As it turns out, culture has a lot to do with how we operate. But how difficult is it to measure? In this episode of The Active Share, Hugo sits down with Dr. Tom Reader, an associate professor of organizational psychology at the London School of Economics, to discuss the broad role culture plays in all kinds of organizations; why great cultures are the defining feature of good companies; and how engaging with diverse perspectives can help foster meaningful cultural growth and innovation.

SHOW NOTES

Transcript

Hugo Scott-Gall: Today, I’m delighted to have with me, Dr. Tom Reader. Dr. Reader is an Associate Professor of Organizational Psychology at the London School of Economics and a chartered psychologist. His expertise relates to organizational culture and resilience. His empirical research focuses on how organizations can improve, voicing conduct problems, listening to concerns, teamwork and decision-making, safety culture, learning from complaints, systems for reporting and learning, and whistleblowing.

He consults with numerous major corporations, primarily banks, investment firms, and aviation companies on assessing, understanding, and improving their corporate culture. Dr. Reader’s research has been published in internationally leading academic journals within management and healthcare, including the Journal of Applied Psychology, Human Relations, Risk Analysis, Journal of Business Ethics, BMJ, Milbank Quarterly, and the Journal of Occupational and Organizational Psychology. Tom, thank you for coming on the show. It is lovely to have you here.

Dr. Tom Reader: Great to be here. Thank you.

Hugo Scott-Gall: Let’s kick off—let’s start with, why did you decide to specialize in culture? Did you choose culture, or did culture choose you?

Dr. Tom Reader: I’m interested in why institutions fail. So, why is it an organization can apparently be doing incredibly well and everything seems okay? And then, all of a sudden, the carpet’s pulled out from under its feet.

And I’ve been very interested in this for a long time partly to due with where I grew up, which was off the coast of Scotland in a place called Aberdeen, which is the hub of the oil and gas industry in the UK. And there was a terrible disaster in the late 1980s involving an oil rig called Piper Alpha. And the issues in Piper Alpha, which was this oil rig that blew up and killed nearly 200 people, were all around culture. They were all around—problems around risk-taking and lack of compliance, lots of issues on the floor of the platform. But actually, these revealed much deeper patterns of thought and mindsets within the organization, pushing people to the limit and pushing things to the limit. And what you find is when you study institutional failures and also successes actually, that organizations being able to navigate those limits is often what is key. And culture is the kind of explanatory factor in that.

Hugo Scott-Gall: I’ve always put culture under “It’s really important, but it’s hard to measure. And, therefore, it gets a little bit neglected out of difficulty.”

Einstein says, “Not everything can be counted that counts.” Is that how you think about culture?

Dr. Tom Reader: Yes. You can measure aspects of culture for sure. I think the issue when you study culture, when you’re trying to measure culture, it boils down to this; are you interested in the culture on average? So, this would be, for example, on average, do people think they can raise a concern in the organization? That’s an example of an “on average” type of culture. And you can definitely measure that. You could run a survey or something like that and get a sense of that. So, you can measure quite narrow aspects, but you can also measure—and this is the bit that’s harder. And this is the bit that’s normally—people want to investigate this, more like the extremes.

Where are the places in the organization that there are problems? Where is it that there’s best practice? And this isn’t really revealed by an average survey, engagement survey, or something like this. This is sometimes revealed by much more behavioral, finite data. One of the complicating things around measuring culture is we talk about culture as if it’s a homogenous property of an organization.

It has a culture. But as you know, you go into any bank, you’ll have the financial traders, and you’ll have the compliance department. And whilst they all have some kind of shared culture, they also have quite different outlooks. And so, when you’re studying culture and trying to measure it, do you just bodge those two departments together and say, “Well, the culture’s what’s in the middle,” or are you actually trying to find the culture of each and how they interrelate to each other?

