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Tuesday, December 23, 2008

CEO Says: Culture Counts

Two recent interviews, one with the CEO of the Brazilian company Mundivox Communications published on December 18, and the other with the CEO of the online shoe seller Zappos published on December 22, share an important theme.

Alberto Duran launched Mundivox in 2000, and is currently overseeing growth that is steaming along at 100% per year. The company's 1000 employees build networks and provide voice and data services, mostly to small and medium-sized businesses. (About 10% of revenue comes from residential work.)

Before getting to the aforementioned theme, just for a general sense of how Duran thinks, here is part of what he has to say in response to a question about the current volatility in the world's financial markets:
The question for me would be: Why is the [stock] market driving all this? The managers of a company and the board of directors are in charge of the long-run situation, [but] the health of a corporation is measured mostly by the stock market. That was supposed to be for the long-run growth of the company and to align [it] with the shareholders and their interests. In reality, what I have seen is companies taking short-term decisions to create short-term mini-bubbles or to please the expectations of bankers who often do not understand exactly what they are doing. I have seen it in my industry. I see the major telecom companies acting like banks. I do not see them acting like telecom companies. I benefit greatly from that. I do not know about society, but personally I could not be more pleased because I actually compete with banks instead of competing with telecom companies.
So, you see that Duran is a vigorous strategic thinker and quite articulate.

Now on to the theme I was struck by. When asked about his top priorities for the next couple of years, Duran says:
The first priority, believe it or not, it is creating new management in the company. I find the biggest problem is to create middle management. They are extremely smart; they are extremely capable in their field technically. But their view of the world and their view of what is right and what is wrong may be sometimes different. Diversity to me is not in race, it is in the way you think. And that is where the biggest focus and the biggest challenge lie, because without those managers we cannot grow to have 10,000 peple. I need more managers to move into different areas, to lead more people and to influence those people like I would.
Duran recounts how he asked Craig Barrett, currently chairman of the board at Intel, how Intel had grown successfully to the point of having thousands of employees. Barrett pointed to the importance of culture. Duran says:
That is when I started going back to my books and my management theories. ... I started paying more attention to the soft issues and to psychology, than the tools that I had learned to use at the beginning of my career.
Which brings us to Tony Hsieh of Zappos (discussed in a previous post). Asked why culture is so important for him and his company, Hsieh says:
Our whole belief is in today's world companies are becoming more transparent whether they like it or not. One disgruntled or happy employee can write something on a blog and have that read by millions. It's the same thing with a customer. Our belief is a company's culture and brand are two sides of the same coin. The brand may lack the culture but eventually it will catch up. You can't control evey touch point like you could 50 years ago. The only way to do it is instead of trying to "control the touch points" is to get the right people with the right attitude, build the right culture and the rest will take care of itself.
In part, Hsieh's view comes from trial-and-error. Asked about his biggest mistake, he responds:
With my first company it was not paying attention to the culture. We hired the right people with the right experience and skills sets, but we didn't know to look for a culture fit. By the time it was 100 people, I didn't want to go into the office anymore. That was a weird feeling. That's why we ended up selling the company.
Finally, in response to a question about how Zappos maintains its culture while rapidly adding employees, Hsieh says:
It comes down to whether employees view it as part of their job description. If they don't that's not going to scale. The only way it can is if every employee feels it's part of their responsibility. We make it a part of the hiring process and we actually fire people if they're not living up to the Zappos core values even if they're doing their job function. It's 50 percent of every performance review. That's the only way I think it can scale.
Any organization would be well-advised to examine their own degree of success in building a cohesive, productive culture and in recruiting new employees who are motivated to fit in and contribute to meeting shared goals.


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