Culture is essentially 'the first and most important product' that enables all others. Yet many leaders misunderstand how culture works.
Culture isn't fluff – it's a core business strategy. In fact, culture can be a company's last sustainable competitive advantage: competitors can copy your products and processes, but they can't copy-paste your culture. Culture is essentially "the first and most important product" that enables all others. Yet many leaders misunderstand how culture works.
Corporate culture isn't something you simply decree via lofty value statements; culture is an emergent property – a product of daily behaviors, incentives, and norms. To harness culture as a strategic asset, leaders must shift from trying to control culture directly to shaping the conditions from which a high-performance culture emerges.
Culture Emerges – You Can't Mandate It
Culture is not designed like an org chart; it emerges organically from how people interact and get work done. As one analyst puts it, "Culture is not something an organization consciously designs — it emerges" from repeated behaviors and "implicit rules" over time. Leaders can set a tone, but they do not unilaterally dictate culture. The real culture evolves from everyday actions, decision-making patterns, and informal norms – not from mission statements or slogans on a wall.
Because culture is an emergent property, attempts to impose it from the top down often backfire. Declaring 'We will have an innovative culture!' means little if the daily environment discourages risk-taking.
Leaders often try to control what can only be shaped. The good news is that leaders can influence culture – not by edict, but by shaping the conditions that foster desired behaviors. Organizations that get this "focus less on controlling [culture] and more on adjusting structures, incentives, and workflows" to enable the behaviors that make up the culture.
In practice, this means designing your organization's environment (purpose, structures, systems) so that the "right" behaviors are the easiest path for employees. When you change the way work gets done, the culture follows.
Instead of micromanaging culture, treat it as the "weather" of your organization – something you influence by changing the climate. Google's re:Work initiative describes culture as "an emergent property of interpersonal interaction, mediated by the organization's environment, purpose, strategies, structures, and systems." Like weather, you can't snap your fingers to change it overnight, but you can intentionally adjust those underlying systems.
Incentives: The Shadow That Culture Follows
One of the most powerful shapers of culture is the incentive structure. What you reward (or punish) day-to-day sends a clear message about what the real values are. As a maxim in management goes: "Whatever you incent, you get." People respond to the incentives embedded in a system, even if those incentives contradict the company's stated values.
Research confirms this tension: 'People invariably will do what you pay them to do even when you're saying something different.' Culture tends to mirror the true priorities signaled by incentives.
Case in point: Wells Fargo's notorious fake-accounts scandal starkly illustrates how incentive systems can overshadow official values. The bank espoused a vision of "integrity" and putting customers first – yet it imposed aggressive cross-selling targets that pressured employees to open as many accounts as possible. Branch staff had daily quotas for new accounts; if they fell short, the shortfall rolled into the next day's target. Hitting these metrics was tied to bonuses of up to 15–20% of salary.
The predictable result? Thousands of employees, desperate to meet targets, opened millions of unauthorized accounts without customer consent. As one Wells Fargo spokesperson admitted, "Our team members do have goals. And sometimes they can be blinded by a goal." The incentives rewarded sales at any cost, so the culture became one where cheating and customer abuse were normalized.
This lesson isn't unique to Wells Fargo. Anytime there's a gap between stated purpose and incentive structure, the incentive wins every time. As a systems essay put it, "Most 'undesirable behavior' is not a character flaw. It is the correct adaptation to the system's true reward surface."
From Values on the Wall to Behaviors on the Ground
Nearly every large company touts a set of core values – integrity, teamwork, innovation, etc. But why do so many "values statements" ring hollow? The reason is the gap between espoused values (what you say) and enacted values (what you actually do). Stated values often fail to change culture because they remain abstract ideals, unconnected to employees' daily experience.
Most corporate values are 'bland, toothless, or just plain dishonest' – and far from harmless, they actually breed cynicism if leadership doesn't walk the talk.
