How to keep your culture and standards as you grow

1 The bottom line

Keep your culture by naming what made the company work and guarding it against process, imported systems and growth that outruns your people. Strong numbers hide the erosion until the damage is deep.

2 Key takeaways

• Judge by the result, not by whether the process was followed. Process quietly becomes a stand-in for the goal as companies grow.
  • Jeff Bezos, Amazon1:04:40 said a junior leader defends a bad outcome with "we followed the process", while an experienced leader uses it to improve the process.
  • Ed Catmull, Pixar45:40 saw companies let streamlining replace the real aim, which yields predictable and unoriginal work.
• Test every new leader and imported system against what made you special. A system that works elsewhere can gut the thing that made you work.
  • Home Depot2:09:50 under Nardelli fell from near the top of US retail customer satisfaction to dead last.
  • Amazon2:29:20's executives rejected an outside COO like a bad organ transplant.
• Put a governor on growth before it outruns your people and systems. Growth covers up mistakes, so the damage shows late.
  • Howard Schultz, Starbucks1:46:00 told 10,000 managers in 2008 that Starbucks had seven months before insolvency.
  • Schultz2:03:00 said the mobile app grew with no governor and overwhelmed stores.
• Add checks and discipline where freedom has no limit, but do not engineer away the craft. Uncontrolled freedom breaks companies, and over-control kills the work.
  • Larry Ellison, Oracle30:29 had to restate earnings in 1991 and the stock fell over 80% after salespeople ran without controls.
  • Andy Grove, Intel44:29 taught that the greater the freedom, the greater the obligation to exercise discipline.
• Carry the culture on purpose by repeating it, training your own people and keeping units small. Culture does not pass on by itself once the founder cannot touch everything.
  • Ingvar Kamprad, IKEA57:20 gave the same sermon for 43 straight years.
  • Hermès46:40 grew from about 250 artisans to 7,000 by training them itself and capping workshops at 250 to 300 people.

The process is not the thing.

Jeff Bezos, Amazon

2.1 Spot the signs of erosion

Erosion shows up when process stands in for results, when spending outgrows sales, and when colleagues compete with each other.

• Ask whether the process still serves the result. See Jeff Bezos, Amazon1:04:40.
  • Listen for "we followed the process" used to defend a bad outcome. Bezos1:04:40 said large companies manage to proxies like this.
  • Keep the goal in view. Catmull45:40 said improving process is worthwhile, but the goal at Pixar is making something great.
  • Bezos added that great customer experiences start with heart, intuition, curiosity, play, guts and taste, which you will not find in a survey. Bezos1:04:40
• Cut bloat with a few basic questions. See Larry Ellison, Oracle42:45.
  • Ask what you sold last year, what you will sell this year, what you spent last year and what you will spend this year. Ellison42:45
  • Look for spending that makes no sense against sales. Ellison found a $5 million energy center of excellence meant to support $10 million of forecast sales. Ellison42:45
  • One senior manager arrived with 200 slides, and Ellison said he would look at them after the four questions were answered. Oracle also had 70 separate HR systems, each with its own database. Ellison42:45
• Watch for structures that turn colleagues into rivals. See Microsoft4:24:30.
  • Stack ranking forced one to five rankings against immediate colleagues. With the stock flat for years, people believed gains came only from beating a peer. Microsoft4:24:30
  • Point everyone at the outside. Henry Singleton, Teledyne29:05 told managers their real competitors were other large US corporations, not each other.
  • Microsoft's result was an org chart of divisions pointing guns at each other. Microsoft4:24:30
• Do not cut people by a subjective score. See Morris Chang, TSMC19:40.
  • Chang argued ratings come from many different supervisors, so they are subjective and people would not respect the layoff. Chang19:40
  • Count the cost. Separation costs about half a year and retraining another half year, so layoffs make no sense if you rehire within a year. Chang19:40
  • His successor laid off 600 to 700 of the lowest rated people in 2009. Hundreds protested outside Chang's home, and he took back the CEO job and offered to rehire anyone who wanted to return. Chang19:40

2.2 Test every new leader and imported system against what made you work

A strong outsider or a proven system can destroy the thing customers valued, so check what it assumes about your people.