Hugo Scott-Gall: Is it, in terms of sort of the curve, a great culture can really make a winning company, in fact, reverse that, really successful companies almost have to have a great culture. Any company with a bad culture isn’t going to survive. But most corporate disasters have some element of bad culture. Is that a fair assessment from your research and from what you’ve seen?

Dr. Tom Reader: Good companies do need great cultures undoubtedly. I think the issue is this with organizational culture, and it’s like all things that you build. It takes a long time to build a great organizational culture.

And you might think of that as being adaptive, innovative. But what you find is cultures fall away very, very quickly.

It takes a long time to build a very good culture. I think it’s true with many things in life. It doesn’t take very much to disrupt it. And there’s some excellent research showing, funnily enough, that organizations sometimes with the best cultures can also—they can become a bit complacent in what they think they can do. And that’s part of the problem too. As you get better at doing something, you become a bit complacent.

Hugo Scott-Gall: Can great cultures survive bad leaders?

Dr. Tom Reader: For half the time. I don’t know. It’s a great question. There’s some interesting fascinating psychological research showing narcissistic leaders at the top, this does permeate down into the way people think in the organization and the behavior and the incentives and the procedures. So, yes, organizations can survive bad leaders, but it’s not necessarily a given. People are very interested in how culture comes from the bottom sometimes. If you think about sustainability and how organizations treat issues like sustainability, a lot of that comes from the workforce. I think academic research and anecdotal research shows that leaders are because they have the ability to pull the levers that shape behavior and influence behavior.

They’re a huge influence on culture. Where you have a bad leader in place for a long time—whatever we’re saying a bad leader is—there’s one quite important aspect to think about here, which is that it’s not that there’s one culture that leads to organizational success. Actually, the culture an organization requires is very much based on the outcome that it wants. So, if you’re thinking about the culture of a bank, that is going to be different than the culture of a nuclear power plant.

Whereas, if you’re thinking about the finance sector, well, to be competitive, you need to take risks. So, when we talk about leaders, you might think of it more in the degree to which the leader believes the way that they drive the culture is aligned with where the organization needs to be. And that’s not the same for all organizations. You will find that—and this is what we find when we study culture—they vary a lot from industry. And finance is particularly interesting to me because it sits on this odd cusp of being an industry that has to take risks.

But also, when things go wrong, they’re as devastating as an accident, a major accident. So, how do they navigate this?

Hugo Scott-Gall: Well, that’s a really good point. That kind of left-tail outcome is for financial companies, particularly banks, is as severe as it can get, as in you can see devastating systemic effects and also destroying a company so it no longer exists. If I was to say to you, “Look. Here’s a financial company, where we’re not sure how good the culture is. In fact, we’ve got some concerns. And you’re allowed to go into that company, and you can meet anyone you want in the company, and you can have access to any data you want. You’ve got full access to conduct your investigation into the company’s culture and question whether it actually is a bad culture, not a good culture.” What would you do? Cast you here in the role of detective. But you’ve got access to pretty much everything you want, and let’s just dream that. But you can’t make that assumption. Let’s assume that people will be honest with you. But in a bad culture, I guess that’s the point. They might not be. So, how would you begin your investigations?

Dr. Tom Reader: So, where would I begin an investigation on that? Well, it would probably be looking at—this is just me. This isn’t necessarily all academics or culture scholars. So, I’d be interested in does the organization document things that go wrong, and does it try and learn from them? So, I probably wouldn’t really do a survey or do interviews or anything like that. I’d be interested in finding out how does this organization capture where there are incidents and problems, and does it try to do this in a systematic way? Is it kind of methodical in doing this? So, I try to get a handle on the issues inside of the organization. And you would have to speak to people at the frontline.

So, I’m very operational. I think you kind of go operational focus. And then you have this moment where you want to speak to those at the top to find out do they have any clue really about what’s going on at the operational level? Because this is where you find problems arise in the organization, which is where the operations and the leadership become slightly unhinged from one another. I don’t think there’s many leaders in organizations who set out to have the organization have a bad culture, actually.

