Is culture-fit key to success or an excuse to be biased?

A common argument used by interviewers to reject candidates is “this person is not a good culture fit”. I have been sitting on the fence with respect to this argument. In this article, I dissect the constituents of work culture with the intent of answering whether culture fit is indeed relevant in hiring as well as for potential candidates when they assess their next career opportunity.

Culture is the collection of beliefs on which people build their behavior. There are 5 core beliefs that define the work culture in an organization:

#1. How are people motivated? - Performance-driven vs. Growth-oriented

A performance-driven culture emphasizes delivering results over everything else. This perpetuates a zero-sum game in which people either succeed or fail and winners get separated from losers. Growth culture cares about results though they treat failures and shortcomings as opportunities for learning and improving. In a performance-driven culture, your reputation is a function of your latest project’s outcome and as a result, there is a constant pressure to sustain high performance and deliver results. This invariably leads people to seek out areas where they have high confidence of winning. Growth culture emphasizes long-term thinking and encourages people to focus on a consistent set of inputs even when they don’t necessarily deliver desired outputs in the short term. This may result in a scenario where even with all inputs being achieved, the outcomes may not be delivered. A growth culture requires a high level of conviction in inputs along with patience and persistence to stay on the path. In a growth culture, compensation may not include a material short-term performance linked component while a performance-driven culture is reinforced by the presence of a short-term performance bonus that could be as high as 100-200% of fixed compensation.

Only companies that can afford to think long-term are likely to have a growth culture and this implies that they have sufficient cash reserves to sail through turbulent times and navigate bumps along the way. On the other hand, vast majority of companies need to manage their cash-flow on a short-term basis and may not have the cushion of cash reserves. In such cases, it is imperative that they emphasize short-term performance to survive business troughs. When you consider a role with startups, only well-funded startups with a few years’ runway can afford to have growth culture while vast majority of startups with short funding runway would have a performance-driven culture. The external environment and competition also shape the choices made by firms. In a fast-growing sector where competition is performance-driven and handing out short term performance pay cheques, it is difficult to attract talent if you are adamant at being growth-oriented.

#2. How things get done? - People-oriented vs. Process-oriented

In a people-oriented culture, each leader trusts a few specific team members to get things done. They in turn create their own set of trusted deputies to get things done and the cycle repeats. This could come across as a highly empowering culture where the trusted team members feel empowered to do things their way without necessarily adhering to bureaucratic processes. This model works well when a leader is in a position to rely on a specific set of people who moves with the leader across roles. Loyalty is highly regarded and rewarded in this culture. Engagement tends to be higher in such a culture where people feel emotionally invested in the success of the team and their mission. In such a culture, people are expected to show up and work together even in areas even when they don't have a material contribution. Time-sheets are common in such a culture and absolute time invested in work is valued in addition to delivery of results. Decision-making rests with few key people and they form power centers that can either speed up decision-making or present hurdles.

In a process-oriented culture, the inherent assumption is that good intentions rarely work, instead you need good mechanisms to make things happen. This could end up creating what appears like a bunch of planning and execution mechanisms that organize people’s work around these tasks. This provides a structure and works as a way to manage time for the team. However self-driven team members may feel constrained by the perceived bureaucracy and may feel like they don’t have enough autonomy. Reliance on processes reduces reliance on people and often such a culture is associated with high talent mobility with the organization. Relying on processes also mean that there is no need to manage how employees utilize their time thereby leading to high degree of flexibility. Decision-making often involves multiple processes and layers of people leading to frustrating slow progress in securing approvals.

In a people-oriented culture, leaders tell their teams what to do while in a process-oriented culture, leaders teach their teams how to think so that they can figure out how to do things themselves. In my experience of living and working across India, Middle East and Europe, I found companies in India and Middle East having a people-oriented culture with high trust in few key people who have earned this trust through performance and loyalty. In Europe, there is a distinct preference for processes that is best explained by a quote from Jeff Bezos, “Good intentions don’t work, Mechanisms do”.

