A Company Is Only Culture + Capacity

By Heather McGowan & Chris Shipley

Here’s an alarmingly simple idea that provides clarity in times of turbulence: companies are nothing more than capacity and culture. Period. 

Culture, at its most basic, is the purpose and the operating principles by which that purpose is achieved.  Capacity is the ability to respond to opportunity. Brand is the expression of culture. Products and services are the output of responsive capacity. Drop Culture and Capacity into a market context – a market need, an industry, a geography - and you have a business. Why does this simplicity of focus matter now?

In Accelerated Change, Focus on the Inputs Rather Than The Outputs

In an age when change came slowly and products and brands had long market lifecycles, an executive might be forgiven for confusing culture with brand and capacity with production. It’s a mistake that brings a near-sighted focus to the business that often misses shifting context. Consider a classic example. Kodak was really good at silver-halide chemistry, which worked well for decades before digital transformation up-ended the photography industry. Unfortunately, the company didn’t have the capacity to re-imagine photographic imaging in a new market context. If Kodak had embraced the purpose in its “Kodak moments” motto and imagined a business bigger than print imagine, the company might have endured. Kodak, of course, is not alone; dozens of companies that, for lack of a culture-capacity dynamic, withered in the face of digital transformation. Barnes and Noble struggles to compete with Amazon, and perhaps most famously Blockbuster fell to Netflix, the former plummeting from $6 billion annual revenue to bankruptcy in six short years.

 A focus on capability, rather than capacity, ties a company’s success to a workforce hired to execute the specific tasks to produce a specific product. As change accelerates and product life cycles shorten, capabilities-focused businesses will find themselves stuck in the Sisyphusian task of firing and hiring for new capabilities to meet the changing market context. Capacity-focused leaders, on the other hand, build capabilities retooling into their workforce, hiring people for their learning agility and workplace adaptability.

Rapid Acceleration Shortens Lifespans: Focus on Learning + Adapting

Don’t believe us? Consider the creative disruption and rapid scaling of businesses as evidenced by the shrinking listing time on the S&P 500. While economists may debate specifics, the trend line is clear: Pre-digital company lifespans have shortened while new companies, many reconfigured as platforms, scale to billion-dollar valuations in just a handful of years. This trend has been reported as far back as 2001 in the seminal book Creative Destruction. Less reported, however, is the underlying cause: As technology and globalization accelerate change, products and their business models have significantly shorter lifespans. Companies that have morphed into digital platforms upon which value can be created (airbnb, Uber, Slack, Facebook) can launch and scale very quickly.

A company still focused exclusively on the creation of the output (brand/product) of their company, rather than nurturing the inputs (culture/capacity) may not be in business tomorrow. Learning Agility and Adaptability (aka Capacity) guided by culture are the only ways to thrive in this reality.

Compelling Evidence: 100-Year View of Five Largest Companies

One hundred years ago the largest companies were primarily formed to create value by extracting and processing natural assets. Fifty- years ago companies shifted to “scalable production” of tangible goods and services. Today’s largest companies grow through “scalable learning” to create and recreate digital assets.  

At each of these fifty-year marks, culture and capacity allowed the businesses to grow in their market context.  Fifty years ago, for example, a formally-educated worker provided specific expertise that reduced risk and enabled scalable production. This led to a myopic focus on outputs. Today, in a market context of expanding technological capability and global connectivity, the agility and adaptability found in scalable learning afford rapid growth and market dominance.

In other words, the success of a scaling business today is no longer about efficient production of a product. Instead, scale will be achieved by increasing the capacity of the organization to learn, retool, identify and respond to new opportunities and create future value. Deloitte’s John Hagel refers to this as the shift from Scalable Production to Scalable Learning.

Case Example

We recently spoke with a senior executive who has been hired to turn around a traditional, analog company. The company’s revenue had declined 20% in the last two fiscal years. Products were missing ship dates and technology was failing. As she assessed her team, she discovered a culture of certainty where answers, even if inaccurate, were accepted if they were offered with surety.

