The Epigenetics of Change: Organizational DNA, Executive Leadership and Employee Behavior
Drs. Miles Overholt, Elena Granell and Al Vicere
Eastern and Western approaches to change, health and productivity continue to merge, providing us with additional knowledge and tools to change ourselves. Western neuro-scientists’ research in the field of gene expression, called epigenetics, has confirmed what Eastern philosophy has long held, that we can literally change the way our genetic code is expressed by modifying our thoughts, actions, and environments. Not only can we use this ability to change ourselves, we can harness it, at least at the metaphorical level, to transform our organizations. Using this ancient wisdom and modern western science will help leaders execute strategies more successfully.
Your Brain and Epigenetics
We are creatures of both our DNA and our environment; we are our genes (DNA segments) and our perception of our environment. How our genes and our environment interact determine how we feel, how we behave and how healthy we are. We receive and perceive environmental cues that cause the brain to send messages through our bloodstream to our cells to coordinate specific behaviors and actions. The messages are sent through our bloodstream to our cells and then to our genes by neurohormonal chemicals, such as testosterone, estrogen, serotonin and dopamine. These chemicals trigger genes to express themselves, analogous to an off and on switch. DNA contains your biological blueprint and your environment is the builder.
Our DNA blueprint is modified by our perception of the environment by our brain sending chemical messages to our genes to alter the original blueprint. A child’s genetic code, for example, may “instruct” other cells to build a healthy person, but the child’s environment may minimize those original instructions because the child’s environment has limited access to food, water, and human connections. The environment will not support a child growing robustly so the brain sends chemical messages to alter the original DNA expression. The entire epigenetic process is designed to increase the child’s chances of survival and reproducing.
Gene (DNA) expression is the process of genes being turned “on” or “off.” Perhaps you are genetically (your DNA blueprint) prone to being a happy person but have a traumatic childhood. Your traumatic childhood may trigger your easy going personality genes to shut off, turn on wary and defensive genes and you might become prone to depression or aggression. Your perception of the environment sends signals to activate different cells to take action or no action. If they change due to external environmental factors, your DNA will express itself in ways that it could not before.
At the organizational level, we can apply the same concepts. We can view corporate culture and processes as making up the organization’s DNA. If we wish to express organizational DNA differently, we can apply some of the lessons of epigenetics. These lessons help us view organizational change, leadership, and strategy execution in a new light.
Both organizational and human DNA can be switched off and on by changes in their environments. Sometimes the switch is deliberate and cognitive. Other times, it is reactive or unconscious, and often it is just the natural progression of the inherent development process. Either way, DNA segments are blueprints that can be altered as a response to the environment. Human DNA can be changed consciously and deliberately. Organizational gene expression can be changed consciously and deliberately.
Figure I: The Human Epigenetic Cycle
How does this process work and what does epigenetics teach us (See Figure I: Epigenetic Cycle: How DNA Changes in Humans)? We are all products of the environments we experience. We are a mix of our genes (DNA) and the environments we live in. The old nature versus nurture debate is no longer valid; we develop by the interaction of nature with nurture. Simply put, our genes are triggered by how we perceive and interact with our environment. Our reality is indeed perception.
More specifically, we are born with a defined set of genes, but these genes, segments of our DNA, are just blueprints waiting to be expressed. Our perception of our environment creates the neurohormonal chemicals in the brain that are carried by our blood stream throughout our body, regulating our conscious (i.e. language) and unconscious systems (i.e. breathing or eye blinking). The neurohormonal chemicals tell our genes to switch on and off. Our behavior changes accordingly, driven by our perception of the environment and the expression of our DNA. The process is a continuous cycle of two way change, DNA expression as designed (for example as we age) which changes our perception of the environment, and our environment changing our perception (for example, moving to a foreign culture) which changes our DNA.
Individual Epigenetic Change: An Example
Most of the time the changes in our gene expressions go unnoticed. They are micro climate changes. They happen every day in almost any setting, in any place, and any time. However, sometimes an event or a pause in our routine enables us to step back and make us aware of how we are perceive and behave with our environment.
A manager starts her day off with a contentious meeting. Her peers are unwilling to address an issue that her boss publically stated must be solved today. She sits in the meeting in an environment that is filled with tension and acrimony. She perceives the meeting’s environment to be hostile, and her brain floods her bloodstream with stress hormones which switch on her genes that trigger her flight-fight response. Her heartbeat increases and her breathing becomes shallower. Her mouth is dry and her focus zooms in on several peers who are blaming others for the problem. She is no longer the calm and collected person most know her as. Instead, she is bitingly sarcastic and quick to defend herself. She stays this way until the meeting ends and she leaves.
She walks through a quarter mile of familiar corridors, avoiding talking to anyone but muttering to herself how unreasonable everyone was in the meeting. As she walks, she becomes acutely aware of how much she feels stressed. She enters a small meeting space and waits for a colleague she likes and trusts to arrive. She takes a deep breath but can’t seem to shake the feeling of the last meeting. Her colleague arrives and she says hello with edge in her tone. The colleague sits down and she tells him that he is late. He looks at her and she continues to say that he is late, she is busy and she doesn’t have time to waste if he is unprepared. He says that he too is busy and she better be prepared to work quickly.