#3. How are decisions made? - Flat vs. Hierarchical

The difference between a hierarchical company and a flat company lies in the number of reporting layers it fosters and the difference in privileges offered to different layers. Flat companies tend to have clearly defined and strictly enforced span of control to consciously limit the number of layers between the leader who runs the business and the employee who runs daily operations. Flat organizations are built with the objective of decentralizing decision making and innovation. On the contrary, hierarchical organizations create multiple layers consciously designing a large delta in privileges and benefits between different layers. In such organizations, the burden of decision making is centralized and limited to top one or two layers of management while everyone else is expected to be doers driving execution and reporting back to top management the challenges and support required.

Hierarchical organizations are more likely to hire management consultants as they tend to rely less on their own teams for innovation and seek external expertise. In such organizations, it is very common to see the top management layers being compensated well in line with the best in industry while the rest of the layers are often compensated well under industry standards. A good way to assess whether an organization is hierarchical is by speaking to people who work at both senior and junior levels and see the difference in their experience with the org. The larger the delta, the more likely the organization is hierarchical.

In my experience of working with publicly-listed, family-owned and partnership companies, I could see how ownership structure has a distinctive impact on how decisions are made. The family promoters and their inner circle play an outsized role in decision-making in family-owned organization. Similarly the partners and their confidantes play a large role in decision-making in consulting companies. On the contrary, publicly-listed companies place high emphasis on developing a leadership pipeline to ensure business continuity as their valuation is dictated by long-term prospect of the company. This leads to a relatively flat org structure in publicly-listed companies vs. family-owned companies and partnerships.

#4. How new ideas get funded? - Risk-Averse vs. Growth-focused

Some organizations choose to grow in a measured and risk-averse way while others chase fast-paced growth. This is often influenced by the stage at which the company and industry is. When a company gets an early mover advantage in a sun-rise industry, it tends to double down on growth and take risks with the hope of reaping a large bounty. In more established industries with slower pace of change, companies tend to be more risk-averse. In growth-focused organizations, there is a relentless quest for new growth areas and hence high appetite for risk taking, sometimes bordering on reckless. In VC-funded startups, there is a quest for rapid growth that leads to a high-risk appetite. On the contrary, in family-run businesses, finance function often plays an outsized role in governing each and every element of business and emphasizes stability and keeps a high bar for likelihood of success while assessing new opportunities thereby letting go off many growth ideas. Growth-focused companies tend to invest in a portfolio of new moon-shot ideas with the understanding that a vast majority of these ideas will fail though the few that win would compensate for the failures. Such risk-taking requires either a strong balance sheet or a patient like-minded investor backing. Historically large corporates with cash cows were adept at channeling investment into innovation in-house or acquiring innovative startups.

A growth-focused culture can only be nurtured in an environment where there is an inbuilt safety net for employees and failures are seen as a stepping stone to success. A risk-averse culture usually has stringent audit mechanisms for use of funds. Finance function is expected to take accountability for use of funds, return on capital invested and hence plays an outsized role in all funding decisions. In any industry, the top companies with high market share are more likely to chase risky moon-shot ideas while the smaller players take a more measured approach to risk-taking as they have limited resources and need to make their investments work harder.

Business executives are likely to feel more empowered in a growth-focused culture as they get more room to experiment with unproven ideas while finance plays a larger role in risk-averse culture with stronger financial controls and audit mechanisms.

#5. How workplace benefits are structured? - Frugal vs. Luxurious

An important element that defines perception of work culture is how frugal or opulent an organization is in providing workplace benefits. Examples of these would be free meals, business class tickets, sponsoring executive education, etc. Workplace benefits structure is a function of how big the operating margins in the business are. The best examples are found in the world of Big Tech where there is a significant difference in workplace benefits between Amazon on one end and Google on the other end. While they are clustered together as big tech and have high valuations, the source of their value couldn’t be more different. Amazon runs a thin margin retail business while Google runs a high margin advertising business. By virtue of this, Amazon needs to be frugal to create value in a sustained way. It is a good practice to check the operating margin to understand how frugal or opulent your prospective employer is likely to be.