I don’t think anybody does that. It happens in a very—they talk about drift in psychology—so the organization drifts. As a psychologist, I’m interested in, and it is true to the very heart of culture is, is there a shared understanding between the leadership and operational issues because it’s actually on that operational side that things go right or wrong, typically. The leadership, of course, direct it, but that’s where the meat is. So, that’s where I would go. It would be looking at behavior at the operational side.

And I’m particularly interested in a couple of things, actually. Things like—are problems caught? And this is a particular academic interest I have is where you—where they organization encounters outsiders, what do they think they see? What do they see about the culture? So, I’ll just give you a very quick example. We do lots of work in healthcare looking at hospitals that are experiencing problems. And what you tend to find is hospitals that experience problems are really bad at documenting the problems. But patients and families see the problems very, very, clearly when they encounter hospitals. So, a great place to find out about the culture of the hospital is actually to speak to the patients and families or gather complaints, say, that they’ve sent to the hospital.

If you think about culture in that sense, there’s a lot of ways that you can approach it. In a great culture, you ask the people inside the culture, and they’ll probably tell you it’s great. But if you’re trying to pick up on problems, well, you go somewhere else.

Hugo Scott-Gall: In your investigations—I’m going to keep using the word investigations. It just sounds more clinical. How many that have done badly and is there clearly some issue with culture? You mentioned an insularity issue. Is that linked to groupthink, a lack of diversity in terms of—well, lots of different ways of thinking about diversity, but differing backgrounds, differing life experiences, differing ages, or maybe even gender?

But anything that brings—you know, is there homogeneity and is there insularity and is there also maybe a relationship with, again, tenure, the people—if you’ve got too many people who’ve been there a long time from a similar kind of background, is that an issue or is it the other way around, which is the company’s gone out and hired too many people and has lost its culture because there’s been too many people coming in and they haven’t really been inculcated in the company culture.

So, I’m just wondering how those things play into, not failure but cultural drift as you described.

Dr. Tom Reader: That’s a lot of issues you raised there, which are really important. First, around tenure, definitely. Nobody ever leaving’s a really bad thing for culture because you don’t have an injection of new insight. But also, a high turnover, where you—they call it—talk about organizational memory is the phrase, you know, where you have a bad organizational memory. That’s also really bad for culture because you learn lessons about things that went well and didn’t go well.

About that insularity, so you can have groupthink. And groupthink is like where everybody—they kind of agreed on a state of affairs and no one is willing to challenge it. You definitely get that in an organization that’s experiencing problems. I think the drift is slightly different though because when you have drift, it’s like, “What is considered normal changes?” So, just go back to the healthcare example, what you can find—and in other risk industries—say, not following a rule. People don’t follow a rule because it’s too clumsy to follow.

It doesn’t work particularly well. And everybody knows that the rule isn’t followed. And, slowly, through time, you just have this norm of nobody following the rule. And it’s called normalization of deviance, not following the rule becomes normalized. And actually, you look pretty odd if you follow the rule. All of a sudden, you stand out. However, from a risk management leadership perspective, everybody follows the rules because no one’s going to say that we’re not following the rules. And so, you have this drift, where what is considered normal changes over time.

And I don’t think that’s—groupthink has this quite purposeful aspect where we all agree on an understanding, and it’s a little bit explicit, I think. This drift is a bit—it’s like the norms change. And your point about how do you burst the bubble on that, I think that is about—I wouldn’t point to one diversity or another. I just think it’s an outside alternative perspective. How do you know if you’re good or bad at something? Well, you usually need some feedback from somebody else. And so, the diversity comes from an outside or alternative perspective, and that can certainly be by somebody who’s different to the organization.

