By Alberto G. Alexander, Ph.D
An organizational culture developed for resilience is characterized by the ability of an organization to adapt, thrive, and recover in the face of challenges and disruptions. It is a culture that values flexibility, innovation, and continuous learning, allowing the organization to navigate uncertainties and setbacks effectively. Organizations cannot optimize an operational resilience culture simply by establishing oversight committees, audit processes, and risk reports. The most important factors influencing operational resilience culture are the involvement of leadership and employees at all levels in adopting, accepting, and promoting such a culture.
This article will look at what culture is, how to build it, and will present best practices for managing and enhancing an operational resilience culture.
Introduction
As the service delivery infrastructure of financial institutions continues to become more complex due to digitalization and the evolution of ecosystems, it is becoming increasingly challenging for financial institutions to respond to diverse and unpredictable risks, such as system failures, cyberattacks, third party issues, pandemic, and geopolitical risks. This has recently led to a growing need for financial institutions to ensure operational resilience, or the ability to respond to incidents and recover operations that are important to customers, markets, and society.
Organizations cannot enhance their operational resilience system just by identifying key business services, or by just describing their impact tolerances or performing scenario testing. These methodological steps to implement operational resilience in an organization comprise the ‘hard’ side of operational resilience. However, they become useless without the ‘soft’ side: which are all the factors that influence individual decision-making and behavior. Together all these factors form the organization’s operational resilience culture. In a strong culture everyone not only knows and understands the policies, but also shares the values behind them. Employees and managers alike are aware of operational resilience and adjust their behavior accordingly.
Business decisions and actions regarding operational resilience are shaped by a system of values and behaviors present throughout an organization that are demonstrated by the individuals or groups within it. In the context of operational resilience, culture is a value that impacts business decisions and determines the way the organization identifies, understands, discusses, and acts on the risks it faces and the risks it takes. Operational resilience culture affects the decisions of management and employees, regardless of whether they consciously weigh benefits and costs.
Because culture is a product of shared values and behaviors, it is based on establishing predictability and high reliability in executing processes for managing operational resilience. When there is no operational resilience culture, business units work in silos and do not align themselves to manage risks and achieve strategic objectives. The result is low reliability and lack of consistency in executing operational resilience management processes.
One of the most important factors influencing operational resilience culture is the involvement of leadership and employees at all levels in adopting, accepting, and promoting operational resilience and the associated culture.
The operational resilience cultural alignment establishes a new focus for risk-based decisions that is sustainable over time and influences management and all employees. It also allows effective operational resilience implementation and becomes a source of sustainable competitive advantage. Finally, it inspires staff to promote integrity, enhance shareholder value, meet regulatory compliance, and generate long-term sustainability.
In a sound operational resilience culture, the hard and soft sides of operational resilience determine the risk profile of any business. The hard side involves enablers, which establish the capacity for sound risk practice; and the soft side includes drivers, which impel the actual execution of sound operational resilience practice.
Below, the nature and dynamics of organizational culture will be presented, some recommendations will be developed for managers to consider as guidelines for creating and fostering an operational resilience culture, and best practices for managing an operational resilience culture will also be proposed.
Organizational culture foundations
Let’s be clear about what culture means. A scholar who has studied the subject of organizational culture for many decades is Dr. Edgard Schein (Professor Emeritus at the MIT Sloan School of Management). He defines organizational culture as:
“A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid, and therefore, to be taught to new members as the correct way to perceive, think and feel in relation to these problems.”
The concept of culture is most useful if it helps to explain some of the more seemingly incomprehensible and irrational aspects of groups and organizations. The definition of culture, according to Dr. Schein, puts the emphasis on shared, taken-for-granted, basic assumptions held by the members of the group or organization. In this sense, any group with a stable membership and a history of shared learning will have developed some level of culture.
“If we find in any type of organization that certain assumptions are shared across all the units of an organization, then we can legitimately speak of an organizational culture,” (Schein, 2016).
Dr. Schein describes three levels of culture: artifacts, shared values, and shared basic assumptions.