She has recreated the hostile environment of her last meeting. She is aggressive, contentious, and prepared for a fight. But she remembers how stressed she is, takes a deep breath, and looks around the room. She realizes she is in a different environment than the last meeting. She tells her colleague that she just was in a terrible meeting and she is tense and upset. He tells her he is stressed from his need to produce three critical documents by the end of the day. They both realize that they are safe with each other and that both are still reacting to their previous meetings and commitments (their environment). Within a few moments, their perception of their environment shifts. Their brains release calming hormones and their heart rates slow and breathing deepens. The manager shifts to her usual way of working, calm and collected, assertive, and focused, as does her colleague. They are ready to work collaboratively.
At the end of the day, the manager goes home and reflects on her stressful day. She wonders why her workplace has such contentious meetings and while other workplaces are reasonable and low stress. Then her mind wanders to a search firm call of two days ago, and her desire to discover if the rest of working world is as miserable as she is in her firm. She decides to call the search firm back.
Three months later she is working in a new firm, at the same salary as before, but she behaves much differently. She has not been in a hostile meeting since she left her previous employer. Although her company is in the same high pressured business as her former company, she seldom feels attacked or needs to defend her work or herself. When she enters the first meeting of her morning, she is alert and focused. Her adrenalin is higher than normal as she prepares to discuss her department’s quarterly performance and what needs to be improved.
Unlike her previous company, however, she is feeling a healthy surge of adrenalin, her fight-flight response has not kicked in, and she looks forward to the morning’s discussion. After the meeting, she pauses to reflect why this company is so different than her former one. Both companies are in the same business and both have a similar mission and purpose. Both are under pressure to perform well and both have excellent compensation packages.
She decided that there were many critical differences between the two that were crucial to her. She found that in her current company she agrees with the strategy. In her old company she would be wondering why management was trying to make a poor strategy work. She no longer feels as if she is pushing a boulder up a mountain. She feels as if her new company will be successful.
The decision making in her new company is consistent and aligned with the strategy. She is no longer micro-managed by directors who are micro-managed by their bosses. She is encouraged to share her ideas and has so far seen no repercussions for questioning the status quo. She explored a different approach to handling the difficult customers that her department seems to encounter daily. No one adamantly defends how the current process works; instead they listen well and discuss her views. She finds that another aspect of her personality, a creative, collaborative side that disappeared in her MBA program, is resurfacing. She has lost the ten pounds she gained since school and feels valued.
Her happiness is fueled by her response to her new company’s culture. Her blood stream is filled with stress reducing neuro-hormonal chemicals that make her more affable and out-going. She is no longer on blood pressure reduction pharmaceuticals. She even found herself talking to a stranger on her train home without complaining what a miserable life she had.
This common occurrence of shifting from one organization to another is a simple example of how individuals perceive their environment. The manager perceived her first company as hostile and unconsciously changed her gene (DNA) expression to which changed her behavior to match her perception of the environment. She felt differently, triggered directly by her neurohormonal chemical shift, and showed a different side of her personality. In her more hostile first employer, she was a defensive and aggressive, using skills sets and behaviors to match her environment.
When she moved to her second company she did not shift her core personality. She certainly still had the skills and determination to fight and battle her peers. However, in her second company, she consciously changed her approach to work with her peers. She was aware that her environment was different and she decided to shift back to her preferred, more affable approach. While her experience is a common one that most of us can identify with, it is also a microcosmic example of how our bodies switch our genes on and off in response to our perceptions of our environment.
In her first company, she was biting and sarcastic as she responded to a highly political, stress filled environment. No wonder in today’s stressed filled environments HR hiring managers emphasize fit to the organization’s culture. In a stressed filled, hostile environment, our manager is likely to throw fuel on the fire and make the situation more contentious. Companies that create highly competitive cultures, which foster competition, often bring out the competitive, fight-flight side of people. Over time employees adopt a more aggressive approach at work which eventually flows into the rest their lives. They have successfully adapted to their organizational environment through the expression of their DNA. In addition, they have added to the stress and hostility that is their organization’s environmental norm.
Organizational DNA and Gene Expression
Organizational DNA is a research based, metaphoric concept that can help executives guide more efficient and rapid change. Organizational DNA expression shapes employees’ mindsets about the company, guides behavior, and establishes the processes that structure daily work. It is the blueprint of the organization.
When a major European industrial electronics manufacturing firm had to reinvent itself and restructure, its executives found that their biggest dilemma was how to re-engage their employees around the new strategy and way of working. When a small U.S. software start-up began to significantly grow, its executives found that their biggest challenge was to instill in its new employees the same passion that drove the startup group to success. Although radically different in size, industry, markets, and location, these two companies had a common problem with a similar solution. Their organizational DNA no longer fully supported their new reality. Their original blueprint continued to express itself in a way that no longer supported their respective restructuring and influx of new employees. The executives needed to switch some genes on, some genes off, to realign the organization.