The Enron example has become a cliché, but it's a perfect cautionary tale: Enron's 2000 annual report proudly listed core values of "Communication, Respect, Integrity, Excellence." Yet behind the scenes, Enron's incentive systems and leadership behaviors encouraged ruthless deal-making and accounting gimmicks. The espoused values turned out to be "nothing more than a poster on the wall."
The lesson is stark: if you're not prepared to rigorously uphold your stated values – even when it's hard or costly – then those values are meaningless, or worse. Real values "constrain behavior" – they demand you sometimes forgo easy money, fire a top performer for unethical conduct, admit mistakes, etc.
Making Values Real
So how do you make values real? The answer: operationalize them through concrete behaviors, rules, and decision criteria. Instead of simply declaring a value, build mechanisms that enforce and reinforce it:
- •Translate values into specific norms or 'always/never' behaviors: If 'safety' is a core value, establish a rule that any employee can halt a process if they spot a safety risk. At Toyota, any worker can pull the andon cord to stop production the moment they see a defect or problem.
- •Align procedures and incentives with values: If 'innovation' is a value, give people time and freedom to experiment (like Google's 20% time) and reward creative attempts. If 'integrity' is a value, have checks and balances in place.
- •Make values actionable in hiring and promotions: Use your values as selection criteria. 'Brilliant jerks' should not be hired (or advanced) even if they have strong technical skills.
Turn values from nouns into verbs. Instead of merely saying "We value customer-centricity," implement practices like regular customer listening sessions or empower reps to waive fees to make things right. These tangible behaviors and systems create feedback loops that shape culture.
Micro-Behaviors Create Macro-Culture
Culture lives in the tiny moments of organizational life. While strategies and structures are important, employees experience culture "through accumulated interactions, not symbols." The way your manager reacts when a problem is brought up, how colleagues greet each other in the morning, whether people openly challenge ideas in meetings – these micro-behaviors continuously feed into the larger culture.
Every interaction is either a deposit or a withdrawal in someone's sense of value, trust, and belonging… Micro-behaviors become macro-culture.
What do these micro-behaviors look like? Consider a few examples: How we listen (or don't) – do leaders actively listen to employees' ideas, or do they dismiss and interrupt? How we handle feedback and mistakes – is the first response blame and reprimand, or inquiry and support? What gets recognized or ignored – do we celebrate collaborative efforts or only heroic individual achievements?
The cumulative effect of these micro-moments is enormous. If employees daily witness curiosity, respect, fairness, and support in their interactions, those behaviors will spread and solidify into "how we do things here." If they witness avoidance, disrespect, favoritism, or fear in the small moments, that too becomes self-reinforcing.
Satya Nadella catalyzed Microsoft's culture turnaround by exemplifying a "learn-it-all" curiosity in every meeting – asking questions, soliciting others' ideas, and even admitting when he didn't know something. This was a stark contrast to the prior "know-it-all" culture, and it set a new tone that rippled outward.
Balancing Polarities: Healthy Tension vs. Dysfunctional Extremes
Organizations are rife with polarities – efficiency vs. innovation, candor vs. harmony, discipline vs. creativity. High-performing cultures learn to tolerate and manage these polarities rather than eliminating one side. In contrast, cultures that insist on an extreme (all one way, no counter-balance) often develop systemic dysfunctions.
Consider decision-making culture as an example: An organization that overvalues harmony and consensus may avoid conflict at all costs. On the surface it seems peaceful, but important debates never happen. "Meetings end too quickly, real opinions stay quiet, and progress stalls." Issues fester beneath polite facades until they explode. Ultimately, "peace built on silence is not peace, it is avoidance."
Research and experience show that 'teams that face conflict directly perform better than those that avoid it.' The key is fostering healthy tension – open disagreement on ideas without tipping into personal hostility.
High-performing cultures actually tolerate more polarity – more diversity of thought and open debate – but they do so in a productive way. They manage to be both candid and respectful. They encourage dissenting views, and they maintain mutual trust.
