A winning strategy does not a winner make. Companies around the world are coming to the realization that the right strategy is crucial but not always sufficient. And when great strategies fail, leaders often instinctively know the reason. Their next question is, How do we fix our culture?

Easier asked than accomplished. To change a corporate culture means to change the attitudes, values, and habits that persist under the surface, adding up to a tacit consensus about “what’s OK and what’s not OK to do in this company.” When a new strategy doesn’t succeed, the culture is indeed often the cause, but not because the old culture is “wrong.” Rather, some aspect of the new strategy has unintentionally contradicted (or seemed to contradict) the generally accepted behavior. For example, some automobile companies, copying Toyota’s example, have tried to institute new product development methods where engineers talk openly about common design problems. But this contradicted a cultural rule: Do not name a problem without offering a solution.

A manager who seeks to change a culture must ask two questions before taking action. The first is the province of philosophers: Why must the organization make this change? In other words, what are the new goals — tactical, strategic, and cultural — we are taking on?

The second question is the province of engineers: What kinds of means and mechanisms must the company set into place to help realize this change? In other words, what can we design and implement to give our new goals the legitimacy they need?

The philosopher’s work might be called purpose; it involves deliberately choosing an identity that resonates with both the corporate goals and the human condition. The engineer’s domain could be called the organizational DNA; like the work of genetic engineering, it establishes the structural parameters that shape the growth and evolution of the enterprise.

Without the philosopher, the engineer’s work has no anchor and no clear sense of direction. Without the engineer, the philosopher’s new concept is just another form of preaching, and it won’t change anyone’s actual behavior. If the purpose and DNA don’t fit together well, and therefore confuse people, they can set back a strategy completely; that’s why a leader needs to ensure that they are aligned.

1. Establishing Purpose
Suppose, then, that you are the CEO of a company that has embarked on a new strategy. Perhaps your operations have been confined within one region until now, and you see that you must expand to a global presence. Or perhaps your most established line of business is threatened by new competition.

Many books on change will tell you to start by declaring a grand vision — or, as Jerry Porras and Jim Collins put it famously in their book Built to Last (HarperBusiness, 1994), a “big hairy audacious goal” — but experience shows us that some big hairy audacious goals are more effective than others.

For companies in the 21st century, only four types of broad goals resonate with employees, shareholders, and customers:

• To make new discoveries and bring them to the world first
• To create excellent products and services, intrinsically best by any important standard
• To serve customers, employees, or other stakeholders altruistically in a way that creates the greatest happiness for the most people
• To heroically master one’s destiny and thereby demonstrate superiority over competitors, the business environment, and destiny itself

These four goals, or purposes — discovery, excellence, altruism, and heroism — represent four sets of cultural ideals. Although companies don’t need to choose one of these purposes to succeed in the short term, any long-standing corporate success requires adopting a deliberate purpose beyond simply making money. These four resonate with personal aspirations and values, inspiring brand loyalty among customers, adding credibility and coherence for investors, and prompting employees to go the extra mile.

2. Aligning Organizational DNA
Having chosen and articulated discovery, excellence, altruism, or heroism as your purpose, it is still necessary to make the changes that will recast peoples’ behavior. That is the work of the engineer.

Values and behaviors can change over time because they are guided by at least four elements of an organization’s design. Like the basic proteins of our own DNA, these four elements serve as the “building blocks” of an organization’s DNA; in different combinations, these elements can produce very different organizational cultures:

• Structure. The hierarchical chains that determine lines of reporting authority and answer the question, Who is your boss?
• Decision rights. The formal rules about who is allowed to make and execute particular choices.
• Information flow. The patterns of connection among people who communicate regularly.
• Motivators. The incentives, rewards, and risks that people associate with behavior.

If you examine the symptoms of a dysfunctional culture (for example, second-guessed decisions, hoarded information, or frustrated employees), you’ll discover that the root causes of this dysfunction can all be traced back to misalignments among these four organizational elements. These collectively determine how the organization looks and acts each day as the individuals within it make countless trade-offs and judgment calls.

As you might guess, companies have different purposes and each works best with an organizational DNA design that is aligned with that purpose. For example, discovery, excellence, altruism, and heroism are each strong motivators of people; but in misaligned companies, the formal incentives undermine those motivations. A company predisposed to excellence will lose essential people when it tries to give everyone similar compensation, regardless of performance.