And this is the funny thing about culture, in a very strong culture what can happen is organizations can tend to recruit people who very much subscribe to the values and norms of the organization wherever they’re from. But when you’re encountering a problem, you need somebody who will do something a bit differently, actually, somebody who almost doesn’t subscribe to the culture that much because they can see the problems in it.

And this does go all the way down to recruitment and retention and how you promote people because you’re both trying to prevent groupthink, which is where you don’t have anybody—any other perspective in a decision, but also—and this is what I find when I investigate institutional failures. It’s often what we call just a drift. There were many moments at which it could have been prevented. I think about something like the Bristol Royal Infirmary inquiry, which was around unsafe surgical care at a hospital in the UK, where over about five or six years there were many points that this could have been prevented. But it just never happened because people had normalized it and just didn’t see the problem anymore.

Hugo Scott-Gall: There’s a lot to chew on there, but I’m thinking about that sort of tension between welcoming fresh perspectives by hiring people who are different but at the same time, being afraid to hire different because they might challenge what you have. So, I think that’s a fascinating sort of tension here. Is there something else though, which is—there’s a reasonably well-known soccer player from, I think, the 1980s, a guy called Steve Archibald. He played for Scotland. He played for Barcelona, and he played with Tottenham Hotspur.

And he said—I may misquote him and do him a disservice. But he said something like, “Team spirit is an illusion glimpse in the aftermath of victory.” So, is a core underpinning of culture actually just excellence? If a company just does things really well with really good people, that excellence is kind of what drives culture. And so, without excellence, being really good, you don’t have to love each other. You don’t have to necessarily always like each other. But if you’re genuinely excellent, you respect each other.

And that goes a long way to underpinning a culture or is that a little bit too simplistic, that you do have to have other sort of safeguards even if someone is excellent. If they do damage elsewhere, the excellence might not be enough.

Dr. Tom Reader: The glow of doing something well. Of course, you can assume that—you naturally attribute that to—this is quite fundamental in psychology, actually, that where things go well, we attribute to a quality associate it with us. Some, where things don’t go well, we attribute it to a quality on the external environment, and that’s true of individuals, teams, and institutions, I think. There’s certainly a glow that comes from doing well and from being excellent. And it can lead to a great culture. But you know, you have organizations that experience problems and are resilient and rebound.

And so, you have what you might call a resilient culture, which is where organizations can take hits, can fail, and are able to rebound from that. I think one of the misnomers with organizational culture is that it—so, sometimes seen as people being nice to each other or fair, and that can be a part of it.

But sometimes the best organizational cultures are simply where people can communicate quite unvarnished pieces of information that reveal the truth, whether that’s about how something should be done or shouldn’t be done. And so, I think what you just find is wherever you look, whenever you find an excellent culture whether it’s before or after a successful event, it is this sort of truth-telling aspect of the organization, where problems can be revealed.

But also, it’s not threatening to identify new ways of doing things. So, I hear people talk about psychological safety or speaking up voice to capture that aspect of culture. And, I think, even in a team where people dislike each other if you have an understanding that people will speak up, report problems, report ways to do things better, you still have a good culture. It’s not that everyone needs to love each other necessarily.

Hugo Scott-Gall: And I’m focusing a lot on sort of corporates here versus other organizations and institutions. But how much should corporate culture reflect societal culture and changes in societal culture, or is it the other way around that corporate culture actually has a lot of influence on broader society’s culture?

Is it the job of corporates to make sure that they are fully tuned in to where society is going, how it’s changing, and make sure they reflect that or is that actually not necessarily the job of corporates to do that?

Dr. Tom Reader: That question is a big debate within the culture literature. My own view is that an organization—the first thing it needs its culture to do is ensure that it’s good at doing what it’s supposed to do, the function it is there to do, to achieve. And, of course—and so, you can think about something like climate, which might be in the back of your mind there, you know, the degree to which organizations prioritize sustainability even where it goes counter to the organization’s goals. I think, of course, it needs to engage with the issues of society. It would be daft to not engage.

