Think Tank

Cultural Transformation: The Key to Business Growth

In conversation with:

Anand Kripalu Aarif Aziz
Anand Kripalu, Managing Director and Chief Executive Officer, Diageo India Arif Aziz, Chief Human Resource Officer, Diageo India

In 2013, when Anand Kripalu was inducted to head Diageo India, he faced serious challenges as to how to transform its corporate culture and improve its image. What he saw was a culture similar to that in many Indian companies, where the leadership decides what everyone does and nobody would question the leadership. Mr Kripalu intended to revolutionise how the company functioned and the way it was viewed, through a gradual cultural ‘evolution’. He turned the paradigm on its head, transforming Diageo from a stern, top-down organisation to one with a more de-layered and democratic approach. From spending nothing on CSR activities, it began investing in social good, based on a strong value system. He overhauled senior leadership to one that was based on values and not just performance, thus changing the firm’s overall psyche.

Culture drives performance…

Why change…
Underlying this massive shift was the belief that, ultimately, culture not only drives performance but is a firm’s only sustainable source of competitive advantage. Any company can copy your technology, your brands or your organisational structure, but they cannot replicate your culture. When Cadbury faced a crisis – its Dairy Milk bars were reportedly infested with worms – none of its employees left, because they cared for the firm more deeply than any contractual relationship might have permitted. Even when people leave, a favourable culture can help to eventually attract them back.

Small but symbolic victories led the cultural revolution

Small steps go a long way
When Mr Kripalu entered the Diago Boardroom in October 2013, he had to face 25 male directors and a deeply hierarchical structure. Nobody spoke but the top management and there was virtually no ‘dialogue’ at all. He initiated change with small, symbolic steps such as ‘democratising’ the parking spaces and elevator that were previously reserved for upper management. He broke up a closed office culture, turning it into an open space; began having exclusive lunches with his juniors; and started to include women in senior management roles. These steps, though seemingly small, were integral to starting a cultural revolution at Diageo.

Delayering the company was one way to transform its culture

The organisational overhaul
The more difficult aspect of this cultural shift involved changing the organisational structure: loosening the hierarchy as well as ways of working. At the time, there were 16 layers of hierarchy within the firm. People who had started as assistants had become Vice Presidents but were still doing the same level jobs, even 25 years later. Nobody moved out of their roles or comfort zones, which resulted in poor employee development. There were instances where two people were asked to make a single PowerPoint presentation for their superior, signalling a lack of efficiency. Hence, an organisational overhaul was essential to bring in a pragmatic new work culture. The rationalisation involved two massive rounds of restructuring. A delayering process began, which involved cutting in half not just the white-collar workforce (from 3,000 to 1,600) but also the number of factories (from 94 to under 50 today).

Stick to your guns…

Doing the Business Right
In order to percolate the new culture down the organisation, the leadership strongly emphasised the need to operate on the basis of values. This was not an easy change to make, since it meant foregoing business in some states where governance standards were not up to the mark. For Diageo, though, ethics is not just about tackling bribery and corruption but also about honest communication. For instance, it began to follow a strategy of ‘ethical marketing’ of its alcohol. It discontinued a brand that was doing huge business – McDowell’s Diet Mate sold 2 million cases a year – to avoid positioning an alcoholic brand as a diet product.

Transforming the senior management is a heavy task but achievable

Inculcating Value Based Leadership
There are always questions around how to encourage value-based leadership within senior management. One litmus test is to ask managers to make their commitments public. Once the world is watching, they are more likely to deliver on their promises. The second element is to change performance assessments to reflect not so much ‘what’ has been done as ‘how’ it was done. The premise here is that the ‘how’ becomes aspirational and drives a value-based culture.

Involve workers at the bottom of the pyramid in the process of change

The Bottom-up way
All of these changes can help drive leadership from the top down but a true cultural shift also requires a more democratic, bottom-up approach. It is now said that, ‘If you don’t have a mentor who is 10 years younger than you, then you are reaching the end of your road.’ During a factory visit to Baramati, the CHRO noticed that the blue-collar employees had set up a board tracking their daily performance matrix in Marathi. Not only was this a great initiative to boost motivation and productivity, it also demonstrated the value of involving the firm’s lower rungs in the process of ideation. Often, this is what brings change to an otherwise hide-bound company.