Culture in Leveraged
Middle-Market Organizations
By Robert J. Meehan
There are many long-winded definitions of organizational culture, but I recall hearing the succinct definition that it’s: “how an organization acts without being told.” Its culture determines whether that organization will have sustainable success.
There are numerous studies that substantiate the link between an appropriate culture and success. However, many leveraged middle-market organizations (“LMMO”) and stakeholders only pay lip service to their culture. These stakeholders see culture as a fuzzy, “touchy-feely” thing. Frequently, CEO’s delegate establishing/ renewing/ shifting the appropriate culture to the Human Resources group—even though it’s the CEO’s most important responsibility and it can’t be delegated.
Why should the culture of an LMMO be different?
An LMMO—especially with facilities located throughout the U.S.—has a smaller margin of error and must react more quickly than an organization with minimum leverage—especially for organizations in cyclical industries. Frequently, a highly-leveraged organization—both the debt equity ratio and the predictability of their revenue stream determine how highly leveraged that organization is—may not be able to adequately invest in its infrastructure resources: talent, IT, fixed assets.
“Don’t try to duplicate the culture from your prior executive assignments because each organization is different and you will fail.”
12 Suggested actions for new CEO’s to establish/renew/shift an appropriate culture:
- Recognize it as one of your most important responsibilities. Understand that it will drive your organization’s sustainable growth and success.
- Remember that—although every organization should have a different culture—there are fundamental cultural beliefs.
- Don’t try to duplicate the culture from your prior executive assignments because each organization is different and you will fail.
- Quickly understand the organization’s current culture by visiting all your geographic locations and talking with all levels of the organization. Try to accomplish this within your first 90-days. Do not, however, arrive accompanied by an entourage—as though Steven Spielberg directed your visits. Senior management will want to accompany you and introduce you around. Go by yourself.
- Ensure your culture’s foundation is team-oriented and customer-focused.
- Communicate your beliefs to the entire organization—headquarters and all geographic locations—and continually repeat these beliefs.
- Be specific and avoid using business buzzwords and phrases….such as “we need to start thinking outside the box.” The organization recognizes B.S. and phonies, and if they label you as such, you’ll be tuned out. Talk less and listen more.
- Establish/renew/shift the culture through your actions, not your words. The internal grapevine “reports” all your actions, so if you preach watching every dollar, don’t treat yourself—on the company expense account—to expensive meals at fancy restaurants because everyone will know and you’ll lose your credibility.
- Align both culture and strategy—as culture determines whether your strategy will be successful.
- Become an active participant in the hiring process to ensure new team members have the right cultural fit.
- Set the ground rules so the organization will know what behavior will not be tolerated. People who violate acceptable behavior cannot remain with the organization.
- Get out of the HQ’s and spend the majority of your time in the field developing relationships with all levels of the organization, customers and suppliers
Mistake Example: CEO tried to duplicate a culture from prior experiences.
A new CEO of an LMMO with locations throughout the U.S. inherited a field management team which had entered the industry from high school. Team members had spent their entire careers in this industry. They had grown up with friends working in customer organizations and had developed long-term relationships. Trust had been built up over many years, and relationships were the key customer buying decision. The new CEO was accustomed to field managers and senior people with advanced degrees and detailed knowledge of all the latest business school buzzwords.
What happened? The CEO replaced most of the key field managers.
Result: The fired field managers—with great customer relationships—started competing businesses or joined competitors and immediately took away significant profitable business. The business quickly deteriorated, and the CEO was eventually fired.
Mistake: CEO tried to duplicate the resources and culture from his prior companies and failed to understand how customers buy in this industry.