But what you can have and you can find is that organizations almost become a bit waylaid by other concerns and take their eye off the ball. So, you know, you kind off look at the oil and gas industry right now, and a lot of oil and gas companies are trying to become very sustainability focused and you can understand why.

But there’s just also this reality that they are oil and gas companies, and that’s what they do. They produce hydrocarbons, and so they have this balancing act to achieve. I think, ultimately though, yeah, you have to focus on what your core is, try and do it well. And, if you can achieve broader social goals, that’s great. Do organizations—do corporate cultures drive society? I’m not sure. I guess in a sort of pop culture type way they can do. They probably do not through—it’s probably not through the mission of an organization. Organizations all have the same mission.

So, if you look in the mission statements of organizations and their values, they’re identical. Where organizations shape culture is through their innovations, right? It’s the things they create. You think about a company like Apple how that has shaped the culture of our society, not through their mission statement on their websites, which of course, might filter into what they do but through the products that they create. I think that’s where organizations and their culture, an innovative culture, in that case, shape society.

Hugo Scott-Gall: Yeah, that’s something I wanted to ask you, which is innovation because you can’t just stand up in a room and say, “I want you all to be innovative as of noon today.”

You can’t create innovation via fear. So, you have to have—I guess my question is actually, what do you think you have to have? What is an innovative culture because I imagine it has different strands to it, but somehow it works. You know, the famous book on this is the Pixar book all about how come Pixar was just so good. But there are plenty of companies which have been extremely innovative. Apple would be another, but there’s all sorts of cross industrials. There are companies that keep making better and better products.

I’m just very interested in how you would think about the kind of ingredients that lead to successful innovation and indeed failures where people have said, “Look. We’re clearly in an industry that requires innovation, so we’ve got to be more innovative. And we tried everything, but we just can’t do it.” Is that because they can’t get the people? They don’t know how to—is it as simple as just they don’t know how to make it fun?

Dr. Tom Reader: Yeah. One of the observations we had in the research of LSE is that companies that are having problems with innovation often talk about how innovative they are.

So, there’s this whole aspect of when you’re really innovative you’re not thinking about innovation. Sort of like—it’s like you’re not really thinking about it. Is it fun? I think it’s probably a set of things. One, of course, is—the key observations in innovation is just it’s going to fail. Most innovations fail. And the moment you start making innovation a high-stakes thing like, “You have to innovate in order to achieve,” you make it very, very difficult because innovation involves a loosening of the mind and a exploration of possibilities and irrelevancies, which is what the fascinating work on innovation shows is a lot of thoughts we have around innovation are irrelevant.

They are—it’s a brainstorming exercise, lots of blind alleys that you go down. And an organization has to give the framework for that to happen, that it understands that things will fail or not fail. One of the observations on just research from innovation, perhaps a little bit detached from culture is that you have the process of innovation and you have the process of applying the innovation. And, actually, people can innovate a lot of things, and it’s usually in the application part that an innovation comes undone.

And organizations can try and mesh these things together too much, which is “Think of an innovation that can be applied.” And the moment you put in the “can be applied” part, that constrains thinking quite a lot because you start now working within all the practical constraints of the problem you were trying to address. It’s close to the problem-solving, which is slightly different from innovation. And so, you sort of stimy innovation by asking people to already think about how their innovation is going to be applied. And many of the great innovations of society or of companies in our society, in general, were kind of accidents, weren’t they?

They were coincidental moments that then somebody else saw the value of. Just to finish on this point, the—innovation is a very social thing. We think of it as an individual or a team possibly coming up with ideas. But actually, it’s bigger than that. It’s coming up with ideas and others seeing the value of how to use and apply them. And I think because corporations can become very focused on—it’s a bit of sort of spreadsheet approach to innovation, you know, where they spent X or Y and they want to see these outcomes.

That won’t lead to great innovations. That will lead to great spreadsheets.