Once executives identify their organization’s DNA, they can then change its gene expression to align with the new strategy. As the organizational DNA expression is altered, then the employees adapt and change their DNA ̶ the process also works in reverse. The organization can adapt by changing its DNA expression to adjust to the new views, approaches, skills, and behaviors of an influx of new people.
Organizational Epigenetic Cycle
Organizational DNA is composed of the mindsets, behaviors, and processes that guide daily operations. Like the DNA in living organisms, organizational DNA provides the instructions for operating and replicating the organization. The DNA expresses a distinct strategy just as human DNA enables people to achieve their purpose in life. Typically, organizational DNA is created by the organization’s founders and initial employees. It evolves over time as the organization grows. In most organizations, founder DNA is embedded in the organization and often revered. Intel’s Gordon Moore or Vanguard’s John Bogle are excellent examples of founder’s whose vision and approach to work reside in their organization’s DNA.
Organizational DNA consists of four interrelated components or segments (genes) which control different systems in an organization. The four are: (1) strategic drivers, (2) approach to external environment, (3) strategic execution, and (4) people development. They are the drivers of strategy, the relationships with vendors and customers, the daily operations, and the development of human capital. The mix of these four components determines the organization’s ability to execute and defines its capabilities. A shift in any of the four necessitates a change in the other three. Failure to align the DNA with the strategy decreases organizational alignment and creates clumsier performance. Often misalignment drives employees’ cynicism, creates doubt about the true intentions of the change, and encourages employees not to change or to openly resist change.
The Organizational Epigenetic Cycle (see Figure II: Epigenetic Cycle: How DNA is Expressed in Organizations) is similar to that of the human epigenetic cycle. It has two additional steps which reflect how employees change as the organizational DNA expression is altered. As in humans, the organization resides in an environment, perceiving it in multiple ways (Step I – Organization’s Environment). If the executive team believes that environment has changed or is about to change (Step II-Executive Perception), they identify the organization’s current DNA expression (Step III-Current Organization Environment), and how it influences employee behavior (Step IV- Peoples’ Behavior). Next, the executives determine what changes are needed in the current organizational DNA expression to influence employees to behave in ways that support the new strategy (Step V – Change Organization’s DNA Expression). They change how the organization genes’ express so that the employees’ working environment is changed (Step VI – Change People’s DNA Expression), impacting the employees DNA expression and shifting it to support the new strategy with different behavior (Step VII- Behavior Change). Like the human epigenetic cycle, the process is a continuous cycle of two way change. Organizational DNA expressing as designed in the current state, guiding employee behavior and employees’ perceptions influencing and changing the organization’s DNA expression.
Figure II: The Organizational Epigenetic Cycle
Organizations’ Epigenetic Type: How DNA is Expressed in Oganizations
The organizational epigenetic cycle impacts organizations on a macro level with strategic changes, new product introductions, and mergers and acquisitions, as well as on a micro level in day-to-day operations. The macro level epigenetic cycle is often ignored, causing new strategies to flounder and mergers and acquisitions to fail. Executive teams frequently focus their effort in developing a new strategy then returning to managing daily operations without changing the DNA. Instead they initiate projects, focusing on the tasks at hand, instead of how to manage the change by changing the organization’s DNA. The HR change management team then rolls out new job descriptions, trains employees in the new behaviors required, develops messages to support the change, and wonders why the employees are so strongly opposed to the change. The employees are labeled resistant and the change bogs down.
The real culprit is unchanged DNA expression. The old organizational DNA expression encourages employees to behave in one way and the change requires the employees to behave in a new way that conflicts or is not supported by the old DNA expression. The organization is expressing the genes that do not encourage the new behavior. Just like the poor fit with the manager in her contentious and stressful meeting, the failure to change the organization’s DNA expression has created a poor fit for the employees.
To avoid bogging down new strategy implementation, the same thoughtful effort put into creating the new strategy must go into the changing the organization’s DNA expression. The DNA expression must be redesigned to support the new strategy. The executives also must develop an implementation plan consistent with the desired new DNA expression. Then the organization can begin to implement its change. As with the manager, the organization’s DNA expression will encourage different behavior by the employees (DNA expression) if it is given time to express.
Organizational Change: An Example
The epigenetic change process first requires awareness that something has shifted in the market. Again, similar to the manager, awareness of a change or a shift is the trigger. A rapidly growing software company, much bigger and more established than our small software company, with 400 employees is an excellent example of how to drive conscious epigenetic change. The change was triggered by two events: (1) the succession of the founder’s son to CEO, and (2) a growing sense by the executive team that the company was missing significant opportunities in its market.
The CEO, as a young relatively, inexperienced executive, leaned heavily on the opinion of his executive team. His father had died suddenly and he had not expected to become CEO any time soon, if ever. The executive team felt that they had to closely guide the young CEO to protect the company and their jobs. They also had been frustrated by the founder’s reluctance to leverage the company’s products in several markets and to capitalize on their employees’ extensive knowledge of their markets. They felt that the company’s current perception of the market was not as the former CEO had thought. They felt that the former CEO operated the company the same as when he had founded it, in a market that was now significantly different.