Bridgewater Associates under Ray Dalio famously implemented a culture of "radical transparency" and "thoughtful disagreement." Every meeting was taped, and employees at all levels were expected to challenge anyone (even the CEO) if they had data or logic to the contrary. This created a high-tension environment, but one governed by principles to keep it fair: focus on data, not personalities, and no retribution for speaking up.
Similarly, Amazon has a leadership principle called "Have Backbone; Disagree and Commit." In Amazon's culture, vigorous debate is expected in the decision-making process, but once a decision is made, everyone aligns and moves forward. This norm allows polarity in the discussion phase while preserving unity in execution.
Psychological Safety: Range, Not Comfort
All the benefits of open communication, risk-taking, and managed polarity hinge on one foundational cultural element: psychological safety. Psychological safety means that employees feel safe to take interpersonal risks – speaking up with ideas or concerns, admitting mistakes, asking for help – without fear of punishment or ridicule.
Google's Project Aristotle research underscored this: out of all team dynamics studied, psychological safety was the #1 predictor of effective, high-performing teams at Google. Teams with high psychological safety were far more likely to harness their members' talents, innovate, and hit their goals.
Psychological safety is not about being nice. It's about giving candid feedback, openly admitting mistakes, and learning from each other.
However, psychological safety is frequently misunderstood. It's not about being "nice" or comfortable all the time. In fact, a truly psychologically safe workplace might feel challenging and candid more often than "comfortable." Harvard's Amy Edmondson is clear: "Psychological safety is not about being nice. It's about giving candid feedback, openly admitting mistakes, and learning from each other."
So when we say "safety as range, not comfort," we mean that a psychologically safe culture expands the range of acceptable behaviors and ideas (you can disagree, you can be quirky, you can challenge the status quo) – it is not a cushion that avoids all discomfort. People are comfortable being uncomfortable, one might say.
Cultivating True Psychological Safety
- •Model vulnerability and fallibility: Admit when you don't know something, or when you were wrong. Say explicitly, 'I might miss something – I need your input.'
- •Frame work as learning, not execution-only: Tell your team we're in an uncertain, complex environment, so we need everyone's brain and input to figure things out.
- •Empower voice and reward candor: Proactively solicit input from quieter members. Never shoot the messenger. Thank people for speaking up, especially with bad news.
- •Institute structured practices: Create anonymous feedback channels. Hold blameless post-mortems. Train managers to respond constructively to concerns.
- •Protect those who speak up: Ensure whistleblowers aren't retaliated against. Don't give high performers a pass on bad behavior.
The Business Impact: Google's internal results showed that teams with high psychological safety had measurably higher retention, more revenue, and were rated as effective twice as often by executives. When employees feel their opinions count, organizations see a 27% reduction in turnover, 40% fewer safety incidents, and 12% higher productivity on average.
Make Culture Your Strategic Differentiator
In today's environment – fast-changing, knowledge-driven, and transparent – culture is more than ever a strategic asset. A strong, adaptive culture becomes a source of long-term competitive advantage. It drives employee engagement, which drives customer satisfaction and innovation, which drives business results.
As Satya Nadella often says, 'Our ability to change our culture is the leading indicator of our future success.'
The takeaway for leaders is to elevate culture to the level of strategy. Treat cultural initiatives with the same seriousness as a new product launch or market expansion. Be intentional: define the kind of culture that will best support your strategic goals. Align systems: audit and realign incentives, structures, and processes to be consistent with the desired culture. Lead by example: embody the behaviors and mindset you want to see. Stay patient and persistent: culture shifts don't happen from a memo or one-off workshop.
Above all, remember that culture is built (or broken) in the everyday moments. It is the shadow of every decision, every hire, every reward, every reaction. By shaping those moments deliberately – designing a habitat where the desired behaviors are nurtured – you cultivate the culture that propels your strategy.
As the saying often attributed to Drucker goes, "Culture eats strategy for breakfast." The modern twist is: make culture part of your strategy, so they feed each other. Leaders who grasp this will create organizations that not only excel in the market, but also attract and unleash the best people. Culture as an emergent property means if you get the inputs right, the outcomes take care of themselves. And those outcomes can be extraordinary.