assessment
(GCLA) provides a best-practice methodology, survey
platform, comprehensive reporting capabilities, and expert
advisory services to assess an organization’s governance,
culture, and leadership capabilities. The tool has been
used by a variety of organizations in all industry sectors to
clarify corporate values, define culture goals, establish a
culture baseline, benchmark results, identify key priorities,
develop intervention strategies, and measure progress
over time.
LRN provides organizations with critical insights and
helps implement specific interventions to cascade values
in a way that positively inspires values-based leadership,
behaviors, and corporate practices in all areas of the
organization’s operations.
To obtain a copy of the full report, or if you have any
questions, please contact [email protected].
About LRN: Inspiring
Principled Performance
Since 1994, LRN has helped over 15 million people at
more than 700 companies worldwide simultaneously
navigate complex legal and regulatory environments and
foster ethical cultures. LRN’s combination of practical
tools, education, and strategic advice helps companies
translate their values into concrete corporate practices
and leadership behaviors that create sustainable
competitive advantage. In partnership with LRN,
companies need not choose between living principles
and maximizing profits, or between enhancing reputation
and growing revenue: all are a product of principled
performance. In 2008, LRN acquired environmental
innovation firm GreenOrder. LRN works with organizations
in more than 100 countries and has offices in Los
Angeles, New York, London, and Mumbai.
For more information, visit www.lrn.com, join our
community on Facebook at facebook.com/howistheanswer,
or call: 800 529 6366 or 646 862 2040.
The HOW Report
© 2011 LRN Corporation. All rights reserved.
The HOW Report
© 2011 LRN Corporation. All rights reserved.
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