When Policies And Procedures Do Not Reflect The Way Things Are Really Done

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An organization’s cultural capital is a type of asset that impacts what an organization produces and how it operates. Cultural capital is analogous to physical capital, like equipment, buildings, and property, or to human capital, like the accumulated knowledge and skills of workers, or reputational capital, like franchise value or brand recognition. In an organization with a high level of cultural capital, misconduct risk is low, and its organizational structures, processes, formal incentives, and desired business outcomes are consistent with the firm’s stated values. Unspoken patterns of behavior reinforce this alignment and drive corporate outcomes.

By contrast, in an organization with low levels of cultural capital, formal policies and procedures do not reflect the way things are really done — that is, the stated values of the organization are not reflected in the behavior of senior leaders or the actions of the organization’s members. Misconduct then results from norms and pressures that drive individuals to make decisions that are not aligned with the values, business strategies, and risk appetite set by the board and senior leaders. Rules may be followed to the letter, but not in spirit. All of this increases misconduct risk and potentially damages the organization and the industry over time.

As with other forms of tangible and intangible capital, an organization must invest in cultural capital or it will deteriorate over time and adversely impact the organization’s productive capacity.

If principles are going to be used, they have to be easy to remember

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The objects we call books aren’t the real books, observed contemporary American essayist Rebecca Solnit. They’re the potential for one; the real book “exists fully only in the act of being read,” she writes. So too with leadership principles: They only really exist if employees are thinking about them, saying them to themselves, bringing them up in conversation with colleagues. The principles have to get stuck inside their heads like a pop song.

Drawing on the neuroscience literature, we realized that the right model would be pithy to the point of ready recall. (Simply put, the harder it is to remember something, the less it’ll be remembered.) Working with NLI, the Microsoft senior leadership team came up with six words to maximize memorability — create clarity, generate energy, deliver success — based on what they believed were the most important things that leaders at Microsoft would need to do to lead the company forward.

The key is to find the word or phrase that captures the priority you’re trying to invoke. Create clarity sought to focus everyone on creating more-compelling products and solutions with the customer even more in mind. Generate energy was needed to turn the culture to even more innovation. Deliver success served as a reminder of what truly mattered most.

But becoming easy to remember is hard to do

Microsoft had historically tried to arrive at a leadership model the same way most companies do: by way of subtraction. That means taking a framework of half a dozen categories, with five to 10 elements each, then shaving it down from there. This is incredibly difficult, because it feels painful to leave anything out.

There’s an assumption underlying this that makes sense for a tech giant. We often assume that human memory is like a computer — capable of right-clicking on anything important and saving it without incident. But rather than hardware, we have wetware, and the organ inside our skulls can handle only so much information at once.

Instead of editing down, you have to start with boundaries around how much information people can recall easily, then put the most important things into that space. Just as you’d design an app according to the capacity of a device, you need to design language to the capacity of a brain.

Brain scientists call our recall of sounds echoic memory, and it lasts for only a handful of seconds. It turns out that if a statement takes less than three seconds to say to yourself or say out loud, it is significantly easier to recall and use. Any time you craft an idea that you want people to remember easily, if the idea can be said out loud in under three seconds, the chances of usage go up dramatically.

Scale Predictably to Grow Your Business

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How do early-stage companies position themselves for growth? Before scaling, founders think about the following five things according to Donna Levin, social entrepreneur and Co-Founder of Care.comCare.com is the world’s leading online site for helping families find and manage family care with over 20 million members across 16 countries. During Levin’s time at Care.com, she built and lead high performing teams, and scaled the company through five rounds of funding to IPO. Levin is currently an Entrepreneur-in-Residence at the Martin Trust Center for MIT Entrepreneurship and a lecturer at the MIT Sloan School of Management.

Levin recently shared her insight into what founders need to do before bringing their companies to scale.

  1. Figure out what scaling means for your business.

If you ask a few different people to define what it means to bring a business to scale, you may get a few different answers. Levin, has a pretty simple answer. “Scale is really just accelerating growth with confidence,” says Levin. “You’re growing, [you have] operations, you’re starting to think about what you automate, you definitely want to have a plan that supports revenue, [and] you try to stay ahead.”

For Levin, founders need to figure out what scaling actually means for them personally, and for their business. “It’s different for every industry, so you really want to understand what are the expectations of that industry.”

Levin also reminds founders, “when we talk about scale, it’s about predictable scale. You can’t say you’re going to scale on a strategy that’s based on PR; [it’s] too unpredictable [because] you don’t really control it. People want you to have predictable measures and metrics when you scale.

I want to know if I give you $100, you’re going to spend that $100 in an efficient manner, and…you can tell me, ‘Here’s how I’m going to spend the $100, I’m probably going to end up getting $50 back, but that’s a good thing because these [customers] will have a high lifetime value.’ “

  1. Determine how you’ll find your next set of customers.

As you scale your business, you need to approach customer acquisition differently than when you first launched. “When you start off, your early adopters, those people who are your true believers early on, they could have heard about you from your friends or word-of-mouth,” explains Levin. “As you start to scale and grow your business, either you need to figure out what’s that next market where people really care [as] much about what you’re doing, or you’re going to have to spend more money to tell them about the service that you provide.”

Levin further illustrates this point with the concept of painkillers vs. vitamins. According to Levin, some businesses are painkillers: when people need painkillers, they go out and find something to soothe their pain.

Vitamins, on the other hand, are things people may not always take when they should, even though they know vitamins are good for them. “If you have a painkiller business, people are actively looking for [your] solution. If you have a vitamin business, you have to [sell] people what it is that you do.”

  1. Know your team and your co-founders.

“Is your team really ready to scale with you? Do you have the right people that you need on your team? What are your strengths and weaknesses, and who do you need to complement those strengths and weaknesses?”

According to Levin, these are all questions founders should ask themselves before they get ready to scale. “Conduct regular check-ins with your co-founders,” says Levin. “Culture eats strategy for breakfast. You can have the best-laid plans, but if your team members are not motivated and happy, they will destroy your business, and unfortunately, it will be your fault.”

Founders should also check in with themselves before scaling their business. “One of the things that you need to realize when it is your venture: you sorta are the center of the universe, and you really need to get yourself together, because everything else going on with you tends to impact what’s going on with your business.”

Levin stresses the need for founders to “get their house in order” before scaling, particularly in terms of their personal finances. “It’s okay to build raises for yourself and your team and a livable wage into your model. If you’re starving, you can’t grow your business.”

  1. Decide if you’ll “Nail It” or “Scale It.”

“Some of us start a venture because we want to do this for the rest of our life. Some of us start a venture because we are so fed up about something and we want to go fix it, and then we want to move on to the next problem. And some of us start a venture because we think, ‘I can do this for a few years, and I think I’m going to sell to a big company and make a ton of money,’ ” says Levin. “Whatever your reasons, be real with yourself about what they are.”

Different motivations often require different types of leaders, and Levin believes it’s important for founders to know where they stand on the spectrum. “Nail It leaders tend to be people who love creating things, and they can deal with the chaos of wearing lots of different hats and testing lots of different things.

Scale It leaders get really good at optimization. They are into the numbers, and they know the difference of what a minor movement will do. Figure out which leader you are (and it’s possible to be both), but just know the role you’re playing.”

  1. Keep operations lean.

As you scale operations, Levin’s advice is to keep things as simple and as lean as possible to provide the greatest opportunity for scalability. “When you’re trying to figure a bunch of things out, some of the projects can be your pet projects: things that you love or your investors might love, but nobody actually uses.” Levin says there’s no place for money pits as you scale your company. “Use the resources someplace else.”