“Yes the product will ship on time.” “No, there is not a problem.” “I know how to get this done. I do not need help” These familiar statements, while comforting, masked big pending problems. Yet the culture did not afford employees the luxury of reporting problems or asking for help. If a worker’s capacity is not up for the task, she risks losing her job. In order to create capacity, the executive needs first to change the culture. She now seeks those painful answers earlier pairs resources and support with struggling workers in order to expand the collective capacity of her organization. This culture shift requires trust in leadership. If seeking truthful answers becomes a screening process to identify poor performers, the cultural transformation will fail and the company will be trapped seeking talent for short term fixes rather than building capacity. While this case study masks the identity of the executive and the company, the reality is that most companies face this challenging problem.

Products/Services are a Souvenir of Your Culture and Evidence of Your Capability

Whatever products or services you sell today are likely based upon the evidenced capabilities you hired yesterday. What is your plan to create products and services levering the capabilities you don’t yet even know you need? Where will you find those capabilities if they are not yet part of an academic or workforce-training curriculum? How do you articulate and socialize your culture? How do you reinforce culture by celebrating cultural wins and calling out cultural missteps? Do you screen new talent for cultural fit? Do you have a hiring plan that focuses on learning agility and capacity for change rather than specific capabilities and past experience? Do you have a learning plan that enables your organization to retool for new opportunities and continually build your capacity? 

If the World Is Moving Faster Outside Your Organization Than Inside It, The End Is Near.

-       Michael Priddis, CEO of Faethm

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Top 5 Companies FY 2016 Revenue

The largest companies by market capitalization in 2017 were all technology-based companies.  That is notable if you focus on output—what they make. If you look at their earnings, you may conclude these companies focus too much on a single revenue stream or product line. Time will tell: Are they focused on output or input.

The key to staying on this top five list, however, is learning, and each of these companies has the unique opportunity to learn from the market experiences and data afforded by their digital offerings. Every user interaction becomes a data point from which to learn. Indeed, the products themselves may be only Trojan Horses to collect data from which they can learn.

The Future of Work Is Learning and Every Company Is a Data Company

What do we mean by “every interaction is a data point”? When you take a ride with Uber you are contributing to their mapping of human movement. When you use a Roomba robotic vacuum cleaner, you are helping the company create floor maps of homes to better inform smart home design.. When you click on a sponsored story on Facebook, you are refining the algorithm that targets ads  to you. When you engage in news stories on curated sites like Apple News and Flipboard, you are refining the type of content pushed at you in the future. When you ask Amazon’s Alexa a question, you are building your customer profile for the sale of future products and services. When you drive a Tesla car you are contributing to their fleet learning network that  seeks to improve future autonomous driving.

Consider the Hierarchy Ladder of Business Intelligence—the more you move  up and to the right, the greater the value.. Insights extracted from data are sufficient and necessary to improve products and services. To create new value by offering new products and services, those data-derived insights must couple with intelligence and wisdom. 

So, What?

These are the questions the very best leaders are asking themselves. They are the kind of questions that we love to work with, increasing their capacity and our own. If you see the world as we do, we’d love to talk to you. If you disagree, we’d like to understand why. We welcome the deliberations and debate that helps us continuously increase our capacity.

With thanks to Frances Cairns who helped us sharpen our thinking and continue to build our own capacity.

The Van Halen Rules

We welcome and value your considered comments, and to insure that commenting is productive, we invoke what we call our “Van Halen Rule.” As the story goes, Van Halen produced a seriously technical concert that required careful attention to details. To insure that the venues read the contract, the band added a provision requesting a bowl of M&M candies, from which the brown M&Ms had been removed. They had nothing against the brown candies; they just wanted to be sure the venue paid attention to the details. If the venue didn't get the M&Ms right, the band would know other, more important, details may have been missed, too.

Too often, our posts on work garnered comments based upon an opinion triggered by a headline or graphic and not the content of our article. So that we can focus our engagement on informed readers, we ask that you type "+" before your comment to signal that your comment is based upon consideration of all of our work rather than a knee jerk reaction to a headline. We look forward to learning from you.

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About the Authors

Heather McGowan, 2017 LinkedIn Top Voice for Education, and Chris Shipley formed Work to Learn in 2015 with the belief that we are leaving the paradigm in which we learned (in order) to work and we are now entering the paradigm in which we will need to work (in order) to learn (continuously). We work at the intersection of the future of work and the future of learning helping clients adapt to this new paradigm shift. More information about our work including keynote speaking requests can be found at www.futureislearning.com

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