Culture eats Strategy for Breakfast

Even after achieving Outperformance there are dangers that lurk.

Reverting to the Mean

Outperformance may eventually falter.

The likelihood of Outperformance in corporate environments increase dramatically when certain approaches are followed. These approaches include creating a separate corporate structure (a 'scenius)', working iteratively, using ventures as delivery/funding vehicles, and others.

Yet, dangers lurk even after Outperformance is achieved. There is a real risk. It is the risk of reverting-to-the-mean; i.e. gradually falling back into corporate mediocrity.

Why is there such a danger? The answer, in one word is 'culture'.

Two discussions

We will explain this one-word ('culture') answer with two discussions: a shorter discussion and a longer, more in-depth one. The shorter discussion is more along the lines of our usual blog posts, while the longer one (which you are free to ignore) discusses some of the deeper underpinnings.

The Shorter Discussion

The larger corporate culture may eat the smaller scenius culture.

Yes, the culture in the scenius may have been different (to an extent) from the larger corporate culture, but ...

(1) Goliath beats David:

The scenius culture is relatively new. It competes with the long-established embedded corporate culture.

(2) The boss is always right:

The scenius is subservient to the board of directors. It also interacts (and needs) other corporate structures such as corporate IT, HR, Finance, Legal and Risk. These structures conform to the corporate culture - not to the scenius culture.

(4) Newton's first Law:

The immense success-momentum of the initial outperformance may continue for months, years, or even decades. Outperformance momentum is not easily lost. This can create a false sense of continued 'new' achievement. Yet, what may actually be happening is that (i) the initial momentum-driven continuation of Outperformance as well as (ii) the eventual inflation-plus-delta (as opposed to exponential) growth-success are both not seen for what it really is. Yet, the Outperformance is slowly (and perhaps imperceptibly) stifled and reversion to the corporate culture mean thus happens unnoticed.

(3) Stockholm Syndrome:

And, finally, the scenius may simply forget what made it successful, and (slowly) start embracing the corporate culture again.

The Longer Discussion

We will go into more depth here and things my get a bit 'technical'.

So, clock out now if you are not interested.

But, stay tuned if you are interested in some of the scientific underpinnings for our statements - both here and in our Outperformance book.

A Chain of Underpinnings

This discussion (inter alia) is partly underpinned by the thinking of Harvard prof. David McClelland, namely his statement: "(the need for) achievement, for power, and for affiliation underpin human motivation".

Human motivation, of course, underpins corporate successes.

Culture

Corporate cultures tend to be 'not good'. Why?

Culture is ideas, attitudes, certain tangibles artefacts and (for our purposes) beliefs, habits, rituals, institutions and more.

A Venture Capitalist-funded startup can define its culture through the founders and the first hires.

Conversely, corporate environments have long-standing and very slow-to-change cultures. And these corporate cultures typically contain the following two elements:

(a) Mashups of Jean Paul Sartre's 'hell is other people'. They contain the 'hell' of toxic inter-personal competition. (see under next heading)

(b) Ways to counter-act the 'hell' and to ensure operational success, such as Standard Operating Procedures, executive dictates, processes, and measures such as KPIs, OKRs and SLAs.

Culture Hell

Pertaining to the 'hell' mentioned above: For individuals to grow and prosper in corporate-land, they must compete with others for recognition, salaries, increases, promotions, etc.

For the vast majority(?) of employees, their main, but unspoken and perhaps even subconscious, goal is therefore to first look after their own interests and, only when those are taken care of, to (perhaps) look towards the needs and interests of others.

The employees of the scenius are also employees of the parent company. Parts of measuring these people's successes are therefore as per the corporate culture and as per the corporate rules. And these scenius employees also need to first look after their own interests. They cannot avoid the corporate 'hell'. In the scenius they can, above all, be their best. In the corporate they need to, above all, conform.

This typical corporate 'hell' is, of course, counter-acted by the levels of empathy and fellowship (and other such 'positive' attributes) that many individuals possess.

But, the 'hell' is also hyper-magnified by those who have psychopathic or sociopathic types of tendencies. The negative impact of the latter-mentioned group is often a dominant impact as they tend to climb the corporate ladder more successfully: "Roughly 4% to as high as 12% of CEOs exhibit psychopathic traits ... many times more than the 1% rate found in the general population and more in line with the 15% rate found in prisons". The positive competition (with competitors) and the singular focus towards venture success reduce the likelihood that these toxic individuals will be found here. Given the scenius' risks of failure and the higher career-ladder in the corporate, that's where they will typically focus.