• Do not import a system that treats your core people as replaceable. See Home Depot2:09:50.
  • Nardelli replaced knowledgeable floor staff with part-time general retail labor and cut associates per store from 200 to 170. He also preferred college-degree store managers, which closed the promotion path. Home Depot2:09:50
  • Count what expertise is worth. At Home Depot a 25-cent washer sale could turn into a $100,000 kitchen. Home Depot2:09:50
  • He doubled revenue by doubling stores, but the stock fell 12% over five years while Lowe's rose 173%. Home Depot2:09:50
• Repair by going back to the founders first. See Frank Blake, Home Depot3:10:50.
  • Blake's first move was to call Bernie Marcus and meet him. Their first store walk was at Costco, because Home Depot no longer embodied great retail. Blake3:10:50
  • He revived the inverted pyramid, with customers and associates on top and the CEO at the bottom. Blake3:10:50
  • Marcus had greeted his appointment with "I can't believe you brought in another goddamn GE guy to run my company." Home Depot3:10:50
• Expect the culture to reject a style that does not fit, and act on it. See Amazon2:29:20.
  • In 1999 the board had Bezos bring in Joe Galli as COO. Galli reorganized reporting lines, commuted from the East Coast and had his secretary print and read his email. Amazon2:29:20
  • Executives rejected the style, and Bezos took the wheel back and reset the motto to get our house in order. Amazon2:29:20
  • Galli's one lasting contribution was helping recruit Jeff Wilke. Amazon2:29:20
• Do not let stewards harvest the core once the founders are gone. See Disney4:03:53 and Standard Oil2:04:28.
  • From 1971 to 1984 Disney became a parks and merchandise business, and animation staff fell from about 500 to 125. Disney4:03:53
  • Under John Archbold, Standard's executives put legislators on the payroll at $15,000 to $20,000 a year and used monopoly pricing power, which Rockefeller opposed. Standard Oil2:04:28
  • In 1984 Disney's parks and consumer products earned $250 million of operating income, while film and TV earned only $2.2 million. Disney4:03:53
  • By 1904 Standard controlled 91% of refining and the public had turned against it. Standard Oil2:04:28
• Watch your own small behaviors, because they set the culture. See Steve Jobs, NeXT13:08.
  • Logo designer Paul Rand told Jobs that until he has a product, he is the product. Jobs's pattern of lavish praise followed by public tearing down had set the tone for NeXT. NeXT13:08
  • Walt Disney lectured animators for nearly three hours during the 1941 strike. It lasted three and a half months, headcount fell from 1,200 to under 700, and Walt never regained the same bond. Disney2:07:30

2.3 Put a governor on growth

Growth hides erosion, so set the pace and limits deliberately before the numbers stop covering for you.