The new CEO was receptive to his team’s advice and he commissioned a market study. The results confirmed the executive’s team perspective, cementing their relationship with the new CEO and setting the stage for a major transformation of the company. However, the CEO insisted that he did not want to approach an organizational transformation without significant forethought and careful design. His father had attempted a major transformation several years before and it had created chaos. If the company was going to consider change, he wanted to do it in a thoughtful, deliberate manner.
Consequently, the executive team hired consultants who offered an approach which identified the company’s DNA and a process to change its DNA expression to support the new strategy. Using the marketing study as the basis for strategic change, the consultants led a strategic planning process that identified the strategies, tactics, and operational changes needed to support the new strategy. In terms of epigenetic change, the executive team had developed a new perception of their environment, were aware of the need to change, and identified the ways to change.
The next step in the company’s transformation was to identify its current DNA. The results of the organizational DNA assessment became the foundation for the change process. They identified the organization’s DNA that supported its strategy, its approach to managing operations, customers and suppliers, as well as people development. The current DNA enabled the executives to see the company’s blueprint how it operated. Even a cursory glance at the data revealed many ways that the company could improve by changing its gene expression.
However, the executive team thought that improving the current way of operating the company was not sufficient. Based on the marketing study and their experience, they felt there were much bigger gains to be had if they redesigned the company to be focused on customers in five key markets. The organization’s current DNA expression did not support their new strategy well. Nor did the organization’s gene expression support operations well. If the DNA expression was changed, the company would have much more capability and capacity. In business language, the company was badly misaligned, even for the current strategy. At this point in the process, they had gained a new perception of their markets and their organizational capabilities. They believed that they could change their DNA expression to truly exploit their competitive advantage.
But the CEO was very anxious not to repeat the past error of his father by creating change that the employees resisted and ultimately failed to work. He insisted on stopping in mid-process and reconsidering. He talked with many of his former peers in the company – he had worked in most of the functions as his father groomed him to be an executive. He was a little taken back at the feedback from his former peers. They were very eager to change the company, to exploit the market advantage, and to create a much bigger company. But they were clear that he could not approach the change as his father had done, dictating the changes and insisting he knew best.
The executive team agreed with the employee feedback and pledged to involve the employees in the change. In a town hall meeting, the CEO and the executive team outlined the transformation process. It consisted of five major phases: (I) executive team redesigns the organizational DNA expression at a company-wide level, (II) the company-wide level design is shared with all employees and refined on their feedback, (III) the directors, managers and supervisors design the more specific operating DNA expression for functions, departments, and work groups, (IV) all employees are involved in a testing and refining process that horizontally and vertically aligns the changes in DNA expression, and (V) on-going revisions to DNA expression are managed by a cross-functional, multiple hierarchical-level committee.
The employees were enthusiastic yet cautious. Many spoke up in support of the change and the process while others simply cautioned the CEO to be transparent and patient, not to suddenly abort the process and start dictating as his father had done. The town hall meeting was emotionally powerful and the key to driving the change. The employees had been honest and forthright and were eager to begin the change process.
In Phase I of the transformation process, the executive team conducted a gap analysis between the current DNA assessment and what changes they believed were needed in the future DNA. The changes required creating five major operating units that ran horizontally than vertically, and each was focused on the customer. Support functions such as Finance, HR, and Legal cut vertically across all five operating units. The executives presented the current DNA expression and the high level DNA expression redesign to all employees in a second town hall meeting as Phase II in the process. Employee questions, concerns, and criticism were recorded. After the meeting, the executive team reviewed the feedback and incorporated it into the design. Feedback that was not used was addressed with an explanation of why it had not been used. Most often the feedback not used had been addressed in another form.
Phase III of the transformation process became a memorable experience for all. The directors, managers, and supervisors used the redesigned DNA expression to change how the company worked. Meeting in large and small teams, the management staff reviewed the redesigned DNA expression that were applicable to the new unit they were creating. Then they modified the DNA expression to accommodate the reality in their units and on the floor. They developed interventions to change the DNA expression by conducting a gap analysis process by comparing current gene expression with the redesigned gene expression.
The results of Phase III were detailed blueprints and change plans of how the five operating and the three support units would run on a daily basis. These blueprints were published and shared with all the employees as the first step in Phase IV of the transformation process. In the second step of Phase IV, the entire company tested and refined the new DNA blueprint expression. The results of the testing were taken back to the management teams who incorporated the feedback into the detailed blueprints. At the completion of this phase, the company’s entire DNA expression had been consciously altered by all the employees. The process of altering the company’s DNA expression of course enabled the employees to understand, accept, and embrace the change. Equally important, the process provided a means for the employees to change themselves, express their DNA differently, and behave in a way aligned to the new strategy.
Phase V of the transformation process was essentially a continuous improvement process. As in most transformation efforts, the small and subtle changes that occur as the change is implemented have a significant impact on improving efficiency and effectiveness.
