Culture as Competitive Advantage

James Heskett, W. Earl Sasser, Jr., and Joe Wheeler , April 17, 2009

In BHC's Listening and Learning program, managers lead discussions on subjects such as survey results, and they solicit ideas for ways to improve customer service. The resulting "customer snapshot reports" compile all of the employees' observations and ideas for general distribution.

4. Strong leadership that both reinforces the culture and preserves its adaptability. Cultures take shape with or without leadership, but rarely does a competitively superior culture emerge without it. Effective leaders set the tone for an organization through their own behaviors. For example, at Baptist, people at all levels are encouraged to engage in several "Baptist behaviors" that are peculiar to the organization—and sometimes startling to customers—but have a functional purpose. One of these is the custom of picking up trash (something Bill Marriott also does at his company's hotel properties).

Then there is the "Baptist shuffle," in which leaders take the time to erase scuff marks left by shoes on polished floors. Another is walking people in need of direction to their destinations. Everyone, starting with Stubblefield, does these things all the time, in part because they foster a sense of being part of a culture that is something special.

Good leaders reinforce culture by demonstrating accountability for behaviors and results that foster the same attitude among employees. At Baptist, this begins with "Traditions," a two-day orientation. Half the time is focused on BHC's culture. This session is followed by "ServU," a half-day refresher course for employees who are completing six months of service and have had a chance to observe and work in the culture.

ServU focuses almost exclusively on the way employees understand and experience the BHC culture. In particular, the discussion covers the standards of performance for 10 specific behaviors: attitude, appearance, communication, call lights (which all hospital employees are responsible for answering), commitment to coworkers, customer waiting, elevator etiquette, privacy, safety awareness, and sense of ownership. The BHC employee standards team also devises ways of celebrating the "standard of the month" on a rotating basis.

The BHC story shows clearly how a strong culture creates the potential for high performance. We say "potential" because some of our other research has suggested that strong cultures by themselves are not enough to drive long-term success. Leaders who foster a strong ownership culture must also preserve its ability to adapt to a changing environment. They do it by emphasizing practices that help the organization and its people grow: continuous improvement, "best practice" exchange, innovation in products and services, as well as management systems, education for personal development, and—again—communication, communication, communication.

The perils of success

Building and maintaining a winning culture takes work and constant vigilance. By the time we caught up with Stubblefield in late 2006, the organization's dilemma reflected the success of previous years. Baptist's customer satisfaction scores had fallen back to the 98th percentile. Everyone knew about it because the practice of sharing good and bad news involved, among other things, posting scores in the company cafeteria.

As Stubblefield put it, "When we dropped to 98 after seven years at 99, [the employees] panicked. They had a 'back to basics' course—put every employee in the organization through it. Because we fell to the 98th percentile." Notice that it was the employee owners who panicked and got to work to reinforce the culture at BHC.

Indeed, culture may truly represent a source of competitive advantage that most organizations have ignored. No wonder Rackspace CEO Lanham Napier says, "Our culture and the awesome people we have are the things I am most proud of, as well as creating an environment where people get to do what they do best. I would say it's impossible for our competitors to copy. They'd have to start over and build it from scratch."

James L. Heskett and W Earl Sasser, Jr. are both Baker Foundation professors at Harvard Business School. Joe Wheeler is the executive director of the Service Profit Chain Institute. All are co-authors of The Ownership Quotient: Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage.
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