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Editor’s note: This article is part of a new MIT SMR series about how leadership is evolving in a digital world.
Most leaders today are trying to do the same things: help their organizations become more agile, more innovative, more digitally savvy, and more customer-centric.
Sooner or later, though, they come up against entrenched values and behaviors, and progress stalls. That’s particularly true with digital transformation. Experts concur that traditional mindsets and “ways of doing things around here” — the lay definition of culture — are the primary culprits hindering the fundamental transformation that emerging technologies are meant to enable.1
But organizational culture is hard to change. It’s intangible; there are no direct levers for controlling it. As MIT’s Ed Schein has noted,2 what an organization’s leaders pay close attention to and shower with time — not what they say — will provide the best clues about its culture. Think about it as the difference between a formal value statement and what employees say about the company on Glassdoor. There is typically a large gulf between stated aspiration and experienced reality.
When they confront that gulf, leaders often fall into one of two traps: overrelying on formal, structural changes (new lines of reporting, new jobs and work units) in an effort to eventually shift people’s mindsets, or simply leaving the job of culture change to HR, hoping that with time, training, and repetition, the new slogans will become reality. Of course, neither approach works.
In my ongoing research on how established organizations transform for the digital age, I have observed a third way that yields better results — identifying and then eliminating (or modifying dramatically) iconic practices: practices that are emblematic of historical cultural values but whose continued existence sends mixed messages about the organization’s desire to change.
Iconic practices originate to help an organization achieve its most mission-crucial tasks. Over time they also serve symbolic or ceremonial functions, such as showing that one is a good insider, a person who understands and can be trusted as a keeper of the culture.
A good way to identify iconic practices is to note which customs, seen from the outside, seem to involve an inordinate investment of people or time. For example, as Amazon CEO Jeff Bezos explained in a recent annual report, the amount of time Amazon executives spend crafting and getting input on their famous six-page memos is a strong signal of important corporate values: deep thinking and clarity.3 Learning how to write a good memo is a rite of passage for all senior hires. In a ritual that is often puzzling to newcomers, all meetings begin with a 30-minute silent period in which attendees read the memo before any discussion ensues. The practice has become iconic and is as much corporate theater as a productivity tool: While the memos may still be crucial aids to decision-making, it’s also clear to the anthropologically trained eye that they are a critical way of demonstrating that one is an Amazonian in good standing.
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Iconic practices can include anything from company offsites and business review meetings to onboarding processes and ways in which decisions about people or money are made. Typically, they play out in events attended by the company’s power elite — settings where reputations are made or broken. The venues often have special names to evoke the importance of what transpires there (for example, the big room, at one institution where I worked). As Schein so aptly noted, these practices create and maintain the organization’s inclusion boundaries: who’s in the inner circle, who’s out, who’s tolerated but peripheral.
Logically, iconic practices need to change as a company grows or faces new threats. But because they are emblematic of core values that led to the organization’s success, they can persist long after they have become stale, meaningless, or even counterproductive.
An organization’s cultural values can thwart needed changes as the business enters a “what got you here won’t get you there” inflection point, such as the digital disruption currently experienced by many incumbent companies. As the examples below illustrate, cultural change requires — and can be accelerated by — eliminating or radically transforming practices that reinforce the old mindsets and behaviors a company is trying to shift.
Eliminating the Midyear Review at Microsoft
When Jean-Philippe Courtois took control in 2016 of Microsoft’s global sales, marketing and operations, reporting directly to CEO Satya Nadella, he realized that he needed to lead the organization away from what he called an inspection culture and toward a culture of learning and coaching. The “why” was the company’s shift to a cloud-first strategy; moving into businesses where Microsoft was not the established expert, its people would have to experiment and tolerate mistakes. This required a mindset shift from being know-it-alls to becoming learn-it-alls, as Nadella famously put it.
With revenues depending more than ever on how much customers were using Microsoft’s products and services, the company radically restructured the sales force and its partner organization, adjusted compensation, and rolled out digital tools to provide them with both real-time data on customer usage and metrics on how they were allocating their time among accounts. Yet mindsets and behaviors were slow to change.
