Third and final part of a series where Silicon Valley’s longest serving CEO chats with Professor Jennifer Chatman, a Distinguished Professor of Management and the Associate Dean for Learning Strategies at the Haas School of Business at UC Berkeley.
Professor Chatman is also the Director of the Berkeley Culture Initiative, a program with the goal of identifying the most promising opportunities and challenges facing leaders who harness organizational culture as a strategic resource.
Guy Smith: Welcome to the third and final episode in this three part series of the Tough Things First podcast, where with the help of an expert and the experience of Silicon Valley’s longest serving CEO, we are exploring the topic of corporate culture, what it is, how you shape it, how it facilitates innovation, performance, and everything else that’s necessary for your company. Now, if you did not absorb the first two installments of this series, you might want to give them a listen first. We cover how leaders shape culture, how and why it affects innovation. And in Silicon Valley, innovation is everything. So today we’re going to wrap up the discussion and we’re going to talk about challenge and performance.
Now for this series, we’re joined by Professor Jennifer Chatman, distinguished professor of management and the Associate Dean for learning strategies at the Haas School of Business at UC Berkeley. Professor Chatman is also the Director of the Berkeley Culture Initiative, a program with the distinct goal of identifying the most promising opportunities and challenges facing leaders who harness organizational culture as a strategic resource. So, welcome Professor Chatman, and thank you for joining with us for these three episodes.
Professor Chatman: It’s great to be back again, Guy.
Guy Smith: Wonderful. And as always, Ray Zinn, Silicon Valley’s longest serving CEO and a fellow who knows a heck of a lot himself about positive corporate cultures. Hello, Ray.
Ray Zinn: Hi, Guy. Thank you for helping us put this series together. And again, express a deep appreciation to Dr. Chatman for her willingness to help us with this important series.
Guy Smith: We’re going to start this one just a little bit different. Really, I’m going to pitch a question to Ray because I suspect you have faced more than a few culture change moments in the 37 years that you led Micrel’s semiconductor. So tell us a little bit of your perspective about leading an organization culture change. And then if you will, professor, discuss why changing culture can increase team and organizational performance. So Ray, what kind of organizational culture changes did you have to work your way through?
Ray Zinn: Well, life is a learning process. I mean, when we stop learning, we actually die. So, I just learned in my previous job before starting Micrel, I learned by being an employee at these various other companies, what seemed to work and what didn’t work. I’m a student. I’ve always been a student my whole life. Even though I got a master’s degree in business, I still felt I had more to learn. And so I really studied all these different companies and what seems to work and what didn’t work. Even if I didn’t work for them, I would look at them. For example, Jack Welch at GE. I Looked at what he was doing, what worked for him.
And so I really, really am a student of what works and what doesn’t work. And I try to take the best of these different companies and what worked for them and tried to incorporate them, or not tried, I did incorporate them at Micrel, the company that I founded and ran for 37 years. So was that book, Good, Better, Better, or Good, Better, Best, or whatever it is. And so I just wanted to make Micrel the best that there is in the world as far as a company. And that means I had to have the best or the very best culture. So, I learned because I worked at different companies for a number of years what worked and what I thought didn’t work. So that’s how I got started on Micrel. And then I just kept perfecting it and working until I got to the point where I thought that we could be a very efficient and productive company. In fact, Micrel was considered to be the biggest little company in the world.
Guy Smith: So professor, talk to us a little bit about changing culture and how this relates to increasing team and organizational performance.
Professor Chatman: Well, sure. So in the first two podcasts, we talked about the three criteria for developing an effective culture. The culture needs to be strategically relevant, strong, and adaptive over time. And so if you look at your organization and recognize there are some gaps between where you’d like to be in terms of those three criteria and where your organization actually is, well, that means you have a change project on your hands. And so we talk about there being four levers for changing a culture when you have gaps. And the four levers are pretty straightforward, and these are good places to start to look for ways of making your culture more effective, leveraging your culture for strategic success. So let me just talk through briefly what each of the four is.