How DNA Expression Links Employees to the Organization
In contrast to the rapidly growing 400 employee software company, which anticipated the need to change DNA expression and engage employees in the process, the European electronics manufacturer and the small US software company both shifted to a new strategy and left their employees in an environment that supported the former strategy. The executives correctly perceived the need to shift strategies, made the changes and failed to change how the company operated. Not only did this leave the companies misaligned with changed strategic DNA expression and unchanged operating DNA expression, but the employees became disengaged. Why?
Figure III: Organizational Gene Segments
Organizational DNA as a metaphor has four segments, or clusters, of genes. Each of the gene segments controls a different aspect of the organization (see figure III: Organizational DNA Segments). The four segments are:
• Strategic Drivers – The gene segment that expresses the strategy
• Strategy Execution – The gene segment that expresses how the organization should be managed
• External Environment – The gene segment that expresses the approach to vendors and customers
• People Development – The gene segment that expresses how to develop the employees
The segments are the drivers of strategy, the relationships with vendors and customers, the daily operations, and the development of human capital. The mix of these four segments and of the DNA expression within each segment determines the organization’s ability to execute and defines its capabilities. A shift in any of the four necessitates a change in the other three. Failure to rebalance the organization decreases organizational alignment and creates clumsier performance.
The European Electronics manufacturer and small US Software Company did not align the Strategic Drivers with the other three segments. The resulting misalignment was confusing at first to both sets of employees. The companies had changed their strategy, spent a great deal of effort to communicate the strategic change, but nothing else changed, thus creating confusion, frustration, cynicism, and anger. The employees were told that the company was different, as evidenced by the new strategy, but they perceived that their working environment was the same. The lack of change in the strategy execution, external environment, and people development DNA segments confused employees.
Employees had to choose which environment they were working in, the new strategy environment or the old operating environment. In epigenetic terms, some employees chose perceiving their working environment as the new strategic one and tried to do their jobs within it. Others chose to perceive their working environment as the old operating environment and chose to work in the old way. Based on their perception, their brain chemistry changed and they behaved differently, one trying to implement the new strategy and the other trying to operate within the old. Both groups were frustrated because new strategy could not be implement in the old environment and the old environment did not work well under the new strategy. Many employees, facing an insolvable problem at their level, disengaged.
Another major problem was caused by the misalignment. The organizational DNA expression creates the working environment. Employees perceive the organizational environment as one that either fits or does not fit their knowledge, skills, and financial needs. Their perceptions, passed through their senses, changes their gene expression and if they chose, alters their behavior to fit within the organizational environment. The act of choosing is critical. They may choose to change to fit with the environment because some or all of the environment appeals to them. In essence, they are making an implicit contract with the organization to behave in a manner consistent with the organizational environment. We believe this is the new employee contract.
The New Employee Contract
Organizational DNA expression creates the environment in which the employees live and work, the daily operating environment. This environment must feel reasonably comfortable, or at least meet the needs of the employee. Employees feel comfortable in an organizational environment if it aligns with their needs and preferences, which have been shaped over time by their personal epigenetic process. In essence, the organization’s DNA and how it expresses has become the new contract between the employee and the organization. When it changes, then the contact is renegotiated in the employee’s mind and often in behavior. When the contract has been changed, employees decide if they wish to remain or leave.
Of course not all aspects of the organizational environment are attractive to all employees. Different employees are attracted to different aspects of the environment. In today’s hyper-competitive world, money is no longer the strongest strand that links employees at all levels to an organization. Knowledge workers in particular, select a job often based on their compatibility with its culture and purpose. They want an environment that fits them, encourages their preferred gene expression. They are selecting workplaces based on epigenetic principles.
They want to work in an organization that challenges them, that provides them with opportunities to learn new skills and strengthen their knowledge bases. Why the company exists, how they are managed, how they will learn and grow, how the organization interacts with its environment, are all critical to employees. How well these four factors fit their preferred style is as important as or more important than salary. These are the unique aspects of the organization’s DNA that link them to the organization and are drivers of their motivation as well as the company’s strategy.
The new employee contract is based on the organization’s DNA and its fit with the individual. Fit and alignment are business terms that describe epigenetic relationships that work well. The individual’s needs and preferences are those that the organization values by its unique DNA configuration and expression.
Individual preference determines the appeal of organizational DNA expression; how well that DNA fits the individual. To some people, the company’s vision and purpose are the compelling reasons to be part of its workforce. People who prefer a compelling purpose often will stay with the company despite poor management, low salaries, and frustrating bureaucracy. Fulfilling the company’s vision and purpose often helps them have meaning and purpose in their lives. Organizations that serve disadvantaged people and those in need present this type of compelling purpose, often attracting highly educated knowledge workers who want to use their professional abilities for the greater good. To these individuals, the organization’s DNA expression through the strategic driver gene segment is the main attraction of an organization.