As Courtois pondered how to eliminate obstacles to change,4 he realized that what was holding people back was a culture that still valued having the right answer, being the smartest person in the room, and its unspoken corollary, never admitting to mistakes or failure under scrutiny. One of the most visible manifestations of this inspection culture was the annual gathering known as the January midyear review.
A meeting in which senior managers from around the world would be flown to a particular venue and grilled by the top team on their progress and plans, the January business review had “a fear impact on people,” said one manager: “They felt like they were going into that meeting to be judged on themselves personally, rather than what they’re actually bringing to the table.” Another recalled that it “almost felt like an old-style exam, a memory test of all the things you knew about your business.” Stories abounded of senior managers beginning their preparation well before the Christmas period, meaning that a raft of the company’s most valuable resources were diverting more than a month of their time to getting ready for an internal meeting.
After decades of ceremony, Courtois decided to kill the midyear review. As part of a cadre of leaders who had come of age in an era known for precision questioning — the interrogatory stance adopted by the company’s leaders at these highly visible, orchestrated meetings — Courtois was a master of the game. For him, “it was a huge learning moment for the company, dating back to Bill [Gates].”
But he realized that the ritual had outlived its usefulness. Worse, it signaled that the company still rewarded having the right answer above all else:
Because there are so many people helping presenters, so many people who wanted to witness the drama of the “high mass,” it had started to become an act. We were all anxious to make a good impression, we spent weeks and weeks preparing.
As Courtois’s words indicate, the midyear review was emblematic of the culture that Microsoft’s founders had built. No trivial exercise, it expressed fundamental values about rigor and mastery of detail; navigating it with skill was a rite of passage for advancement to the senior ranks and, as such, an important part of any long-tenured senior executive’s professional identity.
The reality, however, was that technology had eliminated the need for old-style managerial inspection and control. As Courtois explained, once everyone had the same dashboard, executives could afford to spend much less time on review; instead, they could focus their meeting time on learning:
We all have the same dashboard, so we shouldn’t be surprised to learn that, “Oh yes, this business is in trouble indeed, yes, or that business is on fire, yes.” And so dramatizing that doesn’t help. More important to us is the why and how, and we try to structure the discussion around what we can learn.
Once Courtois dispensed with the big midyear event, all four quarterly business review meetings were transformed into quarterly business connections, a name change that conveyed shorter, lighter, more interactive sessions. A new template, for example, reduced the volume of slides that managers presented within the meetings to a tenth of its previous size. Leaders were encouraged to behave more like coaches than inspectors, asking questions like: “What are you trying? What’s working? What’s not working? How can we help?” In the Europe, Middle East, and Africa region alone, one of Courtois’s managers calculated that they saved 4,000 hours of preparation — in their view, time better spent with customers and employees.
Abolishing Moderation Meetings at A&O
In an era of transformative cognitive technologies like AI and machine learning, it’s become obvious that managerial practices must become more nimble, too. Among these, traditional annual performance appraisals and rankings have been eliminated by many companies as no longer fit for purpose.5
Critics have noted that annual reviews take too much time relative to the value they add and hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future. Moreover, organizations that espouse a collaborative culture but continue to use a forced-curve performance management system inadvertently create an environment in which employees must compete against one another for high marks, undercutting cross-unit collaboration, as had occurred at Microsoft.6 Procter & Gamble, for example, reportedly freed up a lot of time to devote to employees’ growth by eliminating both forced-curve rankings and talent calibration sessions, which according to managers had devolved into arbitrary horse-trading.7
That is what happened at Magic Circle law firm Allen & Overy (A&O), which by 2019 became the first of its peer group to eliminate the traditional performance review process. A&O had invested in integrating technology with the delivery of traditional legal services8 and aspired to nurture “a collaborative culture where talented individuals, working together, can truly flourish and achieve great things” and where “[i]maginative, independent thinking is not just encouraged, it’s expected.”9
As at every other top law firm, senior partners devoted inordinate amounts of time on moderation meetings, aimed at creating a comparative performance assessment of their junior associates, typically on a forced distribution curve. The moderation meetings were seen by many as laborious but also necessary for calibrating standards across teams. “Otherwise,” as one partner told me, “you’d end up looking at just your own people sort of in a vacuum. You need to occasionally have a sense check to make sure that what you think is fabulous is actually fabulous.”