Hugo Scott-Gall: That makes a lot of sense. And, similarly, I don’t think you can just order a lot of bean bags and ping pong tables and assume that’s gonna make you innovative and all happy and groovy. So, I think where I wanna finish up is just drawing on your extensive experience. Are you getting—you’re very successful in your field. Are there more and more people coming your way saying, “Help us on our culture. Help us understand our culture. Advise us on—for a company like us, what should our culture look like?” And are they doing it in a serious way or are they doing it in a sort of box-ticking, box-checking kinda way?

Dr. Tom Reader: We do have more and more organizations coming to us. And I don’t think it’s box-ticking, actually. I think there’s a genuine recognition within organizations in many fields, a lot in finance, but also in other domains of how important culture is. One of the challenges that organizations have is the following in terms of understanding their culture. So, I think most organizations recognize that an annual employee engagement survey and the likes is not a measure of culture.

That’s just a measure of how satisfied people are in their job at the moment. Whereas, 20-30 years ago, organizations didn’t have much data around their culture. It was somebody walking around and trying to get a feel of the place. Now, organizations have reams of data. They’re inundated with possible cultural data. What kinds of things? It could be feedback from customers. It could be employee discussions on social media channels. It could be the qualitative parts of surveys. It could be around whistleblowing or incident reporting. It could be what people say on them on Google or lots of different data.

And what we’re finding is that organizations, they are recognizing that actually, their culture is no longer hidden. It’s no longer internal now. Culture, especially when there are problems but also good aspects, it spills out lots of different places. And what we find is organizations kind of want to get a grasp of what they look like. They want to know what their culture is like so that they can address problems in it, but also because the culture itself is becoming transparent. And this has lots of ramifications around recruiting people or engaging with regulators.

If you look at either a website like Glassdoor, which is where people go on to report workplace experiences, anybody can access that. And so, if regulators can, other employees can. Monitoring culture and measuring it becomes like a driver for culture itself, where you are measuring it and seeing where you need to improve. And one of the aspects which I find really interesting in this is that a lot of this data just to explain is textual data, lots of words. It’s words, people writing about organizations, customers, employees. Whereas before, you would study a culture through running a survey and asking people what they thought about A, B, and C. And you decide the topics. I want to know what people think about teamwork in this organization or innovation.

Some of this unstructured textual data, in particular, and behavioral data is very interesting because you see there are important aspects of culture that you never really thought about, particularly that are important to those in the organization. But they haven’t really resonated with management. Say, for example, problems around change. This is what we quite often find is organizations have problems around change.

That often isn’t in the survey, but it’s what people are talking about in the organization. I think some unearthing and surfacing problems and strengths is what a lot of organizations want in their culture analysis. Is it genuine? I think it is. Sometimes it’s prompted by—also though by fear of regulation or of investors who can see as well the culture of organizations.

Hugo Scott-Gall: Where we started was “How important is culture?” And its importance should not be diminished by its trickier to measure than other things. And I think what you’ve articulated really well and why I’ve enjoyed this conversation is that, actually, I think we both agree culture is important. And the fact that it maybe is trickier to measure that you need to develop some qualitative mental models to do so in no way diminishes that.

And, if I had to guess, this will be a field, and obviously, you’re well placed, that will grow and grow because this is just going to matter more and more for a whole number of reasons. But I think a greater emphasis on it means there’s less tolerance for the persistence of bad culture, whether that is people investing into companies, people working at companies.

I see this as a greater front-and-center issue that’s ripe for skillful investigation because it is difficult to measure. So, I think—I hope you feel—I think we covered a lot of that and highlighted that. So, I think it’s a fascinating area that is probably only going to increase in importance. So, I hope that our listeners have enjoyed our conversation as much as I have because I think we touched on important strands to it. So, I just want to say, Tom, thanks very much for coming on. It was a pleasure to host you.

Dr. Tom Reader: Thank you very much. It was my pleasure to attend.