• Treat scale itself as a threat to intimacy. See Howard Schultz, Starbucks1:02:50.
  • Ubiquity creates complexity, complexity demands efficiency, and efficiency threatens the barista-customer touch point. Schultz1:02:50
  • Keep making deposits into the culture. Schultz compared it to a reservoir, where constant withdrawals lose the plot while strong numbers and stock price camouflage it. Schultz1:02:50
  • Worn-down details, like diluting brewed coffee to maximize yield, helped drive the 2008 crisis. Schultz1:02:50
• Pace growth to the people and systems behind it. See Schultz12:15.
  • Schultz pushed hard, promising 26 stores in a year and over a hundred in five. Howard Behar and Orin Smith held him in check by reminding him the systems and people were not ready. Starbucks12:15
  • Slow a product that is too seductive. Schultz said the mobile app had no governor, and he would have slowed the rollout and not offered it 24 hours a day on demand. Schultz2:03:00
  • Customers in Chicago at 8 a.m. were told their drink would be ready in seven minutes. About 33% of orders are now mobile. Starbucks2:03:00
• When the culture has slipped, tell the truth and set a small, concrete target. See Schultz1:46:00.
  • Returning in 2008, Schultz closed about 1,000 stores and held a conference in New Orleans with community service, a tutorial and a speech. Starbucks1:46:00
  • Over his CFO's objection he told 10,000 managers the company had seven months before insolvency. He framed the fix as roughly 10 or 11 more customers per store per day. Schultz1:46:00
  • Profit rose from $315 million in 2008 to $945 million in 2010. Starbucks1:46:00
• Impose limits, and protect people from their own drive. See Ed Catmull, Pixar49:37.
  • The demand for resources is bottomless, because people can always justify more time and money. A deadline forces a hard talk about what is truly necessary. Catmull49:37
  • After a worn-out employee left his baby in a hot car on the Toy Story 2 deadline, Catmull made it his job to protect people from their willingness to pursue excellence at all costs. Catmull37:59
  • Brad Bird said conflict is like weather in an ecosystem, and a company with none does not grow. Pixar49:37

2.4 Add controls and discipline, but engineer the process, not the craft

Freedom needs checks, repeatable work needs engineering, and coordination should shrink as you scale.

• Keep independent checks on anyone paid on what they close. See Larry Ellison, Oracle30:29.
  • In 1991 Oracle's sales teams booked multi-year deals up front and recognized the revenue immediately, even for software not delivered or paid for. Ellison30:29
  • Salespeople wrote their own contracts, sold to firms that could not pay, and did barter deals such as software for jets. Ellison30:29
  • Ellison admits that keeping legal and accounting as separate control functions would have avoided most of it. Ellison30:29
• Engineer the repeatable processes, not only the product. See Ellison32:10.
  • After 1991 Ellison concluded that marketing, sales and service should all be carefully engineered. Ellison32:10
  • Pricing work done by about 200 people, with a different price in each country, was cut to fewer than 10 people. Ellison32:10
• Pair freedom with discipline. See Andy Grove, Intel44:29.
  • Grove ran sermon-like Socratic sessions on culture. Employees were to take ownership, but also to finish things and score more, not just run with the ball. Intel44:29
• Cut the cost of coordination instead of adding coordinators. See Jeff Bezos, Amazon10:15.
  • Bezos saw the real problem was the rising cost of coordination. Each software team built and documented APIs, so teams interacted through machines, not emails and meetings. Bezos10:15
  • Most firms add people to coordinate. Bezos and Jassy decided teams should not need to talk to each other at all. Amazon Web Services41:47
  • Microsoft attached a program manager to every few developers, while Amazon removed the need for the conversations. Amazon Web Services41:47
• Match the discipline to what customers need to feel. See Woodruff, Coca-Cola1:23:58.
  • Woodruff insisted a Coke should taste the same and be cold wherever it was bought. He put 32,000 coolers in gas stations in the first year. Coca-Cola1:23:58
  • After Vista, Sinofsky brought Office's ship-date discipline to Windows and framed it as needing to be a Camry, not a Dodge Viper. Microsoft3:20:40
  • The Coke formula did not change from about 1920 to 1985. Coca-Cola1:23:58

2.5 Carry the culture on purpose

Once the founder cannot touch everything, repeat the message, grow your own people and keep standards owned by every leader.