The first one is who you recruit. So if you’re going to change your culture, particularly with regard to increasing the strategic alignment, it usually means that you’re going to get people more focused on certain priorities over other priorities. We talked in our first podcast about quality being a high priority at Micrel. So what this would mean is that you start to build into your recruiting processes, ways of finding people who really value quality and who have demonstrated expertise in quality. And that’s a great way to start getting more people in the door who already resonate with the culture that you’re trying to cultivate.
The second lever is what to do with the folks who are already within your organization. And the good news here is if you talk about employment as a make versus buy decision, what my research has shown is that you can actually get greater cultural change not by who you hire, but more from how you orient people who are already within your organization. It turns out that even though you think this isn’t true, people actually have a lot of range can easily, not easily, but can definitely reprioritize and learn new behaviors. So what this means is that you need to develop training practices and orientation processes and promotion paths that enable people to reorient around the cultural priorities that are more closely aligned with your strategy. So that’s your second option.
Your third option is the reward system. And luckily here, we’re not talking just about the financial side of the reward system. We’re talking about informal rewards. Who do you recognize? What do you celebrate? Who are the stars in your organization? And these are opportunities to help clarify for people what’s really important to the organization. When you celebrate people who have all contributed to, say, a quality effort, and that’s your top strategic priority, then people learn vicariously that prioritizing quality is a good idea, and they themselves will adopt those practices as well.
And the final lever, and this one is super important and I know Ray has a lot to say about this one, is how leaders behave. Of course, leaders are signal generators in organizations, and unless you have a level of consistency and adherence to the culture among leaders, you’re never going to be able to get employees to believe that you’re serious about those changes. So leaders really have to be all in, in terms of prioritizing the cultural attributes that are important for your organization strategically. So let me stop there because I know Ray will have a lot to say about this.
Ray Zinn: Well, thank you, Jennifer. In fact what I would do, and this is something I started at the very beginning of the company when I opened the doors. When I met with the people who would report to me, again, it’s that watered down effect, how the company is going to filter down its culture, is I would tell my execs. I said, “Okay, I’m not here to make you rich. That’s your job. You’re responsible to make yourself rich. What I will do and what my goal is, is to help you become a better person, a better father, a better mother, a better husband, a better wife, a better citizen. My goal is to help you become a better person.” That goes to quality. See, that improves the quality of the people. So better people make better employees. So that was my goal to get the proper quality, was to make sure that the people themselves were high quality, which means they would become better at everything, better parents, better spouses, better citizens.
And I honestly had a program that would recognize that. In other words, we had the employee of the quarter program where we actually recognized other people outside the department, of that employee’s department, would recommend them as an outstanding employee of the quarter, not just because of their technical knowledge or whatever, but also how they interacted with what we call intra departmental relationships, where it’s how well did they work outside the department. And so that’s why we had people outside the department recommend people in another department as the employee of the quarter. We had about 12 people that we would recognize each quarter, and then we would have a dinner and then we’d give some awards out to them, and they really looked forward to. That was probably one of the most exciting programs that we had was doing that outstanding employee of the quarter.
Again, these were not inter departmental, these were intra departmental. So, these are people who were recommended outside their department. And we just emphasized so much how we can help each other become better people. And that really worked for getting high quality. And that’s what Micrel was known for, was its quality. And so, that falls along with having an executable strategic culture. And that’s the way I did it, Jennifer.
Professor Chatman: Well, what I love about that example, Ray, is it’s a comprehensive view of [inaudible 00:12:38] broad view. And essentially what you’re saying to people in your organization is, “Listen, you can’t fake it here. Quality is the essence of what we do, and we want it to be something that you completely embrace, and not only embrace, but embody yourself.” I think that that’s a really terrific example of the importance of really orienting people toward the full message of what you’re trying to do within your organization. And I also love the idea that, independent of the financial goals of an organization or the financial goals of individuals, that you’re thinking about giving people a forum for self improvement themselves, which I think is a really outstanding option. People spend a lot of time at work these days, and the idea that they could be inspired by the chance to really step up and develop some qualities within themselves that they feel good about, I think is really impressive.