- Artifacts are visible, audible, tactile manifestations of underlying cultural assumptions such as behavior patterns, rituals, physical environment, dress code, stories, and myths. They are relatively easy to understand. For example, many organizations have dress codes, such as uniforms or proper business attire, that are indicative of some underlying culture.
- Shared values, also quite easily understood, are the espoused reasons why things should be as they are, such as norms, codes of ethics, company value statements, and so on.
- Basic assumptions are somewhat more difficult to define and examine. They comprise the invisible but identifiable reasons why group members perceive, think, and feel the way they do about external survival and internal operational issues, such as a mission, means of problem solving, relationships, time, and space. They can be viewed most easily in terms of behavior that one would find totally unacceptable, as well as its counterpart: highly desirable behavior.
Of considerable importance, in Dr. Schein´s view, is the need for senior management to focus on this third level of culture. Artifacts can be replaced; new values can be articulated by, say, introducing or modifying a mission statement or code of ethics; but unless the basic assumptions are addressed, the organization’s culture will likely remain the same or change only slightly.
The challenge for top management then, is not choosing the ‘correct’ basic assumptions, but identifying those that will promote the most successful organizational performance and either maintaining them, if they already exist, or moving the organization towards adopting them if they do not.
To maintain or transform a culture at the level of basic assumptions requires addressing some of the fundamental ways the organization operates the cultural levers. Not only are these levers important tools for the strategic level in the organization to employ, but all of them must be used consistently to mutually reinforce each other.
The idea put forward by Dr. Schein is that the underlying assumptions of an organization give rise to the espoused values. The espoused values then drive people to create the organizational artefacts – which are at the surface: easy to see and change. However, the underlying assumptions are the heart and soul, the undertone, of the organization that we cannot easily see or determine – and if we want to change an organization, it is here, in the depths of organizational culture, that we must work. Shared tacit assumptions influence everything that happens in an organization, but they’re difficult to uncover, and even more difficult to change. If we don’t discover or understand these underlying assumptions, any organizational change is unlikely to succeed anywhere other than at the surface level.
Cultural levers
In figure one I have depicted the linkages between culture and six organizational levers. In some instances, the use of one of these processes as a cultural lever is relatively easy; in others, it is quite complex and difficult. It is important to note, however, that, as the lines indicate, all six levers must fit together in such a way that they are mutually reinforcing.
Following, a brief description of each lever will be made.
Figure one: Linkages between culture and the six organizational levers
Lever one: The strategy formulating process
The most often recommended approach is ‘top down’. This has a three-step process, generally referred to as SWOT (strengths, weaknesses, opportunities, and threats) analysis. In this process top management:
- Examines the environment and assesses the financial, programmatic, and other signals, both positive and negative.
- Compares these environmental signals with the organization’s strengths and weaknesses and incorporates the operational resilience values into the analysis. The main operational resilience values could be, among others: flexibility, agility, innovation, and continuous learning.
- Selects a strategic direction.
Lever two: The flow of authority and influence
Authority and influence can flow in a variety of ways in an organization, ranging from hierarchical to collegial. The former is exemplified by the military, the latter by many universities. Regardless of the approach taken, changing an organization’s authority and influence process can be extremely difficult and top management can expect considerable resistance.
Lever three: The motivation process
In considering the motivation process, top management must focus on a fit among:
- Employee personalities.
- The five other cultural levers, and,
- The organization’s external environment, including customers, competitors, regulators, lenders, and shareholders.
Lever four: The management control process
Consists of four activities: programming, budgeting, measuring, and reporting. These activities are linked to several other cultural levers.
Lever five: The conflict management process
Top management can use several conflict management levers to influence culture. Its response to a situation of ongoing conflict could be to:
- Take part in resolving it.
- Appoint a committee to deal with it, or
- Assign an integrator.
All these approaches can be effective, but each suggests a different culture and a different sense of what is acceptable or unacceptable behavior.
Lever six: The customer management process
Of all the cultural levers the customer management process is the one undergoing the closest thing to a revolution. How organizations interact with their customers is coming under intense scrutiny, especially as the distinction between products and services becomes increasingly blurred.