Other people are motivated by how well the company is managed and how well they treat people. They are not particularly concerned about the company’s purpose or its strategy but rather want to work in a place that values relationships and teamwork. They are looking to work in a company that creates a sense of belonging, of community working together to achieve a common goal. Companies like UPS, well run, with a clear, but not compelling purpose, attract people because of how well they are treated. People who favor this type of connection often find purpose in life outside of work, in family, community, or developing their other talents. To them, the strategic execution segment of DNA and how it expresses is the compelling attraction to work in the organization.
Still others choose to work in an organization because they want to be in its industry, to meet and learn from others in the industry. They value the opportunity to have assignments that provide them with the latitude to demonstrate their ability to make good decisions and to explore opportunities to grow in the market and develop vendors into reliable partners. New York City is filled with struggling actors, directors, writers, and other artists who will take any job just to be in the entertainment industry. They value in particular how the organization links to its external environment, how easily they will be able to connect with either customers, vendors, or competitors. How the organization manages its external environment, the DNA expression that governs these relationships, is of critical importance.
Finally, some people work for an organization because of the opportunities to learn and grow their skills and knowledge base. They joined the organization to take advantage of its development program, to learn fundamental or advanced skills to further their career and earning power, or to have increased job opportunities. Organizations that attract these people are often known for their development programs or the opportunities that an individual will gain as alumnus. How the organizations manages its people development DNA expression is the key attraction for them.
Of course, for most people it is how the organization creates an environment in most of the four segments of genes. Strategy, strategy execution, external work relationships, and people development all have meaning for them. In the new employee contract the “how” has become critical. Employees are very concerned with the organization’s “walk the talk” approach. They no longer are willing to simply accept beautifully articulated vision and mission statements as the criteria to join an organization. Instead, they want to commit to an organization whose DNA expression matches and enhances its vision and mission statement.
Both the European Electronics manufacturer’s and the small US Software company’s DNA expression that originally linked the employees to their organizations’ environments had been deliberately changed to restore or achieve competitive advantage. If indeed organizations are in an era of transient competitive advantage , continuously rotating through the phases of discovering and implementing a fleeting advantage, then they need to change rapidly and efficiently. Modifying and rebalancing their DNA expression will become a new and essential management capability. If management learns to realign its DNA expression with new strategies, then it may avoid the negative consequences that our two companies experienced.
No matter what type of organization individuals prefer, organizational DNA expression is the translator of intent into reality. It creates the organizational culture in which the employees experience the direction and intent of the organization. While the mission and vision of most organizations is a public document, widely disseminated to shareholders, customers, and employees, it is the daily work environment that really conveys the organization’s intent to employees. Organizational DNA expression aligned to mission and vision creates a culture that is consistent, aligned, and “walks its talk.”
When organizational DNA expression is unaligned with mission and vision, it sends mixed messages to employees. A frequent mixed message within some organizations is that customers must be treated with respect, speed, and courtesy while employees are not treated in the same manner. Multiple mixed messages cause many people to question the motivation of the executives and managers of the organization. Misalignment and poorly managed DNA expression breeds distrust, cynicism, and ultimately disengagement.
Back to Epigenetic Change
Our two companies are typical of the tumultuous change that impacts every organization today. Executives are continually making decisions to enter new markets and leave old ones, change or tweak strategy, and improve performance of their organization. As executives make changes, they must be aware that they are altering the entire organism’s DNA expression, that a change in one gene segment will most likely require altering gene expression in other areas of the organization. Changing strategic DNA expression requires executives to understand their organization’s unique DNA, how it expresses and how it impacts employees. In addition, employee involvement is essential in the initial effort and in the continuous improvement of changing DNA expression.
The European industrial electronics manufacturer executive team had hoped that installing an enterprise-wide information system would drive their change in strategy throughout the company. They had assumed that their engineering oriented staff would shift to the new way of working as they received new data provided by the IT system. Instead, the staff pushed back and told management that that they did not want to work in this new way, a team-based, cross-functional, project focused approach. They were worried about how the team approach would impact quality, individual advancement, and overall company performance. They were worried about loss of jobs, management expectations, and performance requirements. In short, they felt that the organizational DNA expression which defined the company had been altered. They were correct that ow they were expected to work on a daily basis was now different, albeit unintentionally. Management needed to intentionally redesign the DNA expression with the intense involvement of the staff to rebuild the organization.
In essence, the staff was reminding the executive team that everyone in the organization shares the risk of the strategy failing and the reward of it succeeding. Everyone in the organization should, as part of their job responsibility, ensure that the organization performs at the highest level. Everyone has a vested interest in the success of the whole organization, and everyone will make a personal assessment of the risk and reward of continuing to work in the organization. The risk and reward of strategic success or failure is therefore a compelling way to engage executives and employees in continually realigning the organization.
Risk and Reward Decisions Alter Organizational DNA Expression
Complimentary Decision Making
Changing strategy and culture in organizations has always required two sets of complementary decision making, one set at the executive level, and one at the employee (individual) level. Executives set the strategy and orchestrate the organization’s ability to execute it. Employees understand the strategy and co-create the ways to execute it, consciously or unconsciously. Executives who do not feel comfortable in the new strategy or the new approach to strategy execution, leave the organization. Employees who do not feel comfortable with the new strategy or the new way of executing it also leave. Both executives and employees are invested in how well the organization manages the risk and rewards of the strategy and strategy execution. Or in many organizations, both executives and employees tune out and perform at a low level.
