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Is Your Culture Putting You at Risk?

Published on 17 Jul 2019

Data Analytics

It has become something of a cliché now to point out that organisations’ cultures are increasingly appearing in the news for all the wrong reasons. Just last week, the Australian Financial Review published an article about how the cultural issues at 3 of the big 4 banks has lead APRA to order them to each put aside an additional $500 million in capital.

With the accumulation of culture horror stories and their financial as well as reputational costs in the press, more and more organisations are becoming acutely aware of the need to measure and manage their own cultures. In particular, many discussions centre on the need for a ‘risk culture’, a ‘customer service culture’ or an ‘innovation culture’. In reality, organisations only have one culture and the previously mentioned are 3 separate outcomes generated by that single culture. What we at Human Synergistics define as a ‘constructive’ culture has been demonstrated to deliver higher levels of innovation, better customer service and more effective management of risk.

To explore the impact of culture on risk specifically, we have conducted an analysis on a large financial services organisation to examine the linkages between individuals’ experience of the culture and their perceptions of risk management. To do this, we’ve utilised the Organisational Culture Inventory (OCI)™ to provide a quantitative measure of the organisation’s current culture as well as a set of specific questions around risk.

Individuals were separated into the top and bottom 10% in terms of the experience of the culture and the risk measures were then compared between these two groups. The cultural experiences of the two groups are shown below.

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Figure 1. Culture Profiles for most/least constructive experience

As you can see from the stark difference in the amount of colour present in different areas of these two circumplexes, the cultural experience of these two groups are polar opposites. The top 10% reported expectations around having a growth mindset, both in terms of the organisation and individual development. They were expected to look for improvements and try new or different ways of doing things. Importantly, they were also expected to do this collaboratively with others. From a risk perspective, this means individuals are likely to speak up around potential issues rather than covering them up, since they expect the response to be positive rather than being concerned around copping the blame. Risks are therefore identified early and addressed rather than being allowed to fester. This kind of culture is not one where no risks are taken, however the risks are weighed and assessed before being undertaken.

In contrast, the bottom 10% reported much more security-oriented needs where the primary expectation was self-preservation. This plays out in a number of strategies with individuals reporting they needed to stay low and fly under the radar by avoiding responsibility and conflict, seek to maintain control over resources and information, rigidly stick to processes or do whatever it took for them to come out on top. These types of expectations impact on risk management in two ways. Firstly, it may increase the likelihood of unethical or risky behaviour as individuals become overly focused on the short-term gains. Secondly, it means that when an issue does occur people are less likely to speak up about it given they don’t want to be left with the blame.

These linkages are supported by the risk questions which were also collected, these questions used a 1-5 scale ranging from ‘not at all’ to ‘a very great extent’. The charts below demonstrate the percentage of individuals in each group who strongly agreed (a score of 4 or 5) with each statement.

graphFigure 2. Perception of Risk Behaviours

Individuals were asked various questions around how they were likely to react if they didn’t agree with a decision or way of working - and again the difference between the two groups is stark. Those who had a constructive experience of the culture were far more likely to feel they could speak up and challenge the way things are done, with 81% strongly agreeing with this statement compared to 8.7% of those with a more defensive experience. They were also more likely to believe that something would be done as a result of their speaking up, with 12 times as many people believing this to be true. Those with a constructive experience also saw risk being managed more proactively, with 59% agreeing people in their team identified risk issues outside of their area of responsibility. Meanwhile, from the perspective of questionable behaviour, those with a defensive experience of the culture were twice as likely to believe it is necessary to bend the rules to get things done.

Graph 2Figure 3. Perceptions of Risk Value

The respondents’ perception of how much their organisation valued risk management also varied widely. While both groups generally believed their own manager encouraged them to do the right thing, the perception of risk management amongst senior leaders was much more variable.  Only 11% of those with a defensive experience reporting senior leaders role modelled appropriate risk behaviour and only 3.7% reporting the management of risk was rewarded and valued. Lastly, there was a difference between whether individuals believed the organisation puts its’ customers’ needs ahead of its’ business goals. Less than half of both groups agreed with this statement but the defensive group were far lower at 13.7%.

So what does all of this mean for the potential impact of your culture on how risk is managed within your business? Well, clearly the two groups being compared here are extreme examples and your own culture is unlikely to look exactly like them. However, ask yourself whether any of the cultural descriptors outlined earlier sound familiar and how this might be impacting on your peoples’ willingness to identify and actively manage risk. What happens when an issue is raised? Is the focus on how to fix it or who to blame?

If you’d like to learn more around how to quantitatively measure and manage your own culture you can find more information at https://www.measureculture.com/
 


 
We’d love your feedback as well as any suggestions for questions you’d like answered from our data. Email your feedback to ABarbour@human-synergistics.com.au