As figure one suggests, the six processes discussed above all constitute levers that management can use to either maintain or transform an organization’s culture. The lines connecting the six processes indicate that no process operates in isolation from the others. There are important links among all six and a key goal for top management is to design each process in such a way that it operates in concert with the other five in moving the organization toward the desired culture; one that will support the navigation of uncertainties and setbacks effectively.
The most important issue for top management is to recognize that there is no single correct culture. Rather, the one that is most suitable for a given organization will depend partly on the environmental constraints that the organization faces and partly on top management wishes. It is the latter category in which the six processes can be used as levers to help preserve a culture or to modify it in accordance with senior management’s preferences.
Organizational culture that supports operational resilience
If top management decides to carry out some organizational cultural changes to better support operational resilience, an approach would be to start with the above six organizational levers. It is important to note, however, that, as the lines in figure one indicate, all six levers must fit together in such a way that they are mutually reinforcing.
According to Dr. Schein’s approach, unless one digs down to the level of basic assumptions, one cannot decipher the artifacts, values, and norms. If one finds “some of those basic assumptions and explores their relationship, one is really getting at the essence of the culture and can then explain a great deal of what goes on in it and do some modifications at the basic assumptions,” (Shein, 2016). Usually this requires specialist external help.
There is no one ‘right’ set of basic assumptions for all organizations. One could not imagine the armed forces being successful with a collegial set of basic assumptions like that of an academic institution, or vice versa. Leadership is a key driver in shaping the organizational culture; the tone from the top is crucial to establishing honesty, flexibility, agility, continuous learning, and integrity as paramount values for navigating uncertainties and setbacks effectively.
“The bottom line for leaders is that if they do not become conscious of the cultures in which they are embedded, those cultures will manage them,” (Schein, 2016). Cultural understanding is desirable for all of us, but it is essential for leaders if they are to lead effectively.
Some best practices for organizational culture in the context of operational resilience
The following are some best practices for developing organizational culture in relation to operational resilience:
- Operational resilience culture can be defined as the values, shared basic assumptions, beliefs, and understanding of risk and resilience shared across an organization.
- For the maintenance and organizational cultural enhancement, top management has to be aware and know how to use the six cultural levers presented in figure one. All six levers must fit together in such a way that they are mutually reinforcing.
- Top management has to lead by example. Leaders play a crucial role in modelling the desired cultural behaviors. Their commitment to operational resilience should be visible in their actions and decisions.
- Top management should empower employees. Provide employees with the training, resources, and authority they need to contribute to operational resilience.
- Embrace changes in technologies and processes. The strongest leaders understand that keeping their fingers on the pulse to uncover the latest technological innovations is crucial for the success of their businesses.
- Promote open and transparent communication. Recognize that communication is a powerful tool to promote best practices and open conversations around ethics and values.
- Prepare for future skills needs. Skills gaps are clearly heading in the wrong direction, which poses a serious threat to business success.
- Empower decision-making at all levels. Rather than confining employees to the roles they were hired to do, resilient organizations empower workers to take on an array of responsibilities by matching people to open opportunities based on the skills they possess.
- Prioritize cross functional collaboration. Resilient organizations are committed to actively changing work processes to empower employees from various groups to come together to complete the same project.
Bibliographical references
- Schein, Edgar. Organizational Culture and Leadership. Jossey Bass 5th edition, 2016.
- Tuveson, Michelle. Ralph, Daniel. Alexander, Kern. Beyond Bad Apples: Risk Culture in Business. 2020 Kindle edition.
The author
Dr. Alberto G. Alexander holds a Ph.D from The University of Kansas and a M.A. from Northern Michigan University. He is a MBCI, BCMS IRCA Lead Auditor and Approved Tutor. He is the managing director of the international consulting and managerial training firm: Eficiencia Gerencial y Productividad SAC, located in Lima, Peru. He can be contacted at: alexander@egpsac.com He is currently Professor at the Graduate Business School of ESAN University, Lima, Peru.