Ray Zinn: Well, that was part of the review system that we would do once a year, is to rate them, review them based on improvements that they made, not just in their particular job function, but as a person. How have they improved individually? Again, goes to quality, again to our whole function, our whole focus on quality and reliability. We had the lowest turnover in the industry. I mean, we had one-half the turnover of our industry, and we had the best boomerang effect, which means we had the most employees who left the company and then wanted to return. So half of the employees that left our company, Micrel, returned, one-half. And they just said, once they got outside and found out, gee whiz, the culture at these other companies is nothing like it at Micrel. They wanted to come back. And some of them would take a pay cut just to come back. Not that we’d asked them to, but they’d be saying, “Hey, what does it take for me to get back into the company again?”
And so you can imagine how beneficial that was because turnover is expensive. When you have to replace people, that’s a cost to the company. And so if you can minimize your turnover, you really will reduce your costs. Micrel was a very profitable company. We were profitable 36 out of 37 years. It’s only one year that we were not profitable, and that was in 2002, when we had to shut down a fab because of the implosion of the dot com. We had way too much production capacity. And so we cut back facility, and even in doing that, that one year, 2002, we only lost $50,000 on a gap basis. Out of a few hundred million dollars in revenue, we only lost $50,000. And that’s the worst loss we had in 37 years.
So, the company has been highly profitable because we cared about our people. The focus of our company was we care about you. We care about people. We care about your families. We want to do what we can to help you and your family. And so whenever I told my execs, whenever you meet with your people, ask them how their family is, ask them how Susie is, how Johnny is, show interest in their family. That’s what I would like them to focus on. And that really paid off. We had probably the highest morale of any company, maybe in the world. I don’t know. But very, very high morale at Micrel because we really showed how much we cared about them as individuals.
Professor Chatman: That’s a great story about the consistency and comprehensiveness of your culture at Micrel. And I think there’s a really important lesson there that the organizations that actually benefit from their cultures are the ones that are deliberate about their culture. And you can only have consistency and comprehensiveness if you’re being thoughtful about aligning that culture with your strategic priorities, about being adaptive over time and about the levers that you can use to ensure that you’re creating and cultivating a culture that helps you, rather than one that evolves independently and could potentially wind up hurting an organization’s ability to get things done. The Micrel case, I think, is a really interesting example of how deliberate you were, Ray, as a leader in cultivating an effective culture on all of these different criteria.
And again, I’m just struck by how far ahead of your time you were, because at the time that you were starting the company and running it, it was not a very popular thing to be thinking about organizational culture. We didn’t know a lot about it. We didn’t really understand its importance. We weren’t being very systematic about it. And yet you were able to really develop a consistent and comprehensive culture that clearly helped the organization to be very successful.
Ray Zinn: Well, thank you. And actually, I know this may sound a little bit trite, but it’s a matter of loving your people. Loving has a very strong attribute to it because it’s caring, it’s kindness, it’s consideration. That’s what we wanted them to feel. We wanted them to feel how concerned we were about their success, not just about the company. We were concerned about them being successful as an individual, and by so doing, they were very concerned about the success of the products, the success of the company itself. So what comes around, goes around. So, I know that not every company thinks about how much they love their people and how much they’re willing to go to bat for their people, but we did at Micrel. We certainly wanted everybody to feel loved and felt important.
So I want to, again, thank you, Jenny. I know your time is precious and I know how much we appreciate you taking the time to help us do this series of podcasts on culture, because again, it’s one of the most important subjects that I think that companies can learn is having the right kind of culture to help their employees grow and become successful. And not so much about how they make their company successful, but what comes around, goes around. If your people feel loved, if they feel important, if they feel they have a contribution to be made, then your company will be successful no matter what product or service you provide. So again, care about your people, and if you do, you will see it. It’ll come back in spades.
Guy Smith: Well, thank you, both professor and Ray for this three part series. It has been enlightening on many different fronts. And in Silicon Valley where the need for culture exists in spades, so to speak, so that innovation can flourish, I think it’s going to help a lot of the start-ups there to be purposeful about their culture from the beginning. And so for you listeners, thank you very much for tuning in. Rate and review us while you have the phone in your hand, share your love for this podcast with other people that you know, and tune in for the next episode of Tough Things First, coming to you very soon.