The decision sets run on parallel paths, each needing the other. Employees need the executives to make the strategic decisions and determine the direction, the executives need the employees to decide to support the strategy and co-create the strategy execution process. These two sets of decisions are symbiotic: both the executives and the employees are dependent on each other to play their role in moving the organization forward. In a well-run organization there is no separating strategy from execution or strategy from daily tactics. Executives traditionally are responsible for all the organization’s DNA expression for strategy and strategy execution. Employees traditionally have no responsibility for DNA expression despite the fact they are indeed are co-creators of the organization’s DNA expression. This traditional divide creates blockages, disconnects and misalignment that often are known by employees but unaddressed by senior management.
This is the essence of epigenetics. The organization is an intertwined, inseparable system. Everyone lives and works within the same environment, headed in the same direction and with the same stakes riding on the outcome: survival. Everyone in the organization is participating in a risk-reward decision-making system. Everyone is impacted by the organization’s DNA and its expression. No one wins if the organization dies.
Strategic Decisions: Risk versus Reward
For the executive team, the risk-reward decision making first centers on setting the strategy and then on ensuring the organization’s ability to execute it. Selecting strategy by altering strategic DNA expression is the process of optimizing the organization’s capabilities to leverage opportunities in the market. Executives cannot separate the organization’s strategy from its ability to execute; neglecting one or the other prevents the organization from achieving its mission. A brilliant strategy is only implemented well by brilliant tacticians. Strategic DNA expression and strategy execution DNA expression are inseparable.
Executives manage the strategic risk-reward balance needed to guide the organization into a market niche where it can thrive. Executives must decide the degree to which the organization should be pursuing market share rather than profits, or whether to copy others’ existing products rather than investing in developing new ones. Both these decisions are about managing risk and reward; about finding and maintaining the right balance between the risk of forsaking profits for market share, or sacrificing market share for increased margins. Strategic tension is inherent in all organizations; every decision is about managing the tension of maintaining the right balance. The secret of managing strategic tension is in the details of altering DNA expression.
If the executives choose to pursue market share and invest in developing new products, they have deliberately decided to forego some profit in the short run. They incur the risk of running out of cash before the new products become profitable. However, they have many tools to minimize the risk. Strategically, they can lengthen the time to market for new products by slowing the pace of development, decreasing the annual development budget and stretching their cash, or they can increase margins on current products to minimize the cash risk.
Conversely, they can focus on maximizing the reward. They can speed the development process in many ways, outsourcing some or most of the new product development, or they can buy new technology and refine it, instead of building it from scratch. They can incrementally improve old products rather than create new ones. Each choice requires making a change in the organization’s strategic DNA expression.
Strategy Execution Decisions: Offsetting Strategic Risk
Each of these strategic decisions to minimize risk and maximize rewards has corresponding choices in the organization’s operating approach which must be made to ensure the strategic choice has the best chance to succeed. The operating choices manage risk and reward if they are aligned with the strategic choices. When not aligned, the operating approach exponentially increases the strategic risk. When the operating DNA expression has not been changed to align with the new strategic DNA expression, then the inherent risk is magnified.
For example, if the executives select their strategic approach to gaining market share through new product development, they need to determine how they are going to offset the risk and manage the inherent tension between pursuing market share, rather than profits. If they choose to move rapidly ahead with new product development, then they may need to ensure that their current products maintain a sufficient margin to finance the development process. To do this, they should realign the strategic execution DNA expression to match the strategy. They need to adjust the measurement and reward systems to encourage rapid development for new products. Concurrently, they need to change the measurement and reward systems for old products, in order to ensure the highest margins and the longest life for the products.
This process is essentially guess-work if not done with the employees at all levels of the organization. Co-creating the new strategic execution processes is critical to ensuring that all the nuances and fine details of daily operations are aligned with the strategy. The co-creation process starts with everyone understanding the strategy and its risks and rewards. It never ends; it is a continuous process of renewal and realignment which is intended to match the changes in the marketplace.
The European industrial electronics manufacturer managed the strategic tension between market share and profit by creating separate units to focus on different market niches. Two of the four units continued to make, sell and service their established high margin products. Their measurement systems, customer processes, and yearly goals were all focused on profitability. The other two units focused on developing new products and new services with existing customers. Their measurement systems, customer processes, and yearly goals were now focused on creating market share and developing new markets. These systems were still focused on high margin products. In these two units, the huge shift in strategic DNA expression was not matched by a similar one in operating DNA expression.
The executive team made these strategic decisions based on extensive market research, analysis of trends and customer interviews. Like many executive teams, after all the work of developing a new strategy, restructuring and implementing an enterprise software system, they had lost the energy and focus to co-create the strategy execution DNA and its expressions with the staff. This left the company caught operating in a new structure without any buy-in from the staff and completely mis-aligned.