Even so, and back to the 'positive' attributes: humans are group animals and most of us are inherently social. Once we have looked after ourselves (i.e., our salaries and our promotions) we need each other too and we need a common purpose. Then we reach out to each other.

This 'reaching out' may sound as if it will help outperformance, but it does not necessarily do so.

The reasons why this is so are to be found in misguided beliefs and anchoring.

Once the belief/anchoring influences are clear (see below for discussions of both), the reasons for the following two approaches should also be clear:

1.) Create a scenius
(divorce the venture from inapplicable corporate beliefs)

2.) Comply with Joy's law
(inject new beliefs to dislodge existing anchoring)

Beliefs

It is more likely that our beliefs are as a result of our environments than they are likely to be coordinated with reality.

From John Tooby, Professor of Anthropology, UC Santa Barbara (with our formatting):

We take for granted that the function of a belief is to be coordinated with reality, so that when actions are based on that belief, they succeed. The more often beliefs are tested against reality, the more often accurate beliefs displace inaccurate ones (e.g., through feedback from experiments, engineering tests, markets, natural selection).

However, there is a second kind of function to holding a belief that affects whether people consciously or unconsciously come to embrace it — the social payoffs from being coordinated or discoordinated with others' beliefs.

The mind is designed to balance these two functions: coordinating with reality, and coordinating with others. The larger the payoffs to social coordination, and the less commonly beliefs are tested against reality, then the more social demands will determine belief—that is, network fixation of belief will predominate.

It is this second attribute of beliefs (i.e., our need to belong) together with the dangers associated with not belonging (and there are grave such dangers in corporate environments), that drives us to follow the beliefs around us. And, yes, those beliefs may not be coordinated with reality.

Our tendencies to believe 'blindly' is a powerful force: To guess, for example, what someone's religious beliefs are with a high level of accuracy, one only needs to ask what the dominant religious belief system was where and when they were born. To guess what someone's corporate culture 'mean' is, is usually similarly easy. Our environments shape our beliefs, whether we consider ourselves to be independent thinkers or not.

Anchoring

Our predilection for anchoring is generally immense. How many of us change our political or religious beliefs? But, even outside of politics and religion, in environments where we would expect beliefs to be coordinated with reality, such as in science, this is still an issue. It even has a name: Plank's Principle.

From Wikipedia:
In sociology of scientific knowledge, Planck's principle is the view that scientific change does not occur because individual scientists change their mind, but rather that successive generations of scientists have different views.

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it ...

An important scientific innovation rarely makes its way by gradually winning over and converting its opponents: it rarely happens that Saul becomes Paul. What does happen is that its opponents gradually die out, and that the growing generation is familiarized with the ideas from the beginning: another instance of the fact that the future lies with the youth.

Colloquially, this is often paraphrased as "Science progresses one funeral at a time".

"Moses discovered that no migration, no drama, no spectacle, no myth, and no miracles could turn slaves into free men. It cannot be done. So he led the slaves back into the desert, and waited forty years until the slave generation died, and a new generation, desert born and bred, was ready to enter the promised land.

The Scenius

The corporate scenius (i.e. the separate corporate vehicle to drive the ventures) helps one avoid many of the dangers associated with beliefs and with anchoring; i.e. those ways of working that may successfully drive corporate inflation-plus-delta growth, but can never create exponential Outperformance growth.

That's why Outperformance needs a scenius.

But, with the scenius being part of the bigger corporate, it is immensely difficult to avoid getting sucked back into the larger corporate culture.

Knowing about this danger - and continuously taking the same types of steps that were taken during the creation of the scenius - will help mitigate this risk. Renewing the vows, so to speak.

If not, the corporate culture will eat the scenius and its strategy (and, even more so, its culture) - not immediately and not for breakfast, but one little bite at a time.

Postscript

Note also that Prof. McClelland's thinking (referred to earlier) also supports another post of ours - the one that was related to personality assessments (and other related types of tests):

"... commonly used hiring tests using IQ and personality assessments were poor predictors of competency ..."