• Repeat the message yourself, again and again. See Ingvar Kamprad, IKEA57:20.
  • Every year Kamprad gave executives and newcomers the same talk based on the Testament, with jokes, stories and tears. IKEA57:20
  • Use vivid language. Herb Kelleher, Southwest38:59 wrote a letter titled commencement of hostilities when United, seven times his size, attacked, and deliberately avoided dull CEO memos.
  • The Testament was distributed to over 100,000 employees. IKEA57:20
  • Kelleher told staff "success must be earned over and over again or it disappears." Southwest38:59
• Train your own people and promote from within. See Hermès46:40.
  • Walt Disney found veterans brought poor habits from cheap pictures. He ran night classes and mandatory studio training for young artists, hired for enthusiasm over experience, and used the same approach at Disneyland. Disney45:27
  • With rivals on assembly lines and nobody to hire, Hermès built its own schools in high-unemployment rural areas and opened a government-sanctioned degree program in 2021. Hermès46:40
  • Costco's CEOs Sinegal and Jelinek both started as teenagers at FedMart, and nearly the whole executive team has 25 years or more at the company. Costco2:33:52
  • Disney's letters to art schools drew 30,000 applicants over a decade. Disney45:27
  • Hermès turnover is about 6%, against about 24% at LVMH. Hermès4:00:00
  • Costco has had only three CEOs and has never done a layoff. Costco2:33:52
• Keep the culture inside units and partners you can control. See Schultz2:12:40.
  • Schultz refused to franchise, though it would have meant no capex, because he viewed the culture as the asset and doubted independent operators could maintain it. Starbucks2:12:40
  • Hermès caps each workshop at 250 to 300 people so everyone knows each other. Hermès46:40
  • Abroad, Starbucks uses country partners who share its values and controls roasting, recipes and store design. About half of the roughly 39,000 stores are licensed this way. Starbucks2:12:40
• Make every leader own the standard, and teach scope. See Bezos0:44.
  • Early on Bezos was the culture. He read every customer email, and his rule was that it has to be perfect, since one bad experience undoes hundreds of good ones. Amazon4:10
  • As the company grew, he used the Howard Hughes rivet scene to tell a senior leader to send work back if it fell short. The point was passed down so each leader owned standards. Amazon0:44
  • Name hidden scope gaps. Weak six-page memos came from the belief they could be done in a day or two. Bezos1:09:00
  • Great memos are written, shared, set aside for a couple of days and edited again, often taking a week or more. Bezos1:09:00
• Never celebrate the win, and keep the edge. See Bill Gates, Microsoft1:05:46.
  • With 20,000 employees in 1997, Gates said no one at Microsoft would hear "we won". He always talked about the challenges ahead. Microsoft1:05:46
  • Jensen Huang says Nvidia's worst enemy is itself. Early on he told monthly meetings the company was 30 days from going out of business. Nvidia6:26
  • Bezos urged fighting the pull to be typical, saying being yourself takes continuous energy and is neither easy nor free. Amazon1:16:20
  • Nvidia went back to a six-month ship cycle after covid and two GTC conferences a year, despite the complexity. Nvidia2:05:56

2.6 Where they differ

Founders disagree on how much to standardize, how close to be to staff, and how hard to push.

• Standardize or let units experiment. This depends on whether the customer needs sameness.
  • Ellison wanted the creativity out of the sales process. Oracle32:10
  • Kamprad hoped IKEA would never have two identical stores. Kinko's Paul Orfalea would not mandate best practices, since that would freeze them as the best they would ever be. IKEA16:06
  • Woodruff's frozen formula and identical cold Coke suit a product whose promise is sameness. Coca-Cola1:23:58
• Be a friend to your team or its judge. The right stance may depend on how much you need hard challenge.
  • Musk told managers they are not friends of their engineers but the judge, because camaraderie makes it hard to challenge each other's work. Elon Musk, SpaceX and Tesla1:14:07
  • Costco and Hermès chose long tenure and loyalty, with no layoffs at Costco and about 6% turnover at Hermès. Costco2:33:52, Hermès4:00:00
• Push relentlessly or protect people from the push. Constant urgency can wear down the people who carry the culture.
  • Gates, Huang and Kelleher kept urgency high. Gates1:05:46, Huang6:26
  • Catmull concluded a motivated, workaholic team could destroy itself if left unchecked. Pixar37:59
• Own it all or sell to local owners. Control matters most where the culture is the product.
  • Woodruff bought and fixed weak bottlers, then resold them to local entrepreneurs. Coca-Cola1:23:58
  • Schultz refused individual franchisees and kept control of roasting, recipes and store design. Starbucks2:12:40