Risk and Reward Drive Individual Decisions: Scanning the Environment
The employee makes her risk-reward assessment by closely observing the organization’s behavior, the daily expression of its DNA. When the organization is truly committed to changing its strategy, it will realign its strategy execution DNA expression which are the mindsets, behaviors, and processes required to seamlessly guide the daily work. The employee will carefully watch the transformation process and the resultant changes, assessing if she should also make the necessary mindset and behavioral shifts to align with the new approach. For the employee, the risk-reward decision is first and foremost a decision about fit of the organizational DNA expression to her DNA expression. The better the fit the more likely she will stay.
For executives, the risk-reward decision also is about personal fit. New ownership or a new CEO often triggers a new strategy or new approach to operations. The new owners or new CEO often want to change the organization’s DNA expression to leverage market opportunities or correct execution problems. Current executives assess if they will fit into the new approach, or if they need to seek employment in an organization more suited to their knowledge base, skill set, and preferred way of managing. They assess the organization’s new strategic DNA expression, compare it to their own DNA expression, and assess if they still wish to work in that environment.
During these changes, both executives and employees actively search for the cues that will indicate if there will be a new approach, a resulting shift in DNA expression, and what it might be. Executives contact their favorite headhunters, and employees send out resumes and search the internet for job opportunities. Everyone is intently assessing their personal risk and reward in the new approach to strategy and operations.
As the startup software company rapidly grew, it became larger and more complex than the founder and the original employees could manage. Everyone from the founder to the service people in the field felt the impact of a company that had outgrown its processes. The founder hired an experienced senior level director from a global company to become the COO. He agreed to accept the position only if the founder moved to chairman of the board after two years and he became CEO.
During the first year, the changes driven by the COO were welcomed and many major blockages to the staff’s ability to perform well were removed. The COO was realigning the strategy with strategy execution, deliberately altering DNA expression. Sales increased, costs leveled, and the company became highly profitable while continuing to grow. In the second year of the COO’s tenure, a small acquisition was integrated into the company causing another change in organizational DNA expression. Soon after the acquisition, the original managers and staff began to leave the company.
The departing staff left for different reasons, but they were all clear that the company was no longer the one that they had joined years ago. Some disagreed with the strategic changes, feeling the new COO over-emphasized growth, while they believed that the company needed to establish itself in the market more strongly before raising prices. Others felt that the company was no longer personal, that their supervisors had become bosses instead of coaches, and the changes in their scope of responsibility limited their opportunities within the industry. The COO had changed the DNA expression, changing the employee contract. Many no longer felt as if they fit. The strategic and working environment had changed. Many employees’ DNA expression no longer fit with the organization’s DNA expression.
The net impact was almost all of the original staff had sought employment elsewhere by the time the founder moved to his new role as Board Chair and the COO was fully in command. The DNA expression that linked them to the organization had changed and they had decided to leave. Each was looking for a role in an organization that was similar to what they had experienced when the founder was leading the company.
The COO knew how he wanted to structure the company to reach the next level. He altered the company’s risk and reward strategic equation and reshaped the organization’s DNA expression deliberately and thoroughly. He understood that altering the basic blueprint of the organization would cause some experienced talent to leave. He counterbalanced the loss with hiring of new people who had experience in organizations’ similar to the DNA expression he wanted in his organization. The new hires brought a knowledge of how to work in a larger company which matched the organization’s altered DNA expression.
The individuals who left also managed their personal set of risks and rewards. The organizational DNA expression during the company’s start-up stage met more of their personal preferences. For some, the excitement of starting something from scratch was very compelling. For others, working in a small, informal environment in which everyone helped on all the tasks, no matter their position, was fulfilling. And for others, the opportunity to take a job with a supplier or a customer was a better option than staying in a company where management had changed. Better for those individuals to start over again in another company than to stay. They changed to organizational environments that better fit their DNA expression.
The new brain science teaches us that individuals can alter their DNA expression by recognizing changes in their environment. This change is driven by self-perception which triggers changes in the neurohormonal system. The neurohormonal system in turn changes how the individual’s genes express and consequently their behavior changes.
Organizations change in the same way, metaphorically. Executives perceive changes in the environment, develop or alter a strategy, and then communicate the change to the employees. If the executives also change how the organization’s DNA expresses by altering the mindsets, processes, and behaviors, then the strategic change can be implemented smoothly. However, if the executives do not change the organization’s DNA expression, then the organization is misaligned and the changes are not likely to be effective.
To successfully change organizational DNA expression, executives need to involve employees in a conscious, intentional process of change. In this process, the employees participate in changing the organization’s DNA expression. Involvement in the change process enables them to observe and understand the changes at a personal level. Identifying what needs to change, developing tactics to make them change, provides employees with the opportunity to make a conscious choice to change their own DNA expression to support the new strategy.
Changing organization and individual DNA expression requires a risk-reward decision. For organizations, any shift in strategy requires a corresponding shift in DNA expression to support the strategy and to compensate for the risk inherent in the strategy. For an individual, any shift in the organization’s DNA expression, requires a shift in their behavior that may or may not be advantageous to their personal goals and working preferences.