While some partners still found the meetings useful, many believed they were no longer getting good value for the time and effort the process required. For starters, some felt that the practice encouraged horse-trading, reinforcing the silos they were trying to break. Heads of practice groups lobbied for their own associates, “almost sort of going into battle for them,” as one person put it. Others saw the ranking process as a barrier to the kinds of developmental conversations junior associates wanted to have and the firm wanted to encourage, as a person’s “number” usually ended up being the key piece of feedback they received.
Inspired by learning about what other companies were doing, David Benton, A&O’s head of capital markets, insisted that the firm pilot a shift away from a numerical rating as the indicator of someone’s ability, performance, and potential. As his colleagues described it to me, Benton was asking questions that the current system, with its once-yearly appraisal, could not help address: “How could we ensure that the right conversations were happening at each level? How could we better identify and help nurture talent? What would help one-on-one conversations between partners and associates include useful information so that associates understood how they were tracking and what opportunities they had?”
By 2019, after three pilots, a new performance management system would be live in almost every A&O office — and the old annual appraisal and ranking gone. Survey data and focus groups indicated increased employee satisfaction with feedback from their managers and support for their career development, and partners reported satisfaction with the talent discussions that replaced the old moderation meetings.
What Do You Need to Stop Doing?
To be clear, the problem lies not in conducting business reviews or in doing talent calibration, nor will it, in the future, lie in writing six-page memos to pitch ideas or in any of the other practices that are fashionable today. The problem is the persistence of things that were once vital but now merely serve to show that participants know how to play the game at a high level.
As they pursue digital transformation, most leaders know they must also orchestrate a cultural shift — from prioritizing flawless execution to valuing more agile learning and experimentation, from doing siloed work to fostering true interdisciplinary collaboration, and from evaluating people’s past performance to enabling their future development.
Articulating the ambition is the easy part. Taking a wrecking ball to what gets in the way of moving in that direction is a lot harder.
In the transition from old to new ways of doing things, iconic practices express what Harvard psychologist Robert Kegan calls competing commitments: conflicting priorities that effectively maintain one foot on the brake while the other hits the accelerator. We want to be more agile and innovative, for example, but without diminishing margins or efficiency. We want creative thinkers, but we don’t want to lose managerial control.
To foster real culture change, leaders must align what they say with how their companies actually operate when solving important problems and making key decisions. Their organizations must unlearn the lessons of years of experience and understand that the very cultural values that made them successful in the past may have hardened into iconic practices that are now holding them back. In that effort, more important than what leaders decide to implement is what they have the courage to eliminate.
1. See, for instance, G. Westerman, D.L. Soule, and A. Eswaran, “Building Digital-Ready Culture in Traditional Organizations,” MIT Sloan Management Review 60, no. 4 (summer 2019): 59-68.
2. E.H. Schein, “Organizational Culture and Leadership,” 5th ed. (Hoboken, New Jersey: John Wiley & Sons, 2016).
3. J. Bezos, “2017 Amazon Annual Report,” Amazon, accessed Sept. 10, 2019, https://ir.aboutamazon.com.
4. H. Ibarra and A. Jones, “Jean-Philippe Courtois at Microsoft Global Sales, Marketing, and Operations: Empowering Digital Success,” Harvard Business Review case no. LBS218 (Boston: Harvard Business School Publishing, May 1, 2019).
5. T. Koulopoulos, “Performance Reviews Are Dead. Here’s What You Should Do Instead,” Inc., Feb. 25, 2018, www.inc.com.
6. H. Ibarra, A. Rattan, and A. Johnston, “Satya Nadella at Microsoft: Instilling a Growth Mindset,” Harvard Business Review case no. LBS128 (Boston: Harvard Business School Publishing, June 1, 2018).
7. P. Cappelli and A. Tavis, “HR Goes Agile,” Harvard Business Review 96, no. 2 (March-April 2018).
8. “Allen & Overy Annual Report and Financial Statements: For the Year Ended 30 April 2018,” Allen & Overy, accessed Sept. 10, 2019, www.allenovery.com.
9. “Our History,” Allen & Overy, accessed Sept. 10, 2019, www.allenovery.com.