Defining Work Culture

A combination of these 5 ways of working shapes the work culture in an organization - How people are motivated, how decisions are made, how things get done, how new ideas are funded and how workplace benefits are structured. While I have explained the ends of the spectrum, most organizations operate in the shades of grey between the polar ends. An organization that is consistent with its work culture is likely to retain talent. Consistency is key as it helps align the expectations of new hires as well as provide a safe and nurturing environment for people who have spent many years with the organization. Conversely, an organization with inconsistent work culture can be damaging for employees as they may face vastly different expectations across different teams. This can limit talent mobility within the org as a result of which they look out when outgrow their current role.

Does culture-fit matter when you hire a new candidate?

Culture-fit can be an enabler for employees to feel at home. In a process-oriented culture, structured individuals with a penchant for planning would feel comfortable though hustlers with a spontaneous style might feel constrained. People who like to think big and take risky bets may feel liberated in a risk-taking startup environment that allows experimentation while those who like to take measured bets based on deliberate stakeholder consultation would prefer a conservative work environment. People who have a penchant for hustle culture and instant rewards would like a performance-driven culture while those who like collaborative team work would prefer a growth-oriented culture that values behavioral inputs as much as delivering results. People with a frugal mindset would appreciate a company that reflects their ethos while others who come from a more privileged background may find it difficult to empathize with a profitable corporation being frugal in their ways. In many ways, employees would feel more at home in an organization whose culture aligns with their personal values. However, culture-fit is not a necessary or sufficient condition for success. If you are in a role that you enjoy doing and where you get to apply skills that you are good at, culture-fit is not a necessary condition for success and vice versa.

When new employees join an organization, they tend to have limited understanding of what to expect from the org. New employees need a ramp up time in which they get accustomed to the ways of the working of the new org and adapt to the new work culture. This is a make-or-break period of time when new employees either build a strong foundation or gets disillusioned with their new environment. Hence this is usually a period of high attrition for new employees leading to the perception of culture fit as key criteria in hiring.

Looking back at my own experience with new hires as well as my own experience as a new hire in multiple organizations with very different work cultures, the ability to adapt to a new organization and its ways of working is a function of the support that the new hire receives from the organization. The hiring manager and organization should be able to help the new hire understand not just the ways of working but also the context behind why the org operates the way it does. This is where many managers fail especially in situations where they are overwhelmed with work and don’t find enough time to facilitate the conversations that help the new hire adapt to the org’s culture. Lack of investment from the manager is often exacerbated by the lack of a well-defined onboarding program that aids integration of a new hire into the org. If the organization has a well-defined onboarding program to integrate new hires that shifts the burden of adapting from the new hire to the org, it is very likely that new hires would be able to adapt to the work culture, however different it may be from their previous cultural background.

As an ever-increasing body of research highlights the benefits of diversity and inclusion at the workplace, culture-fit is fast becoming a hurdle in attracting and retaining diverse talent. A culture-fit argument is more often than not a reflection of the interviewer's bias acting against or in favor of the candidates. Leaving aside a handful of early-stage startups that require new hires to hit the ground running, culture-fit is overrated for a vast majority of organizations. The onus is on the organization to integrate a new hire and help them adapt to the work culture. Culture-fit helps a candidate’s perspective to feel at home though it is neither necessary nor sufficient condition for success. As you build your corporate career, it is important to realize that it is rare to find an organization that perfectly matches your personal values and if you do, it is likely that you will slip into a comfort zone. While this can be an enabler in building a sustained long-term career with the org, you would need to consciously reflect on your personal growth and not be afraid to break free of your comfort zone if it holds you back.?As Charles Darwin puts it, “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change”.

As an interview candidate, do not let culture-fit hold you back from making the next big career leap. As an interviewer, do not let culture-fit bias you against a promising candidate. As an organization, if a new hire from a diverse cultural background is not set up for success, rest assured that it is time to make amends.